Indian School of Business

ISB043

June 25, 2014

Kannan Srikanth | Sonia Mehrotra | Priyank Arora | Geetika Shah

Moser Baer and OM&T — Choosing a Strategic Partnership

Mode
INTRODUCTION

MBIL was India’s largest and the world’s third largest optical storage media manufacturer with a
presence in over 82 countries, serviced through marketing offices in India, the United States and
Europe. In December 2006, the management at Moser Baer India Limited (MBIL) faced the critical
decision of whether to pursue a strategic partnership with Optical Media and Technology (OM&T) and
what form such a partnership should take. All the options were currently on the table — a licensing
arrangement, a strategic alliance by taking an equity stake in the company or a complete acquisition
of the company. OM&T was based in a high technology cluster in Eindhoven, the Netherlands and
was known in the industry for its contribution to prototyping, standardization and pilot production of
advanced optical disc formats such as Digital Versatile/ Video Disc (DVD) and Blue Laser Discs (Blu-
ray discs).

BACKGROUND

Optical Storage Media

Optical storage media referred to the storage of data on an optically readable medium. The data,
stored in digital form on an optical disc, was written and read using a laser light. The main types of
optical storage media developed over the years included compact discs (first generation discs), DVDs
(second generation discs) and high-density (HD) discs (third generation discs).

Evolution of Optical Discs

In the early 1970s, engineers at Philips Research Laboratories began using video laserdisc
technology to experiment with audio-only optical discs. By the end of the 1970s, other companies had
also managed to create their own audio disc prototypes. In 1979-80, Sony collaborated with Philips
1
and produced a new digital audio disc or compact disc (CD). This optical disc was a flat, circular disc
that had encoded binary data (bits) in the form of “pits and lands.” When read by a laser beam, the

1
Jennet, Ed, “The History of Compact Discs and Digital Recording Technology,” Yahoo Voices, January 12, 2006,
http://voices.yahoo.com/the-history-compact-discs-digital-recording-14704.html?cat=15, last accessed on August 2013.
Professor Kannan Srikanth, Professor Sonia Mehrotra, Priyank Arora and Geetika Shah prepared this case solely as a basis for
class discussion. This case was developed from published sources. This case is not intended to serve as an endorsement, a
source of primary data, or an illustration of effective or ineffective management. The authors thank Dr Shayan Garani (Faculty
at Department of Electronic Systems Engineering at Indian Institute of Sciences, Bangalore), Maria Csilics (EUMEA, Verbatim
GmbH) and Ramesh Tuli (Regional Manager, Verbatim, India) for assisting in the writing of this case. This case was developed
under the aegis of the Centre for Teaching, Learning, and Case Development, ISB.

Copyright @ 2014 Indian School of Business. The publication may not be digitised, photocopied, or otherwise reproduced,
posted or transmitted, without the permission of the Indian School of Business

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 ISB043

pits gave a binary value of zero or “off” due to lack of reflection and lands gave a binary value of one
or “on” due to reflection. The information engraved on the CDs was digitized (as opposed to the
2
analog LaserVision ). The digital reproduction of data required conversion of sound waves to binary
3
codes, which were then recorded by optical scanners as engraved pits on the specially treated disc.
A playback device would then use a high-speed laser to read the information in the pits on the discs
and electronically reconvert the binary code to the original medium. The process left little room for
error if performed correctly.

By late 1982, the CD reached markets in Asia. In 1985, Sony/ Phillips adapted the CD format to
create another application called the CD-ROM (read-only memory), which made it possible to contain
massive amounts of computer data instead of digital sound. In the early 1990s, a user-recordable CD
for data storage, the CD-R, was introduced. CD-R became the standard for exchanging and archiving
computer data and music. By transforming the way data was stored, optical discs had made the audio
and videocassette industry obsolete.

A second-generation optical disc format — the Digital Video/ Versatile Disc (DVD) was
subsequently launched in Japan (1996), the United States (1997) and Europe (1998). The DVD, with
its higher storage capacity, rapidly replaced the videocassette recorder for playback of standard
definition video. Its acceptance in the market had been fueled by the distinct advantages of optical
disc media over videocassettes. The discs were smaller, more robust, cost less and offered the
compelling feature of random access, i.e., the ability to skip to a particular track or portion as opposed
4
to going by sequence as was the case with cassette tapes.

The third generation optical discs that followed were the Blu-ray discs and the HD-DVDs. The
development of high definition/ density (HD) technology created the need for a storage format with
greater capacity, since a film saved in HD mode used about five times as much data as the same film
5
saved in the conventional DVD format. However, for the third generation optical discs, no single
standard format had been established. Two camps had formed in the industry — Blu-ray and HD-
DVD. The HD-DVD camp, led by Toshiba, had exclusive support from companies such as Intel,
Microsoft, Sanyo, NEC, Kenwood and Memory Tech Corporation. Heading the Blu-ray camp was
Sony, which was supported by Apple, Dell, Hitachi, Mitsubishi, Philips, Sharp, Pioneer and Thomson.
The movie studios were also divided in their backing of the different formats. Fox, Disney, Lions Gate,
MGM and Sony had aligned with Blu-ray, whereas Universal Studios had signed on with HD-DVD.
Paramount and Warner Bros. supported both the formats. Each format had its own distinct technical
advantages and enjoyed the support of different groups in the consumer electronics, personal
6
computers and entertainment industries. Talks between the two camps continued into 2005, at which
7
point it became apparent that marketplace dynamics would determine the winning format.

2
LaserVision is used to refer to discs with analog sound. Both analog and digital signals are used to transmit information
(audio or video) through transformation to electric signal. The difference between the two is that in analog technology, a
wave is recorded in its original form, i.e., a signal is taken straight from the microphone and laid onto the tape, and the
wave on the tape can be read, amplified and sent to a speaker to produce the sound; whereas in digital technology, the
analog wave is sampled at some interval and then turned into numbers (0s and 1s) that are stored in the digital device.
The advantage of digital technology is that the recording does not degrade over time; as long as the numbers can be
read, one will always get exactly the same wave output.
3
To create a recording with very high fidelity (very high similarity between the original sound and the reproduced signal)
and perfect reproduction (the recording sounds the same every single time one plays it no matter how many times it is
played), it is necessary to convert the analog sound waves into a stream of numbers (binary codes) instead of the wave.
This conversion is done by analog to digital converter (ADC) and the passing of the waves through the ADC is called
sampling the waves. To play back the music, the binary codes are converted back to an analog wave by a digital to
analog convertor (DAC). The analog wave produced by the DAC is amplified and fed to the speakers to produce the
sound.
4
Peek, Hans, Jan Bergmans, Jos van Haaren, Frank Toolenaar, and Sorin Stan, Origins and Successors of the
Compact Disc: Contributions of Philips to Optical Storage, Springer, Philips Research Book Series, 2009, Chapter 6:
“Blu-Ray Disc,” p. 233.
5
Austen, Ian, “Dueling Visions of a High-Definition DVD,” The New York Times, April 29, 2004,
http://www.nytimes.com/2004/04/29/technology/how-it-works-dueling-visions-of-a-high-definition-dvd.html, last
accessed on August 5, 2013.
6
Sandoval, Greg, “HD DVD Debut Ups Ante in High Stakes Game,” CNet News.com, April 18, 2006,
http://news.cnet.com/HD-DVD-debut-ups-ante-in-high-stakes-game/2100-1041_3-6062089.html, accessed on August 7,
2013; Patrick Seitz, “After Years of Talk, High Def DVD Era Set for Soft Launch,” Investor’s Business Daily, March 20,
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Both HD-DVD and Blu-ray formats incorporated blue lasers, in contrast to the red-laser technology
used in compact disc (CD) and conventional DVD formats (see Exhibit 1). A blue laser used a shorter
wavelength than a red laser; hence, less physical space was required to record each bit of data,
8
allowing more information to be packed on the same standard size 120 millimeter (mm) disc. Both
the formats had three to five times more data storage capacity than the conventional DVD. Apart from
greater capacity, storing video at HD resolution (1,080 lines of resolution as against 480 lines of
9
resolution in conventional DVDs) resulted in a clearer picture. The Blu-ray disc had a tighter track
pitch, which allowed for more pits, and hence, more information storage compared to HD DVDs. The
differing track pitch made the pickup numerical aperture for Blu-ray and HD DVD different, thus
making the two formats technically incompatible despite using the same wavelength laser. Another
10
major difference between the two discs was the clear plastic protective layer on their surfaces. The
HD-DVD had a 0.6 mm thick surface layer, the same as a DVD, while the Blu-ray disc had a smaller
0.1 mm layer that enabled the laser to focus at the aperture. This thinner protective surface layer
made the existing DVD production facilities redundant, and manufacturing Blu-ray discs required
either new or modified production lines. Blu-ray discs also had the added requirement of a special
hard coating (Durabis), which gave the discs the required resilience to protect data that was merely
11
0.1 mm beneath the surface. These requirements made Blu-ray discs costlier than HD-DVDs.
12
However, although Blu-ray disc production lines required upfront investment, the format had
greater long-term profit potential than other optical disc media formats. At comparable volumes, Blu-
ray disc production costs were within 10 percent of DVD production. It was considered to be the
cheapest format, measured in cost per gigabyte (GB). Compared to other formats, Blu-ray required
fewer slots in a replication line, and it was soon expected to bring down the cost of production on par
with DVDs. Moreover, the production facilities could produce far more Blu-ray discs than DVDs in the
13
same time period.

Optical Disc Manufacturing

The manufacturing of optical disc media involved four major process stages — mastering,
stamping, replication and metallization. Each of the process stages required a different set of
competencies.

Mastering: The overall process started with the digital encoding of various source media, such as
music, audio or software. The encoded content was then passed to the mastering stage where the
information was decoded. For this, a large glass disc called the glass master was coated with
photoresist, a material that changed its properties when exposed to light. The coated disc was put on
a mastering machine’s turntable, spun and exposed to a laser beam turned on and off by the binary
data to be recorded on the disc. The exposed master was then developed by applying a microscopic
14
layer of vaporized nickel to the glass master using a process called “sputtering”. The chemical
dissolved the photoresist only where it had been exposed to the laser beam. Dissolved areas in the
photoresist formed the pits.

2006, http://news.investors.com/technology/032006-417097-after-years-of-talk-high-def-dvd-era-set-for-soft-launch-first-
players-set-for-release-there-will-be-just-three-hd-films-available-at-first-and-not-many-for-some-months.htm, last
accessed in August 2013 .
7
Belson, Ken, “Heavyweights Are Choosing Sides in Battle Over the Next DVD Format”, The New York Times,
December 29, 2003, p.C1; Borland, John “All Eyes on New DVDs Format War,” CNet News.com, July 11,2005,
accessed via Factiva in August 2013.
8
“Blu-Ray Disc™ Format,” White Paper, second edition, October 2010, Blue-ray Disc Association, http://www.blu-
raydisc.com/Assets/Downloadablefile/general_bluraydiscformat-15263.pdf, accessed in August 2013.
9
Arnold, Thomas K., “HD DVD Off to Running Start,” USA Today, May 2, 2006.
10
This plastic layer was to protect the disc data from scratches and fingerprints.
11
Block, Ryan, “Blu-ray vs HD DVD: State of Division,” Engadget.com, September 19, 2005,
http://www.engadget.com/2005/09/19/blu-ray-vs-hd-dvd-state-of-the-s-union-s-division/, accessed in August 2013.
12
Blu-ray Disc.com: “BD Key Characteristics,” http://www.blu-raydisc.com/en/AboutBlu-ray/WhatisBlu-
rayDisc/BDKeyCharacteristics.aspx, accessed in September 2013.
13
Blu-ray Disc.com, www.blu-raydisc.com, accessed in September 2013.
14
For a detailed explanation of the sputtering process, see Exhibit 6.
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Stamping: This stage involved coating a thin layer of nickel and vanadium on the previously
metallized glass master through an electroforming process. This resulted in a finished stamper plate.

Replication: The finished master stamper was used as a casting mold in the replication stage. The
master stamper was installed in an injection molding press used for stamping thousands of compact
discs. Discs were made from a special plastic called polycarbonate. Liquid polycarbonate was injected
into the injection molding press. The outputs of the press were translucent polycarbonate discs with
pits, the same as that on the master stamper surface.

Metallization: The discs were then passed through a metallization process where they were coated
with a very thin reflective layer of aluminum. A lacquer coating was then applied to the reflective
surface and the label was silk screened on the disc. The finished discs were then packaged. A
completely automated plant could produce up to 100,000 discs a day.

Optical Storage Media Industry

The optical storage media industry was made up of two types of players: manufacturers of optical
storage media (such as MBIL, TDK Corporation, etc.) and companies that purchased and marketed
these products (such as Universal Studios). The manufacturers invested in process research and
development (R&D) capabilities in order to achieve manufacturing efficiencies and differentiate
themselves from their competitors on price and quality.

Optical discs were more or less commodity products, similar to electronic components such as
memory chips. The industry was marked by rapid technological advances, with new format products
coming to market every five years. While newer products had the ability to command premium prices
in the initial stages, the window of opportunity for their manufacturers was short. The new technology
often led to quick product maturity of the old format and a resultant steep decline in sales. In just 10
years, technological advancements had caused the price of optical storage media to fall by
approximately 95 percent. For instance, the price of a CD-R in 1995 had been about US$4.00 per
unit; in 2006, it was 17 cents per unit. Thus, the market for optical media storage manufacturers
exhibited fast cycles in addition to price pressures. Original equipment manufacturers (OEMs) of
optical discs such as MBIL focused on low-cost manufacturing and lacked the technological
capabilities to develop new formats. Yet, given the high clockspeed of the industry, the success of an
optical media manufacturing firm was highly dependent on its flexibility to adapt to the new technology
format and quickly ramp up manufacturing volumes.

Market Scenario

A Strategic Marketing & Decisions (SMD) report forecasted that the global demand for optical
media would grow from 17 billion units per annum in 2005 to 27 billion units per annum by 2008. DVD
prices had started to follow the manufacturing cost curve as the product had begun to attain maturity.
The recordable, rewritable digital video disc (DVD-R/RW) base was growing at 60 percent per annum.
Also, DVD-enabled drive sales accounted for nearly 75 percent of all the optical drives sold in 2005.
The result was that in 2005-06, the DVDR/RW format had emerged as the “format of choice” of the
consumer, with 3.9 billion discs sold in 2005, a 105 percent growth over the previous year. Ambiguity
over the future format (between Blu-ray disc and HD-DVD) that was fuelled by the divide among
industry players had led to a delay in the launch of third-generation discs, resulting in an extension in
the lifecycle of DVD formats. Meanwhile, the global CDR/RW demand had become stable at 13.6
15
billion discs in 2005. Manufacturers across the globe were closing inefficient (CDR/RW) capacities
and converting their manufacturing lines to DVD manufacturing lines.

15
“Optical Media Drive Shipment,” Report, International Data Corporation (IDC).
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Apart from the DVD-R/RW, the four products that were identified as having a high potential for
success in the coming years were the DVD-Dual Layer, HD-DVD-R/RW, HD-DVD Dual layer, and
16
Blu-ray Disc-R/RW. 2007 was expected to be the first big year for blue laser-based technology, with
17
demand predicted to reach 1.7 billion discs over the next three to four years. The next generation
optical media formats could reach up to 100 GB of storage and at the same time offer consumers a
better price-value proposition. Flexible manufacturing was going to be a vital driver of success and
sustenance in this industry. As new technologies came up in the high-density area, the ability of a
company to convert its DVD lines to HD-DVD or BD lines at minimum cost was a crucial deciding
factor for success.

MOSER BAER INDIA LIMITED

Company Background

MBIL, a New Delhi-based company, was founded in 1983 as a time recorder unit in technical
collaboration with Maruzen Corporation, Japan, and Moser Baer Sumiswald, Switzerland. Shortly
afterwards, the company’s founder, Deepak Puri, bought out Moser Baer’s stakes from the Swiss and
Japanese firms, making MBIL an entirely Indian company. In 1985, MBIL entered the data storage
industry with the production of 5.25 inch floppy diskettes. By 1987, it had begun manufacturing 3.5
inch micro floppy diskettes (MFDs). The company was accredited with ISO 9002 certification in 1998.
In 1999, MBIL entered the optical media storage market and established a 150 million unit capacity
plant to manufacture CD-Rs and CD-RWs. MBIL was the first manufacturer worldwide to partner with
18
Hewlett Packard on the latter’s “LightScribe” optical disc recording technology in 2004. By 2005, the
company had production facilities supporting the entire spectrum of optical storage media products
including CD-Rs, CD-RWs and DVD-Rs. By 2006, the company had three state-of-the-art completely
integrated manufacturing facilities. It had expanded its production capacity base from 2.4 billion units
19
per annum to 2.8 billion units per annum.

In addition, MBIL had started volume shipments of third-generation high-density formats such as
HD DVD-R and ventured into the production of Blu-ray discs with its patented technology. The
company had significantly consolidated its position in the global optical media storage markets and
20
had emerged as among the three largest producers across both DVD and CD formats. Its overall
21
shipment volume had risen by 14 percent over the previous year. The launch of its USB flash drive
in November 2006 was another significant achievement for MBIL. The Indian market was among the
fastest growing markets worldwide for all formats of optical media discs, and Moser Baer had
22
captured over 50 percent share of this market.

Research and Development Initiatives

Recognizing that cost competitiveness and flexibility in switching to new formats were key to
survival in the optical storage media manufacturing industry, MBIL had invested significantly in
process R&D to enhance its capabilities on these fronts. It had entered into collaborative tie-ups with
the Indian Institute of Technology, Delhi, and Banaras Hindu University, Varanasi, two of the leading
technology institutes in India, to jointly work on precision thin film sputtering technology and material

16
Moser Baer Annual Report 2006.
17
“Global Developments in Optical Media Storage Industry-2005-06,” Report, Strategic Marketing & Decisions (SMD),
CA, USA.
18
HP’s LightScribe optical disc recording technology uses specially coated recordable CD and DVD media to produce
laser-etched labels with text or graphics as opposed to stick-on labels and printable discs. This technology allows the
users to create direct-to-disc labels as opposed to stick on labels.
19
Compiled by the authors from Moser Baer Annual Reports,
http://www.moserbaer.com/writereaddata/pdfs/Moser_Baer_Annual_Report_2006.pdf, p. 20, accessed in August 2013.
20
Compiled by authors from Moser Baer Annual Reports,
http://www.moserbaer.com/writereaddata/pdfs/Moser_Baer_Annual_Report_2006.pdf, accessed in August 2013.
21
USB flash drive is a data storage device that includes flash memory with an integrated Universal Serial Bus (USB)
interface. These drives are typically removable and rewritable.
22
. Compiled by authors from Moser Baer Annual Reports,
http://www.moserbaer.com/writereaddata/pdfs/Moser_Baer_Annual_Report_2006.pdf, accessed in August 2013.
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sciences, respectively. Further, it had increased spending on pure optical media research and
engineering to 2.1 percent of revenues to keep pace with global market dynamics. The focus was on
value engineering, improving product quality, boosting yields and lowering the cost of production. The
in-house R&D center was studying multiple cutting-edge technologies in the areas of nanoscience,
nanomaterials, thin film, phase-change materials, organic dyes, future optical data storage, polymer
science and solar cells. The company was among a select few in India to have its R&D center
recognized by the Department of Scientific and Industrial Research of the Ministry of Science and
Technology, government of India, in November 2006.

MBIL had tasted early success, with its low to high (LTH) recording technology for Blu-ray discs
approved as one among the four standard media included in Blu-ray disc specifications by the Blu-ray
). [23,24]
Disc Association (BDA The use of LTH recording technology for the commercial production of
Blu-ray discs provided MBIL the flexibility to use the existing CD-R and DVD-R production lines,
making it a cost-effective production proposition. MBIL had obtained several patents for its
technologies, including one for the use of inorganic phase change material in the LTH process, which
25
typically uses organic dyes.

Diversification into New Businesses

Due to the cyclical nature of the optical media manufacturing business and the uncertainty
associated with third generation optical media, MBIL explored diversification opportunities, the most
significant of which was its diversification into solar energy. In 2006, MBIL ventured into the
manufacture of photovoltaic cells (PV cells). PV cells (also called solar cells) directly converted solar
26
energy into electricity through a process called the photovoltaic effect. PV cells comprised of
photovoltaic material such as mono-crystalline silicon, polycrystalline silicon, etc. A number of PV
cells, packaged and connected as an assembly, formed a PV module, and a set of PV modules,
electrically connected and mounted on a supporting structure, comprised a solar panel (see Exhibit 2).

According to CLSA Asia-Pacific Markets estimates, the global power industry had been growing at
a compounded annual growth rate (CAGR) of around 30 percent. The cumulative production of power
in 2005 stood at approximately 1.5 gigawatts (GW) and was expected to grow at 38 percent year on
27
year till 2010 to a total capacity of 6 GW, taking the industry turnover to US$35-40 billion. The
demand for power across the world versus the severe shortage in the supply of conventional sources
of energy had promoted and created a market opportunity for the photovoltaic power generation
business.

Between 2000-05, the PV industry had recorded an average annual world growth rate of above 40
percent, making it an attractive industry for investment. CLSA forecasted that this sector had the
28
potential to grow in annual sales from 1.7 gigawatt-peak (GWp) in 2005 (see Exhibit 3) to 5.3 GWp
29
by 2010. This meant an industry turnover increase from €5.6 billion in 2004 to €24 billion by 2010. In

23
The Blu-ray Disc Association (BDA) is the industry consortium that develops and licenses Blu-ray Disc technology and
is responsible for establishing format standards and promoting business opportunities for Blu-ray Disc.
24
“Moser Baer’s Patented Technology Approved by Blu-ray Disc Association,” Press Release, Moserbaer.com, October
3, 2006, http://www.moserbaer.com/mediaroom.asp?id=61&mth=&year=2006&sec=, accessed in August 2013.
25
“High density Optical Recording Media and a Method for Preparing the Same,” US 20070196617 A1, accessed in
September 2013.
26
The photovoltaic effect is the creation of voltage or electric current in a material upon exposure to light. When sunlight
or any other light is incident on the material surface, the electrons present in the valence band absorb energy and jump
to the conduction band and become free. These highly excited non-thermal electrons diffuse, accelerated into a different
material by a built-in-potential, generating an electromotive force; and thus, some of the light energy is converted into
electrical energy.
27
“Solar Power Sector Outlook,” Report, CLSA Asia-Pacific Markets, July 2005, pp 27-30 http://www.photon-
international.com/news/PI%202005-08%20ww%20med%20feat%20Sunscreen%20Study.pdf, accessed on August 9,
2013.
28
MWp and GWp are the measures in megawatts and gigawatts, respectively, of the nominal power of a photovoltaic
solar energy device under laboratory illumination conditions.
29
Jäger-Waldau, Arnulf, “PV Status Report 2006: Research, Solar Cell Production and Market Implementation of
Photovoltaics,” Joint Research Centre, Institute for Energy and Transport, European Commission, 2006,
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2005, the global photovoltaic systems market grew by more than 45 percent. Germany saw the
30
maximum installations, with the addition of markets such as California, Spain and Italy. As of 2006,
76.5 percent of the market was held by the 10 largest PV manufacturers, whereas the rest was
shared by over 30 different companies (see Exhibit 4). At the same time, the cost of PV cells had
31 32
declined steadily since the first PV cell was manufactured. The levelized cost of electricity (LCOE)
from PV cells was becoming competitive with those of conventional electricity sources in an
expanding list of geographic regions.

Crystalline silicon (c-Si) and thin film were the two technologies that were available for the
manufacture of PV cells. C-Si technology required high inputs of silicon during manufacturing and was
heavily dependent on the availability of pure solar grade silicon. In contrast, thin film solar cells used
low grade silicon. In terms of energy conversion efficiency, c-Si PV cells were superior to thin film PV
cells.

Apart from external opportunities provided by the power market, the PV cell business was also in
line with the company’s long-term strategy of creating a multi-business portfolio. Specifically, MBIL
was targeting two segments in the PV value chain — PV (solar) cells and modules (see Exhibit 5). PV
manufacturing was similar to MBIL’s core business of manufacturing optical discs, both of which
involved thin coating on substrates. This business was identified as technology driven, therefore, the
company anticipated a successful entry based on its core strengths in wet chemical processing, thin
film coating, photo lithography and base material engineering.

The company had set a target of establishing a capacity of 80 MW by the year 2007 with an initial
project cost of US$58 million. For MBIL, the PV space presented an exciting growth opportunity as the
business was significantly less capital intensive than its existing optical media business. MBIL
expected the adoption of solar power as an alternative to conventional power sources worldwide in
the future to lead to reduced solar power generation costs in comparison to conventional power
sources. One of the major contributors to solar power generation was the cost of manufacturing PV
cells and modules in the PV value chain. Mass manufacturing and successful project execution being
the company’s forté, MBIL was confident of establishing an early mover advantage and sustainable
competitive advantage in this business. The project was to be executed by Moser Baer Photo Voltaic
Ltd, which had been established as a 100 percent subsidiary of MBIL.

In addition, in December 2006, MBIL also entered the entertainment space, specifically the home
video market, with the launch of Moser Baer Entertainment Ltd. This division was negotiating an
exclusive license for more than 7,000 movie titles in all the major Indian languages. The home video
33
market accounted for only seven percent of the film industry’s total revenues of INR 79,000 million .
This was a huge opportunity considering that India was the largest producer and consumer of films.
MBIL’s idea was to take advantage of its world-class production capabilities combined with its wide
distribution network across the country to offer high-quality movie titles in all formats (CD/ DVD) at
attractive price points.

OM&T — THE TECHNOLOGY FIRM

OM&T, a specialized optical Research and Development (R&D) company was a 100 percent
subsidiary of Royal Philips, the Netherlands. The company, located at Eindhoven, Netherlands, had a

http://iet.jrc.ec.europa.eu/remea/pv-status-report-2006-research-solar-cell-production-and-market-implementation-
photovoltaics, accessed in September 2013.
30
Ibid.
31
Swanson, R.M. “Photovoltaic Power Up,” Science, May 15, 2009, 324: 891-2.
32
LCOE is the price at which electricity must be generated from a specific source to break even over the lifetime of the
project. It is an economic assessment of the cost of the energy-generating system including all the costs over its
lifetime: initial investment, operations and maintenance, cost of fuel, and cost of capital, and is very useful in calculating
the costs of generation from different sources.
33
“Moser Baer enters into a Strategic Partnership with Pyramid Saimira Theatre for Home Video Marketing and
Retailing,” Press Release, Moserbaer.com, February 27, 2007,
http://www.moserbaer.com/mediaroom.asp?id=20&mth=February&year=2007&sec=, accessed on 2 February 2014
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long history as a development center of optical disc technology. It specialized in lithography, electro-
plating, replication, thin-film technology and system integration, and its capabilities in thin film, wet
chemical processing, optics and testing procedures were world class. OM&T focused on developing
new concepts and production processes to improve the energy efficiency and life of products at
reduced manufacturing costs. It was extensively involved in R&D in the field of energy efficient
devices such as photovoltaic and organic light emitting diode (OLED) lighting modules.

The core activity of the company was selling DVD and Blu-ray disc proprietary technology
developed in-house to big companies involved in replication and manufacturing of the discs for
34
commercial markets. OM&T had a stamper production unit that supplied disc replicators with
specialized and high-quality masters and stampers worldwide. Further, it was a leading player in the
35
test disc market and had state-of-the-art disc testing capabilities. These discs were based on know-
how that OM&T had gained both as a system developer and a manufacturer of virtually all optical disc
formats. The company offered a range of test discs that allowed OEMs to select sets of discs to meet
their respective requirements in terms of formats, applications and markets.

OM&T was one of the founding members of BDA and a pioneer in developing the Blu-ray format. It
was the only company outside Japan involved in the shipping of Blu-ray discs and counted global
OEMs and media brand houses among its customers. There were two types of optical disc recording
technologies for Blu-ray discs — “Low to High” (LTH) and “High to Low” (HTL) (see Exhibit 6). OM&T
had expertise in HTL recording technology that utilized a two layer recording structure composed of
silicon (Si) and copper (Cu) alloy inorganic materials. On being heated by the recording laser beam,
the alloy melted, and the Cu and Si alloy resulted in composite recording marks. Compared to LTH
technology, which used organic dyes, HTL technology, which used inorganic dyes, was more
expensive, but it had a distinct quality advantage. Because the recording layer used in the HTL
process was inorganic, the disc was not affected by light, thus making it highly reliable.

DECISION TIME AT MBIL

MBIL was a competent OEM of optical discs with a focus on low-cost manufacturing. The
executives at MBIL were aware that optical discs were primarily commodity products. The external
market dynamics and emergence of a range of hardware drives supporting HD content made it
obvious that it was just a matter of time before the next generation optical storage media would be in
the markets. MBIL, to gain first mover advantage and consolidate its market share, had to take steps
to upgrade its technological and manufacturing capabilities.

A strategic partnership with OM&T would provide MBIL with HTL recording technology capabilities
for Blu-ray disc production. However, the compatibility of MBIL’s existing production lines with the
requirements of the new HTL recording technology for Blu-ray discs was a challenge.

In addition OM&T’s expertise in the areas of photolithography, thin film coating, and the design and
implementation of advanced light trapping concepts for thin-film solar cells were some of the other
competencies that MBIL could leverage for its new PV cell business. Also, OM&T’s technical
knowledge pool, in terms of experienced scientists and engineers, could further help MBIL strengthen
its position as a technology company.

On reflection, it was a big investment for MBIL, especially given the uncertainty regarding the
winning third generation disc format between HD-DVD and Blu-ray. The situation that MBIL’s
management had anticipated, and hoped for, was that retailers would stock both formats and the
studios would also produce both formats. But what if consumers bought neither?

34
The stamper production unit produces the master discs of a particular format that are then sent for replication for
mass production.
35
Test discs are discs that enable OEMs of end products, such as personal computer and media player manufacturers,
to precisely define the perfectly reproducible reference for the playback capabilities of their products. These discs have
controlled physical defects in terms of scratches, fingerprints, etc., and allow the OEMs to simulate virtually all the
deviations that can be expected in practice with different optical disc formats to test and re-calibrate their drives.
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Deepak Puri and his team had to decide — and decide quickly — whether MBIL should pursue a
strategic partnership with OM&T or go it alone. They had to evaluate the different options for strategic
partnerships. The options, apart from doing nothing, were a technology licensing arrangement with
OM&T, an alliance with MBIL (taking perhaps a minority equity stake in OM&T) or an outright
acquisition of OM&T.

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EXHIBIT 1

COMPARATIVE SNAPSHOT OF CD, DVD, HD-DVD AND BLU-RAY DISCS

Blu-ray comes in the same form factor as DVD and CD, typically a 12 cm diameter disc with a thickness of
1.2mm. The differentiating factor between the three types of optical media is the blue laser technology used to
record and read in BD versus the red laser used in CD and DVD. Blue laser has a shorter wavelength than red
laser, hence less physical space is required to record each bit of data, meaning more information can be packed
on Blu-ray disc layers. Due to the fact that the data layer on a Blu-ray disc is placed much closer to the laser lens
that in DVD, there is less distortion, resulting in significantly improved tolerances. The usual optical formats that
are available in Blu-ray are BD-ROM (Read only memory), BD-R (Recordable once) and BD –RE (Rewriteable)
all in 25 GB, 50 GB, 100 GB and 128 GB capacities.

Source: Compiled by authors from: Blue ray Disc Founders, “Blu-ray Disc Format: File System Specifications for BD-
RE, R, ROM,” White paper, August 2004, http://www.blu-
raydisc.com/en/Technical/TechnicalWhitePapers/General.aspx, accessed in September 2013.

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EXHIBIT 2

HOW THE SOLAR CELL WORKS

Photovoltaic (PV) cells are made up of at least two semi-conductor layers of crystalline silicon — one layer
containing a positive charge (by doping boron to silicon) and the other layer consisting of a negative charge (by
doping phosphorous to silicon). Sunlight consists of little particles of solar energy called photons. As a PV cell is
exposed to sunlight, many of the photons get reflected, pass right through, or get absorbed by the solar cell.

When enough photons are absorbed by the negative layer of the photovoltaic cell, electrons are freed from the
negative semiconductor material. Due to the manufacturing process of the positive layer, these freed electrons
naturally migrate to the positive layer, creating a voltage differential similar to a household battery.

When the two layers are connected to an external load, the electrons flow through the circuit, creating electricity.
Each individual solar energy cell produces only 1-2 watts. To increase power output, cells are combined in a
weather-tight package called a solar module. These modules (from one to several thousand) are then wired up in
serial and/or parallel with one another, into what is called a solar array, to create the desired voltage and
amperage output required by the given project.

Solar power cells are very environmentally friendly. They burn no fuel and have no moving parts, which makes
them virtually maintenance free, clean, and silent.

Source: Compiled by authors from: Toothman, Jessica and Scott Aldous, “How Solar Cells Work,” How Stuff
Works.com, April 1, 2000, http://science.howstuffworks.com/environmental/energy/solar-cell.htm, accessed in
September 2013.

EXHIBIT 3

WORLD PV CELL/MODULE PRODUCTION FROM 1990-2005

Source: Jäger-Waldau, Arnulf, “PV Status Report 2006: Research, Solar Cell Production and Market Implementation of
Photovoltaics,” Joint Research Centre, Institute for Energy and Transport, European Commission, 2006,
http://iet.jrc.ec.europa.eu/remea/pv-status-report-2006-research-solar-cell-production-and-market-implementation-
photovoltaics, accessed on October 6, 2013.

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EXHIBIT 4

TOP 10 PHOTOVOLTAIC COMPANIES IN 2005

Source: Jäger-Waldau, Arnulf, “PV Status Report 2006: Research, Solar Cell Production and Market Implementation of
Photovoltaics,”Joint Research Centre, Institute for Energy and Transport, European Commission, 2006,
http://iet.jrc.ec.europa.eu/remea/pv-status-report-2006-research-solar-cell-production-and-market-implementation-
photovoltaics, accessed on October 7, 2013.

EXHIBIT 5

THE PV VALUE CHAIN

Source: The image is from Hanwha Chemical’s website: http://hcc.hanwha.co.kr/eng/business/bus_sun.jsp, accessed

on October 7, 2013.

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EXHIBIT 6

BLU-RAY DISC RECORDING TECHNOLOGIES

Recording Technologies

Low to high (LTH) and High to low (HTL) correspond to two types of recording technologies used in the
manufacture of Blu-ray discs. While LTH uses an organic dye for the recording layer that turns reflectivity during
recording from “low to high,” HTL technology is based on using inorganic dye that results in the opposite signal
polarity, i.e., “high to low.”

Differences in HTL and LTH Recoding Media

HTL LTH
Technology x Mainly inorganic* x Mainly organic**
x Sputtering process# x Spin coating process##
(higher facility cost) (lower cost)

Data Signal Polarity High to Low Low to High

Recording Track On-groove In-groove

*Inorganic dye materials are inorganic metals such as gold or silicon. These materials have a high selectivity of
wavelength; for example, gold prevents the reading of a further layer because it absorbs blue light, resulting in
greater clarity. Also, the inorganic dye material has better reflectivity and is not affected by light, resulting in
higher archival lifetime for the optical media.

** Organic dye-pigment has a high sensitivity to light, and with time, may have issues in burning or reading the
data on these discs, resulting in a shorter lifespan of the data on the disc.

# Sputtering is a process used to coat the surface of a phase change HTL Blu-ray disc with inorganic material. It
is a vacuum technique of thin film deposition of a pure material (e.g. gold, silver etc.) on a substrate (semi-
conductor wafers, optical discs, solar cells etc.). This technique introduces argon gas in a vacuum chamber and
then a cathode is electrically energized to generate self-sustaining plasma. The exposed surface of the cathode,
referred to as the target, is a piece of material to be applied over the substrates. The gas atoms become
positively charged ions losing electrons within the plasma and are then accelerated with adequate kinetic energy
to hit the target and dislocate atoms or molecules from the target material. This sputtered material now consists
of vapour stream, which passes through the chamber and strikes and sticks onto the substrate (here Blu-ray disc)
as a thin film/coating. It is a clean film formation method that results in a high-quality, high-density disc that can
hold the data for decades.

## Spin coating is a process by which a uniform thin film of organic material is deposited on the LTH Blu-ray disc.
A small amount of coating material is applied on the center of the disc and then the disc is rotated at a high
speed in order to spread the coating material by the centrifugal force. This is the same process used in CD and
DVD manufacture.

(Continued on the next page)

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EXHIBIT 6 (CONTINUED)
Recording track In-Groove or On–Groove

Advantages of BD-R LTH Media over HTL Media

1. The manufacturing process of LTH type media is simple and more cost effective, as it is similar to DVD.
2. LTH type media is manufactured using the spin coating process so that many of the existing CD-R and
DVD-R production lines can be converted to Blu-ray production lines. This is an inexpensive process for
quick and reliable production volume in response to market demand.
3. A significant part of the waste generated by LTH type manufacturing can be recycled, making it more
eco-friendly and providing cost savings.

Advantage of BD-R HTL over BD-R LTH

The recording layer being inorganic material, it is not affected by light, thus realizing a disc with outstandingly
high reliability in terms of archivability.

Source: Compiled by authors from the following white papers:

x “Blu-ray Disc Format,” White Paper, third edition, published on December 2012 by Blu-ray Disc Association,
http://www.blu-raydisc.com/en/Technical/TechnicalWhitePapers/General.aspx, accessed in September 2013.
x Leye, Torsten. “Blu-ray — New Technologies and Market Trends,” Verbatim GmbH, June 2010,
www.verbatim-europe.co.uk/en.../binarydata_bluray-whitepaper_6809.p, accessed in September 2013.

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