TORONTO - Cinram International has lost a major contract with Warner Home Video and the chief executive of the disc manufacturer says he is still assessing how deeply the company will be affected by the loss of one of its biggest customers -- a move that almost certainly will result in major layoffs.
"Obviously, 28 per cent of our revenues is a sizable effect on our business," Steve Brown said in an interview Monday.
"The finite number of jobs and the total effect on the company has obviously not been finalized yet."
The Canadian income fund, one of the world's biggest DVD and CD manufacturers, employs about 17,000 workers at major facilities in the United States, Mexico, France, Britain and Germany.
Brown described Warner's departure as a "bump in the road" for the company, though shareholders seemed to see it as something more dire.
Stock in Cinram plunged 60 per cent on Monday, falling $1.75 to $1.16 on the Toronto Stock Exchange after the announcement. The fund's units have traded in a 52-week range between a high of $3.31 and low of 61 cents.
Warner Home Video (NYSE:TWX) and Cinram have worked together under an exclusive agreement for six years, Cinram's largest contract.
"It certainly was not because of cost or quality," Brown said, though he declined to go into further detail.
Cinram said Warner's decision to terminate the agreement on July 31 will have an impact on its operations in Canada, the United States, Mexico and several European countries.
"As part of our standard practices, we are constantly looking at the systems we have in place and evolving them to meet our changing needs," Warner said in a statement.
"The decision to change our video replication and distribution vendor, while difficult to make, is the right one for us at this time. We've had a long affiliation with Cinram and thank them for years of service to our company."
Warner has not announced who will take over the contract after Cinram.
Brown suggested that Cinram could find other major Hollywood studios to partner with on a similar manufacturing deal, or continue to branch out its services, like the company did in 2007 when it signed a distribution agreement with telecommunications giant Motorola. That move was also an effort to curb declining DVD and CD manufacturing contracts, and branch out into new industries that would promise growth.
"We will hopefully be able to offset this in 2010 and 2011," Brown said.
In November, Cinram returned to profitability after a company-wide cost cutting plan that included restructuring its operations and selling off Ivy Hill, a division specializing in printing packages for DVDs. Third-quarter profits were US$9.5 million, lifting from a loss, even as revenues declined by 15 per cent to $351.2 million.
Cinram has undergone major changes as the entertainment industry shifts into a download-friendly marketing approach and lessens priority of DVD and CD sales.
Last year, the company closed a plant in Indiana where more than 300 people worked.
Internet stores like Apple's iTunes have taken an increasing chunk of the music market, slowing sales of CDs substantially, while the DVD market has also started to decline, according to industry estimates.
Cinram has said that it's still hopeful that the disc market can remain robust with the growing popularity of Blu-Ray high definition discs.
