Philips decided that now was the time to press for royalties, and joined with the other 3 who wrote the White Book......................
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Royalty dodge?
There has been some speculation that VCD 3.0 represents an attempt by China to avoid paying royalties to the four foreign electronics companies that hold most of the existing patents for VCD technology. Sony, Philips, Matsushita and JVC control the original VCD technologies specified in the White Book standard for VCD 1.0 and 2.0., and they've been taking the initiatives to upgrade their own standards. None of the four has collected royalties thus far from any of the more than 300 mainland companies that now make VCD players within China, sources said.
Michael Wood, VCD-product marketing director at C-Cube Microsystems (Milpitas, Calif.), sees no cause for alarm in China's handling of its VCD specs. "You have to remember that China is the world's single-biggest digital-video market," he said. Yet "the key IPs are all owned by four consumer-electronics companies."
That places an undue burden on Chinese manufacturers hoping to compete in their home market, Wood said.
C-Cube thus believes the industry should let the royalty matter slide, Wood said. Its intent is not purely altruistic, of course: Removal of the royalty burden could free more Chinese vendors to manufacture VCD players based on C-Cube silicon.
Yet even some of the original VCD-player-technology developers may be willing to forgive the purported royalty debt.
Industry observers pointed out that Philips and Sony have a huge cash cow in the CD-drive market in China; 1x CD-ROM drives-essentially a 10-year-old technology-sell in China at $25 to $35 apiece. That's more than some newer drives cost here, and it might not be a market the vendors would want to jeopardize, sources said. Philips officials were approached for comment but had not returned calls by press time.
Meanwhile, though China's extension of the CD format gives the country control over its domestic market, the move may have little impact outside the People's Republic.
"Exports are a trade-off," said Bob Abraham, vice president at Freeman Associates (Santa Barbara, Calif.). A China-specific standard, he said, could make it difficult for Chinese vendors to sell their products outside China or import titles from elsewhere.
"With DVD so close, it seems strange that they are messing around with this older technology," Abraham said. On the other hand, "with that large a potential market, they would be remiss not to look at having their own format.
"If they are trying to gain an edge, this is one way to do it. There are substantial time delays and costs associated with developing your own standard and then building an infrastructure, but maybe that's the right decision for them."
Several Chinese industry insiders noted that Chinese are not totally oblivious to IP issues. In fact, well aware of its consequences, they are in the midst of establishing a consortium in which certain key patents will be pooled, explained Wu. For example, in exchange of having its authoring technology embraced by the Chinese government, "Our company [EnReach] agreed to give up some of our own patents, though not all of our patents, of course," said Wu.
EnReach's Wu, a Chinese national who came to the United States seven years ago, received his master of science degree at Western Michigan University and then founded his own company in 1995, firmly believes it's possible to do a royalty-based business in China. "You just have to think like the Chinese," said Wu. "First, you can't charge them too much. If it is a small amount, they're willing to pay."
Wu added that the Chinese government has come down hard on pirating of video CDs. "If you are caught, you lose your factory or your store. Big corporations are not going to take that risk."
Acer's Lei noted that infighting could delay VCD 3.0's implementation for months after its release and that private companies may deviate somewhat from the standard in the interest of product differentiation. Lei further said he suspects the software specifics for the VCD standard are not completely ironed out.
"We have a [VCD-player] prototype, but we don't expect to be shipping product until at least early 1998, due to a lack of software," he said.
Alternative efforts
In the meantime, alternative standards efforts to VCD 3.0 may be afoot in China. C-Cube, for one, has teamed with Philips on a proposed China-specific format called Super VCD. The format is claimed to achieve higher-resolution video while maintaining backward compatibility with VCD 2.0. Super VCD encoding reportedly occurs at two to three times the bit rate of the current standard, which specifies encoding at 1.2 to 1.5 Mbit/second.
C-Cube's Wood said MEI officials visited Milpitas in August for a demonstration of the format. But reports from China are that MEI has decided to put the Super VCD on hold for further study.
-Terry Costlow and George Leopold contributed to this story.
Copyright (c) 1997 CMP Media Inc.
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