Technicolor focuses on future after layoffs: HD-DVD format, other units cited for growth.

In the wake of layoffs from its home entertainment division, Technicolor looks to the new high definition format of discs as a means to rebound in the DVD market.

The company announced last month it would let go more than 600 employees from its DVD replication, packaging and distribution facility in Camarillo.

The home entertainment division is just one of four divisions in the company and the layoffs do not change the viability of the company overall, spokesman Tom Bracken said.

Technicolor is growing in other areas, such as its digital cinema, network services, and post-production and content services divisions.

The home entertainment division, however, is one that is susceptible to outside market forces and the layoffs were a response to a trend of a slowing growth rate for DVDs.

"We are reaching peak rates for standard definition," Bracken said. "We expect in the coming years that the business will take off again as we transition to the high definition format."

Technicolor will maintain its Blu-Ray and HD DVD manufacturing lines in Camarillo, as well as its DVD mastering and test disc production. Those production lines began operating in late 2005.

The production of Blu-Ray and HD DVD can be adjusted depending on market demands, Bracken said.

The studios debuted films on the competing Blu-Ray and HD DVD formats last year. The discs can hold up to three times more data than standard definition discs. Universal Pictures exclusively backs HD DVD while Disney, Sony Pictures, MGM and 20th Century Fox put their weight behind Blu-Ray.

Later this year, Warner Bros. will begin selling a single disc containing both formats.

That there are two formats and the equipment with which to watch the discs is pricey has made the public take a wait and see approach of moving too quickly away from standard definition discs.

DVD sales went from healthy double digits to a decline in revenues faster than what the studios and investment community had expected and there is a hope in the industry the new formats will help pick up the growth rate, said Gigi Johnson, a lecturer at the UCLA Anderson School of Management's Entertainment and Media Management Institute.

In the meantime, the studios did some restructuring of their own as they face the likelihood that digital distribution will take hold, Johnson said.

"So part of this is how do you staff for a fairly uncertain world where more and more people are getting used to watching video content online," Johnson said.

A total of more than 600 positions will be eliminated from Technicolor's Camarillo facility. One hundred twenty workers were let go Jan. 17 with the balance to be laid off by the summer. The facility had 2,000 employees several years ago.

The restructuring ripples across the U.S. and even the Atlantic as facilities in downstate Illinois and Europe will cease production and the work will be sent elsewhere.

Altogether, 1,200 positions will be eliminated in the U.S.

The company has the capacity to produce 1.7 billion DVDs annually. Technicolor and Cinram, a Canadian company, are the two major producers of the discs.

The Camarillo facility houses DVD replication, packaging and distribution.

The manufacturing jobs will be taken over by a plant in Guadalajara, Mexico. Consolidation of packaging and distribution takes place among plants in Tennessee, Michigan, Canada, and Mexico, Bracken said.

Hard hit by the restructuring is Pinckneyville, a small downstate Illinois town of 5,500, where the manufacturing plant will be shuttered at the end of March.

In January 2006, Technicolor eliminated the DVD packaging division in Pinckneyville, costing more than 200 jobs.

Also affected are manufacturing and packaging plants in Wales and Luxembourg that will close and the work sent to a low-cost center in Poland.

In Camarillo, the state's employment development department visited the facility to offer assistance.

A company sponsored job fair took place Feb. 1 to give laid off workers opportunities to find new work with area employers, Bracken said.

Figures from the Digital Entertainment Group, a trade organization tracking the DVD industry, bear out a decline in total home entertainment purchases although spending remains solid.

The combination of sales and rental was $24.2 billion in 2006, down from $24.3 billion from 2005 and $24.5 billion in 2004, the DEG reported.

Kagan Research forecast last January that sales of television shows on DVD would hit a peak of $2.71 billion in 2006 and then gradually decline over the next six years.

There's little disagreement that the DVD market has matured, with anyone who was going to buy a DVD player having already done so.

So the pressure is on to reduce the cost of DVDs as well as to change theatrical distribution patterns to assist with the sales of the discs, said Bob Gustafson, an associate professor in the Department of Cinema and Television Arts at California State University Northridge.

With studios not recouping the costs of a feature film through the box office, the home entertainment market is the avenue to make up the loss.

The longer a film stays in the theaters, the more it will cut into DVD sales, Gustafson said.

"Add in slowing sales and rentals of DVDs and that leads to what happens at Technicolor," Gustafson added.

Studios are squeezed from all sides whether it's from big name retailers or consumers wanting cheaper pricing and they are now passing that same pressure on to Technicolor, Johnson said.

With the studios having released their back catalogues on DVD and only so much retail space to display product, it is cutthroat to get a sale.

"How do you eek out the next DVD sale from the consumer?" Johnson asked. "You need to figure out how to make it attractive pricewise."

BY MARK R. MADLER

Staff Reporter