CCID Consulting statistics show that the EU and the United States were the main markets for China's DVD exports. In 2006, China exported 61.888 million DVDs to these 2 regions, accounting for 40.4% of its total DVD exports, down by almost 6% from 2005. Export value reached $2566.604 million, accounting for 40.5% of China's DVD export value, down by almost 5% from 2005. There was a notable trend of rising export volume but falling export value.
The market in Europe and the United States has gradually saturated. In 2006, there was a slight drop in their market shares, down by 2% to 30%, respectively, as shown in the following figure. There was a drop in China's DVD exports to the United States. Export volume reached 38.928 million sets, down by 3.5% year-on-year, while export value amounted to $1664.684 million, down by 8.2% year-on-year. In recent years, the US DVD player market grew rather fast.
Statistics show that in 2000, the DVD player penetration rate in the US market was only around 7%. By the end of 2006, some 80% of US families had a DVD player. Meanwhile, as DVD players gradually penetrated into more families, US users' second-time machine change demands also gradually approached saturation. The US DVD player market started to show a falling trend.
The EU market as a whole appears sluggish
However, the recordable DVD player market deserves attention. In 2006, the EU market lacked growth momentum. There was a drop in China's DVD player exports to the EU. Export volume and value both experienced a two-digit fall from the previous year. Export volume stood at 22.96 million sets, down by 16.4% year-on-year, while export value amounted $901.92 million, down by 24.2% year-on-year. However, DVD players' new digital program recording function is becoming the main reason convincing consumers to buy or update their DVD products. CCID Consulting thinks that, though the EU market has dropped significantly, as the price of high-end DVD products such as recordable DVD player falls, the market will still have room for growth in the next few years. The recordable DVD market in the EU is worth paying attention to.
Form of export: OEM processing dominates, while market environment is a cause for serious concern. Since 2002, high core technology patent fees have gradually weakened the export advantages of China-made low-cost DVDs. Currently, the patent fee which domestic enterprises pay for making one DVD accounts for over 30% of its export price. This has made most enterprises choose OEM production for foreign brands rather than develop their own brands. China's DVD industry is, in essence, controlled by others.
Meanwhile, as the production threshold is not very high, SMBs continue to enter the ranks of exporters. Statistics show that a total of 982 enterprises engaged in DVD export processing and production in 2006, up by almost 30% year-on-year. Because most DVD production and export enterprises have low technical elements in their products, low price competition has been a rising trend and the export environment is worsening. In 2006, China's OEM DVDs reached 135.83 million sets, down by 2.7% from 2005. Export value stood at $5753.122 million, down by 9.2% from the previous year.
Core patents are lacking, testing enterprises' survival capacity. In early 2007, Toshiba sued 14 Chinese enterprises for patent infringement. Once sued enterprises are "absent from court" or lose their case, the concerned party may issue a limited exclusion order or a universal exclusion order, thus preventing the supposed infringing products from being exported to the United States. The restrictive measures may expend to upstream and downstream products, and even affect the EU market where the same standard is adopted. Of course, the concerned organizations in China are making continuous efforts to effectively avoid the patent issue. Recently, the C-HD DVD-ROM special specification has been adopted in Japan.
This can help lower production cost in China. However, it also requires that HD-DVD players in the Chinese market only read domestic CDs, while relevant patent fees be paid separately for exported HD-DVD products. With the encroachment from foreign brands on the one hand and high lawsuit response fees and patent expenses on the other, domestic DVD enterprises are in a worrying situation.
CCID Consulting thinks that to get rid of this passive situation, enterprises can, in the short-term, stabilize export prices and focus on producing products with high-added values through actively adjusting production and export structure and adopting a blue sea thinking to extend the existing industry boundaries. For example, they can suitably raise the percentage of recordable DVDs, mobile DVDs and other high-end products in their production and export, reducing low-price exports and avoiding low price competition, while continuing to improve their competitiveness in the international market.
However, in the long-term, the key to addressing the problem lies in domestic enterprises fundamentally changing their position at the end of the industry chain and developing more control over core technologies. Obviously, this will be a long process.
