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DVD Group Cuts License Fees

7 Mar, 2005 By: Erik Gruenwedel

DVD6C, a consortium of Japanese DVD manufacturers and Warner Home Video, last week announced it would cut license rates for DVD players up to 25 percent and individual DVD discs more than 10 percent, effective retroactively to Jan. 1.

The move came on the heels of China's announcement it would adopt its own Enhanced Video Disc (EVD) as the national disc standard, a move that presented a potential kink for Hollywood studios' intent to tap one of the biggest developing markets for content consumption.

Last summer, Chinese electronics manufacturer, Wuxi Multimedia, filed a lawsuit against Philips, Sony and Pioneer alleging the companies conspired to avoid paying their own DVD licensing fees and royalties.

A DVD6C spokesperson denied the license fee reduction was in response to China's action or the lawsuit.

Designed and funded in 1999 by the Chinese government to curb Chinese electronics manufacturers' dependence on foreign technologies, EVD has languished in China and globally despite being able to handle high-definition content.

DVD formats licensed by Japanese-based DVD6C (Matsushita, JVC, Toshiba, Hitachi, Mitsubishi, IBM) and DVD3C (Sony, Philips and Pioneer) do not handle high definition, which has sparked competition for allegiance to next-generation formats HD-DVD and Blu-ray.

“Nobody is talking about [EVD because it's] not adaptable to world standards,” said Marla Backer, media analyst with Soleil Securities' Research Associates in New York.

“It's flopped totally,” added Michael Murphy, editor of the California Technology Stock Letter and frequent visitor to China.

Murphy said China initiated a similar strategy with the CD years ago that went nowhere. Still, with such a large population undergoing tremendous economic change, China has a big enough domestic market and foreign market for Chinese product throughout Asia that it can do this.

“[EVD] is not an export,” Murphy said. “On the other hand, it protects their domestic market [from piracy] by having a standard that a lot of people won't bother with. And they don't want to pay licensing fees.”

U.S and Japanese media companies see China, with its burgeoning middle class, as a large, untapped frontier for content consumption.

“That is where a lot of the incremental growth for [U.S. and Japanese] companies is going to come from over the next three to five years,” Murphy said.

China's economic growth exceeds 9 percent annually and is projected to be twice that of Germany's by 2010, surpassing the world's second largest economy, Japan, by 2020, according to the Council on Foreign Affairs.

Analysts say China's decision to adopt EVD as its domestic disc format achieves multiple aims. One is to get them into the 21st century. Another is to displace Japan and Korea as the consumer electronics powers in Asia. The third objective is to protect their domestic market.

“They said they are the ones that deserve to run Asia, not the Japanese or the Koreans,” Murphy said.

He said China is caught in a balancing act where they need to let in Western technology because they need it, but at the same time create proprietary technology.

“It is going to be an economic war with one winner maybe in China and the other throughout the rest of the world,” Murphy said. “In the short term, it is already a win for China, because Japan lowered its rates.”

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