Case Study: CDVD Now Playing In Home Theaters


The company, based in Sunrise, Fla., had been a systems integrator, system builder, IT consultant and software developer at various times since 1979. However, when the market began to slow during the last downturn, CDVD saw its profits decline.

"In 2002, our financial statements showed a decreased profit for the fifth consecutive year in our traditional market," said CEO and co-founder Claude Pepin. "We were looking for a new business opportunity and a vertical market at the beginning of the business cycle. After 13 months, in 2003, we considered many options, and the home-theater market was really interesting."

CDVD now makes the CDVD TESS (Total Entertainment and Security System) digital media server in both 32-bit and 64-bit configurations. The integrator focuses on home automation, security surveillance, VoIP, home networking and high-definition home-theater systems. CDVD developed its own video card with compression and a Faroudja video processing chip, which can be integrated with any workstation or home-theater PC.

The result was a 45 percent increase in revenue to $7.4 million between 2004 and 2005. The number of systems CDVD built grew 42.4 percent to 1,789 units over the same period, giving it the seventh-highest unit growth rate among the list of 50 Leading System Builders, from Digital Connect's sister publication CRN.

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Stephane Theriault of Coconut Creek, Fla., purchased a TESS 64 system last year and is pleased with the product and the capabilities it brings to his home-entertainment system. He said he chose CDVD TESS for its ease of use and functionality.

Theriault looked at competitive systems but found they weren't adaptable enough. "To do the same thing with another company you had to buy a lot of components. This was one that had everything on it, and it's flexible," he said.

Having a broad reach across several markets has helped the company grow, Pepin said. "We can do private house, commercial and industrial projects. Many customers have more than one residence and have a business to operate. We install technology at their business, their home and secondary home," he said.

Home integration is proving lucrative for CDVD.

The integrator currently is wiring 1,100 units in a South Beach condominium tower, providing each unit with T3 networking and two VoIP lines. The condo complex pays $2,900 a month for the T3 line, and each customer will pay $20 monthly for Internet access and $20 per month for two VoIP lines.

CDVD invested $125,000 in the cables, and the customers have five-year contracts. Once the integrator makes up the cost of the cables, the rest is profit. CDVD is also working on condominium projects in California and Nevada.

Pepin said the integrator has built its customer base through word-of-mouth and mailings. In addition to marketing at its condominium-project sales offices, CDVD co-markets with a network of reseller partners, giving them access to customer leads and CDVD's back-office CRM and accounting systems. CDVD also advertises in print, on television and on radio.

Working in the home-theater market gives CDVD TESS an edge, according to Pepin.

"Competing with major [vendors] like Dell, HP or Gateway is very difficult. Competition with India or Asia in the outsourcing of software development is very difficult to do. We are really successful with this new vertical market," Pepin said.

CDVD is able to create a complete solution that gives the integrator higher margins on its systems than the average custom-system builder, and its labor costs are lower, he said. Margins in the digital-home integrator market can be higher than 50 percent, Pepin said.

CDVD will open its second location in June in New York, and in the third quarter of 2006 expects to open six more locations in the United States, Canada, South America and Europe.

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