dvdremote.jpgIn what seems a classic case of an industry fallen victim to its own success, Chinese manufacturers of DVD players are struggling to survive in a market that has matured almost overnight.

More than 153m million DVD players were exported from China in 2006, up just 4% on the previous year. But their value dropped almost 5% to $6.3bn.

In Europe and the US, which account for 40% of China's DVD exports, the markets for DVD players are effectively saturated. Prices dropped and so did export volumes. The number of DVD players exported to these two regions dropped by almost 6% to just under 62m units.

Back in 2000, the DVD player penetration rate in the US was only around 7% but by the end of 2006, some 80% of US families had a DVD player. Even the upgrade market is saturated as many families are on their second machine and don't see much need to buy a third.

According to CCID, an astonishing 982 Chinese enterprises make DVD players and they are mostly small enterprises with little leverage in areas like pricing or technology. Currently, the patent fees for making a DVD player account for over 30% of its export price, so few brand-name manufacturers see it as an attractive market and the OEM model dominates.

Because of the large chunk taken by patent fees, Chinese manufacturers compain that their margins on a $40 DVD player can be as little as $3.

Some have tried to avoid the royalties burden and in early 2007, Toshiba sued 17 Asian DVD manufacturers, mostly from China or HK, for patent infringement.

Because of the patent problems, China has developed its own high-definition DVD standard, called C-HD DVD-ROM, for next-generation players. But C-HD is a China-specific format and the lion's share of the export market today comes from conventional DVD players, an area where China has little control over the technology.

To improve their position, CCID says that the Chinese manufacturers need to stabilise export prices and focus on “producing products with high-added value.” Easier said than done, of course.

More on the DVD industry's woes here.


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