BEIJING With the DVD market widely seen as poised to skyrocket this year, Chinese developers gathered here recently with Hollywood executives and PC companies to promote cooperation and to resolve lingering concerns over licensing.
Despite growing expectations, however, a Chinese government official warned that failure to reach a compromise with DVD developers on the licensing issue might prompt China to develop its own new digital-video format. The warning echoes earlier statements from other Chinese officials, who said the nation will aggressively develop its own patent portfolio in an effort to bolster its technology industry.
The China Audio Industry Association (CAIA), China Audio and Video Association and the Optical Memory National Engineering Center hosted the international DVD symposium, along with seven government agencies representing four different ministries. Among those attending were representatives of some of China's more than 30 DVD-player manufacturers. Local hardware and software suppliers met with top overseas manufacturers such as Hitachi, IBM, Intel, JVC, Panasonic, Philips, Pioneer, Sony, Time Warner and Toshiba.
Also present were representatives of the Washington-based Motion Picture Association of America (MPAA). It has been reluctant to enter the China market until intellectual-property issues like the widespread piracy of Western films are resolved.
Experts here estimated that as many as 300,000 DVD players were sold in China in 1998, and forecast 1999 sales totaling 1 million players. Meanwhile, Chinese OEMs are expected to begin cranking out tens of millions of DVDs as the Chinese domestic market swells to as many as 10 million players over the next several years.
If, as expected, player prices drop to $250 by year's end, Chinese DVD manufacturers said the market here will mushroom. One reason such a price drop is anticipated is that costly DVD-ROM drives will be produced more cheaply by Chinese manufacturers under licensing deals with Japanese companies.
Chen Wei-rong, director general manager of manufacturer Konka Group Co. Ltd. (Shenzhen, China), said in an interview that 3 million DVD players will be made in China this year.
At the meeting, China's 33 DVD manufacturers and research institutes announced formation of an Optical Disk (DVD) Promotion Committee, set up as a subsidiary of the CAIA to boost the local industry's research, manufacturing and marketing efforts.
Observers said the group's first challenge will be tackling the intellectual-property rights issue. Chinese DVD makers are trying to join the DVD Forum, an industry group of manufacturers and software developers, to gain access to members' patented technologies and logo licenses. But Chinese vendors have balked at the licensing fees.
Experts said those fees can run up to $20 or more for DVD players-a significant number if the machines' unit prices drop to about $250 in China. That fee includes the logo and format royalties for the DVD Forum. Separately, DVD manufacturers are also expected to pay royalties on MPEG-2 video to the MPEG Licensing Agency and on Dolby Digital to Dolby Labs, in addition to some IP related to disks themselves. Even DVD manufacturers outside China are complaining that this is getting too expensive.
Manufacturers here fear the expense will be prohibitive once DVD-player production ramps up. Meanwhile, to date, despite a series of negotiations with China in the last few years, no members of the VideoCD Forum-composed of Philips, Sony, Matsushita and JVC-have ever succeeded in collecting any royalties for millions of VCD players or Super VCD players made and sold in China.
Chinese manufacturers complained about the fees to government agencies and industry associations, including the powerful Ministry of Information Industry and CAIA. Government and industry officials are now pressing license holders to eventually reduce their fees.
"Our DVD facilities respect [intellectual-property rights] and are sincerely prepared to cooperate with all license holders, but we hope license holders will charge them [less]," said Bai Weimin of the ministry's Department of Electronic and IT Products.
If not, Bai warned, Chinese manufacturers could use the millions of dollars they would otherwise pay for overseas licensing to "develop a separate system or spec besides DVD," just as they did with Chinese Video CDs and the current Super VCDs.
Hollywood studios used the international forum as a starting point for marketing activities in China. "The enthusiasm of the content providers, the hardware industry and the consumer for DVD has brought us all to China," said Michael Connors, MPAA's vice president for the Asian-Pacific region. "Among the members of [MPAA], there is a high degree of energy and excitement for DVD in China."
The group represents most of the major Hollywood studios, including Paramount, Universal, Metro-Goldwyn-Mayer, Warner Bros., Columbia Tristar, Twentieth-Century Fox and Buena Vista International.
Warner Bros., the first U.S. studio to establish a Chinese publishing house to distribute videos, has released more than 60 VCD titles in China. It plans to begin distributing films in the DVD format this summer, said Marsha King of Warner Home Video.
Junko Yoshida contributed to this story