Here is my best current snapshot of where we are today with DISK.
The customized warehouse software has taken longer than anyone would have thought... but for those of us who actually work in the software field, that's not too surprising. The downside for these problems is the loss in timeliness. Namely, if DISK alredy had a fully functioning automatic distribution facility out of Las Vegas, the big boys like Reel.com and Amazon.com would be more likely to work with them rather than think about ramping up their own warehouses. Also, the stock price suffers, as we have seen DISK fall from double digits to below $6 before this little comeback. There is some good spin on the software problems: (1) If DISK is having this much trouble, think of the development as being an entry barrier to their fulfillment business for competitors. (2) They are still doing well despite not having the LV warehouse online and having to do things out of their more antiquated facility in Chatsworth. [As a side note: I found out that their Chatsworth warehouse had automated the laserdisc side but still had manual processing of DVD. So we'll see a big jump in productivity on the DVD side with the LV facility]
There is definite hope, though, that things will be resolved by the end of this month as the "crack" programming team now practically lives in the LV warehouse until things are 100% resolved. The software company is customizing and extending their software so much, that Image Entertainment could actually be considered the "beta" for their next version of software. We will not see a press release, though, until the warehouse is fully operational. Hopefully, we will see a press release sometime by the end of this month.
As noted earlier, kencranes.com dropped the prices on their DVDs to stay competitive. They now operate with 30% discounts but will change their shipping policy. The key things with regard to kencranes.com is (1) they are still profitable, (2) they got a big increase in orders as soon as they dropped their prices. [Rumor is 40% increase on day of drop although I have no further information to see if that has (most likely) tapered.] Kencranes.com seems to have a loyal following that would buy through that site if they are competitive. This is very much like the loyalty some Amazon.com customers have, so that as long as their prices are in the same ballpark as the undercutters (like buy.com), they will shop at Amazon.com for convenience. Kencranes.com is currently doing as much business as they can possible handle and with the price drop, I'm not sure how they are handling the increase in orders. Kencranes.com should be hooked into the automated LV warehouse a month after it is declared fully functional. This would immediately increase their inventory and allow very rapid turnaround. There is also some (unknown at this time) financial benefits of using the new warehouse since the whole shipping/inventory process is streamlined. I would look for two press releases in the next 2 months: one for the opening of the LV warehouse, and another for kencranes.com being optimized for shipping [about 1 mo. after the first hopefully]. I agree with other posters that LDs are dropping in volume fast, but that DVDs are growing faster than most people expected. I would hope that DISK starts grabbing up additional domain names that are available and just redirecting the traffic to kencranes.com... that way, they don't have to change the name of the e-tailer but can still advertise using an additional more DVD-centric way.
The 3rd-party fulfillment business for DISK will be underway when the LV facility gets fully debugged. Any deal with Reel.com or Amazon.com or the big players will be fantastic. However, I'd expect those deals to be difficult since those big e-tailers deal with enough volume to possible take on an inventory themselves. There is, however, a strong argument for why Amazon.com *will* try to outsource inventory since they are becoming a Wal-Mart on the web; past articles discussing their strategies indicate they will only build warehouses necessary to guarantee fast delivery and ensure customer satisfaction. Their forte is in the front-end, not the back-end. So if DISK can get that LV warehouse up and running ASAP, I think they have a good shot at companies like Amazon.com IMHO. In any case, though, DISK will have excellent chances with all the smaller e-tailers who can't afford to carry big inventories and build warehouses. By the way, I've heard the rumors about immediate expansion of the warehouse are untrue. Expansion is possible in the future but throughput of the LV facility will increase as the software bugs are removed. [Any more info on this?]
Image Entertainment is starting to beef up their in-house digital production facilities. They had a recent hire that will be heading up an in-house authoring and compression studio. You can see the press release below for the previous out-sourcing they did for the compression outsourcing:
image-entertainment.com
Currently, such outsourcing can cost on average $7,000 per title. The cost varies significantly depending on the complexity of the navigation and content for a title. There is some estimate that moving post-production work in-house will lower that cost to a much smaller $1,500 per title. That kind of savings adds up quickly when you are cranking out titles at DISK's rate.
I continue to be very bullish on DISK and have accumulated shares over the last 2 weeks. This pullback is probably from people expecting quick news and run-ups based on the internet store. I expect the bugs in LV warehouse to be eventually exterminated. The bottom line is that DISK is finally in a business that is booming, whereas they have had to keep their head above water for the last few years with the dying laserdisc market. They now have a product that people want and want badly from all the numbers. Furthermore, their % of revenue from exclusive or licensed titles in DVD is very high... much higher than most would have expected given that DVD is to replace the VHS tape market. From the last earnings report, we have "During the December 1998 quarter, approximately 51% of total DVD net sales were derived from exclusively distributed or licensed programming versus approximately 44% for the December 1997 quarter." Regardless of whether those titles are small or non-blockbuster, there is demand for them. As DVD rentals increase, do you think the rental stores will ONLY stock blockbusters? Clearly not. Nimbus, one of the big DVD/CD manufacturers, is based around here. I recently chatted with someone there and he said DVD production is going gangbusters... really really big increase in volume.
Regarding DTS, DISK has exclusive licensing of some aspects of the DTS market but the big movies with DTS soundtracks are also distributed by the studios. However, there is some indication that since DISK handles the full spectrum of DTS, they are the *preferred* distributor for some players since they are a one-stop shop. This points to a more interesting competitive advantage: even partial exclusive deals are beneficial since they differentiate your distribution capability from the competitors.
And yes, DISK will eventually look at DVD computer software.
So to sum up, DISK needs to do the following:
1) Get the LV facility up 100%.
2) Move kencranes.com fulfillment through the LV facility then ADVERTISE once kencranes.com can handle the volume. Get a good domain name and pass visitors through to kencranes.com.
3) Eventually close up Chatworth warehouse.
4) Handle all aspects of DVD production in-house to lower production costs.
5) Grab as much of the content out there as possible in hopefully exclusive deals.
6) Become the 3rd party fulfillment house of choice for e-tailers.
7) Make lots of money so stockholders become rich.
I'm particularly interested in #7 :) If they get a good position in the DVD market OR they develop a good e-tailing business through kencranes.com OR they become a preferred fulfillment house for e-tailers, then the fundamentals of the company will get much better and the stock price will go with it.
-Bill
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