Temporary glut plus patent royalty demands prompt disc prices to climb.
CD-Recordable media will possibly cost as much as 350 percent over the lowest CD-R media prices seen this past year, by the end of this summer.
Discs are expected to cost 30 to 35 cents on average, after being "down as low as 10 cents a disc" on a spindle, says Peter Brown, removable-storage analyst at IDC.
While that percentage increase seems like a lot, it's still less than last year's average cost for CD-R media, pegged by IDC at 47 cents per disc.
However, the increase in CD-R media prices lowers pressure on CD-Rewritable media, which should stay around current prices (about 70 cents per disc) instead of dropping. The reason is that CD-RW media is less affected by market fluctuations; the formulation of rewritable discs is a costlier process. Plus, adds Brown, "The volumes are still not going to be quite as much as you're seeing with CD-R media."
Announcements of price hikes are pending from CD media sellers Memorex, TDK, and Verbatim, a subsidiary of Japanese giant Mitsubishi Chemical. A TDK spokesperson declines to say how soon consumers will notice the hike, but says it will be substantial in relation to where the prices are now.
Fixed patent royalties added to pricing pressures. In a market with sinking prices due to overproduction, companies still had to pay Philips, Sony, and Taiyo Yuden for every disc manufactured, at a fixed rate of 8.3 cents per disc--which accounts for 32 to 41 percent of a CD-R disc's production costs.
Under that royalty rate, a CD-R disc should have cost more than 50 cents at retail, not the 25 cents or less many discs sold for last year, says Robert Tsai, marketing and sales manager at Hotan, the U.S. subsidiary of Taiwan's CMC Magnetics. CMC Magnetics manufactures CD media.
That ruling touched off tension between the manufacturers and the patent holders--but eventually led to renegotiated royalty fees. It prompted a restructuring of the CD-R Disc Patent License Agreement that Philips handles for itself, Sony, and Taiyo Yuden. Philips also began offering a way for manufacturers to strike separate deals with each of the patent holders. CMC is the first company to sign on to Philips's new royalty structure, and has negotiated a fee of 4.5 cents per disc. (Separate deals will be negotiated with Sony and Taiyo Yuden.) And consumers, Tsai says, can expect discs to sell for about 35 to 40 cents at retail.