Due to a global DVD market slowing down in the past two years, and in particular the US and European markets reaching saturation, while China’s DVD export volume kept rising, the value fell in 2006, according to a study by CCID Consulting. In 2006, export volume totaled 153.35 million sets, up 4% over 2005, while the export value stood at $6.33 billion, down 4.6% from the previous year.

CCID Consulting statistics show that the EU and the United States were the main markets for China’s DVD export. In 2006, China exported 61.89 million DVD machines to these two regions, accounting for 40.4% of its total DVD export, down by almost 6% from 2005. Export value reached $2.567 billion, accounting for 40.5% of China’s DVD export value, down by almost 5% from 2005.

DISTRIBUTION OF CHINA'S DVD EXPORTS, 2006







Source: CCID Consulting, May 2007



There was a drop in China’s DVD export to the United States. Export volume reached 38.93 million sets, down by 3.5% year-on-year, while export value amounted to $1.665 billion, down by 8.2%. The US DVD player market grew fast. Statistics show that in 2000, the DVD households penetration was only around 7%. By the end of 2006, some 80% of the US homes had DVD player.

In 2006, growth in the EU market lost momentum, showed in the drop in China’s DVD player export to the EU. Export volume and value both experienced a two-digit fall from the previous year. Export volume stood at 22.96 million units, down by 16.4% year-on-year, while export value amounted to $901.92 million, down by 24.2%.

The DVD recorder market deserves attention, says CCID Consulting. DVD players’ new digital TV programme recording functions are becoming the main reason why consumers keep buying or upgrading DVD hardware. Though in value terms the EU market dropped significantly as the price of high-end DVD recorders is falling, there is still room for unit volume growth over the next few years.

DISTRIBUTION OF CHINA'S DVD EXPORTS IN THE EU MARKETS, 2006









Source: CCID Consulting, May 2007



OEM manufacturing dominates. Since 2002, high-end technology patent fees have gradually weakened the export advantages of China-made low-cost DVD hardware. Currently, patent fees which domestic enterprises pay on each DVD machine produced accounts for over 30% of its export price. This has encouraged most Chinese manufacturers tofocus on OEM production for foreign brands rather than develop their own brands. Essentially, the analysts say, China’s DVD industry is controlled by others.

Meanwhile, as market entry into production is not very high, small to medium-size companies continue to join the ranks of exporters. Statistics show that a total of 982 companies are engaged in DVD production for export in 2006, up by almost 30% over 2005. Because most DVD production and export enterprises operate in low-end technical product components, competition is getting tough in view of very small margins.

In 2006, China’s OEM DVD export reached 135.83 million sets, down 2.7% over 2005. Export value stood at $5.75 billion, down by 9.2% from the previous year.

In early 2007, Toshiba sued 14 Chinese companies for patent infringements. Given that the parties sued did not show up in court or lost their case, they were issued with limited or universal exclusion orders, thus forbidding them to export their products to the United States. The restrictive measures may extend to upstream and downstream products, and even affect the EU market where the same standard is adopted. The concerned organizations in China are making continuous efforts to effectively avoid the patent issue.

Recently, the DVD Forum has adopted the C-HD DVD-ROM special specification for the Chinese market. This is aimed to help lower production cost of next-generation high-definition DVD machine for the Chinese market. However, it also requires that HD DVD players in China only read domestic CDs, while relevant patent fees be paid separately for exported HD DVD products. With encroachment from foreign brands on the one hand and costly lawsuits over patent infringements on the other, domestic DVD manufacturers are in a worrying situation, notes CCID Consulting.

The analysts suggests that to aleviate the situation, Chinese makers will have to focus on high-value products and extend the range of products to push their industry boundaries. For example, they could raise the export share of recordable and portable DVD devices and other high-end products and reduce production and export of low-priced products thus avoiding the tough competition in this sector.

In the long term, CCID believes that the key to addressing Chinese's competitive predicament lies in the need for domestic enterprises to fundamentally alter their position in the industry chain away from OEM production controled by others and toward developing their own core technology which they can control. This will be a long process.

Story filed 17.06.07