In 1999, nine global electronics giants, including Sony and Toshiba, pressured Chinese DVD makers into paying US$9 in retroactive royalties for every player they had previously exported. This unpleasant experience convinced the central government to contribute RMB 10 million towards developing a homegrown substitute.
In November China unveiled the fruits of that investment – a new national audiovisual standard that the government hopes will eventually replace DVD technology.
The Enhanced Versatile Disc (or EVD) standard is being touted as an innovation that will release China – which produces almost 70% of the world's DVD players – from the bonds of royalty payments and the scourge of piracy. Players using EVD technology provide five times the image quality compared with current DVD players and rely on proprietary software that makes discs much harder to pirate.
Chinese DVD manufacturers pay about US$2.50 per machine in royalties to the consortium of companies (which also includes Microsoft, Time Warner and Philips) that control MPEG2, the video compression technology that is the current world standard.
If manufacturers adopt the new domestic standard, royalty payments could be cut by as much as US$2 billion a year but so far only five of China's more than 100 DVD makers have signed up to make the EVD machines. SVA Electronics, one of China's biggest DVD makers with annual output of about five million players, was the only major player to announce it has already started mass production.
One compelling reason for industry wariness is that each EVD player will cost up to RMB 2,000 (US$240) compared with the average of RMB 800 (US$97) for a DVD player.
"Quality of pictures is not the top priority in China. People prefer to buy cheap pirated versions of a movie even if it is very poor quality. There is no real market in China for EVD players unless they can be significantly cheaper," said Peter Tan, national consumer insight director for media company Mindshare.
Besides the price problem there is also the question of convincing Hollywood to release its films in the new EVD format. That will be a very hard sell indeed.