"We were, and I believe we still are, a teenaged company. Our whole vision is digital video, and we've been willing to drive the will."
- Michael Wood, senior director of China marketing at C-Cube Microsystems.
Video CD: China one, West zero
by Junko Yoshida
Video CD is the consumer electronics equivalent of communism: Nowadays, you can pretty much find it only in China. Unlike communism, however, since its early 1990s debut Video CD has been vastly underestimated and virtually ignored by the West. That's despite its having been the first digital video consumer product ever to use MPEG-1 digital video compression technology. That novel compression technology notwithstanding, the VCD system suffered from a pronounced absence of glamour, lacking certain key features that enhanced comparable consumer electronics products already ubiquitous in the West.
Unlike the VCR, Video CD had no recording capability. And its limited storage capacity-72 minutes-allowed Video CD to store only half of a 2-hour digital movie, even after compression. That storage shortfall was deemed a serious inconvenience to users.
Thus, many Western engineers and marketers considered Video CD dead on arrival. The product was never seriously promoted, and Western consumers continued to cleave to their VCRs.
But in China-where VCRs were only slightly more abundant than pink Cadillacs because there was nothing on Chinese TV worth recording-the Video CD stormed the country with the force of a revolution between 1995 and 1997, bringing digital audio and video CD entertainment to a populace previously deprived of much choice.
The ironic upshot was that China forged ahead of the West in the acceptance and development of digital video products. Indeed, "China became the world's single biggest digital video market," noted Michael Wood, senior director of China marketing at C-Cube Microsystems.
Misjudgment of the technology and the Chinese market ended up costing many U.S. and Japanese electronics companies dearly. Except for C-Cube Microsystems and a few others, most companies missed out on a huge opportunity to sell chips, components and boards to China, whose annual Video CD market ballooned to 14 million units by 1997.
The Video CD specification was officially developed in the early 1990s by Sony, Philips, Matsushita Electric Industrial and Victor Co. of Japan. But the dominant players in the Video CD player market in China today are not the the consumer electronics giants who invented the technology and wrote the initial spec. Rather, the market is largely owned by Chinese OEMs, which mushroomed in number, and influence, as the decade progressed.
Looking back, however, most industry observers say no one could have anticipated the zeal with which the Chinese embraced the Video CD player and drove the technology forward. Indeed, given the market trends and prevailing business wisdom of the time, betting the farm on VCD would have seemed ill-advised.
Of course, Video CD was never developed as a China-only product; nor was it intended as a playback medium for feature-length movies. The Japanese companies that brought the technology to market initially billed it primarily as a karaoke machine.
C-Cube Microsystems, the first company in the industry to develop a MPEG-1 decoder chip set, has been a staunch backer of Video CD since those early karaoke days. C-Cube has hung on through thick and thin, working with various system OEMs.
"It took a brash young company like C-Cube" to take the plunge and promote Video CD, observed Wood. "We were, and I believe we still are, a teenaged company. Our whole vision is digital video, and we've been willing to drive the will."
A big factor in the U.S. electronics industry's reluctance to tune in to VCD was that America was in the midst of its own revolution, centered on the multimedia PC. The hottest item on the U.S. market in the early '90s was the CD-ROM, and the CD-ROM was a PC product: There were no successful consumer electronics products (embedded systems) built around the format. Philips tried to launch a consumer market with its CD-i, but the product never gained much momentum anywhere in the world.
U.S. companies thus chased the promising PC-centric CD-ROM market, too absorbed in that effort to take notice of the millions of Video CD players being sold across the Pacific.
Even the units' Japanese creators had a mental block when it came to Video CD. Acceptance of the morphing of a karaoke machine into a movie player and reliance on a single, relatively unproven geographic market for the players proved a larger leap of faith than most companies were willing to take. History had shown that no consumer electronics product had ever commercially succeeded without first having taken Japan or the United States by storm. Knowing that neither major market was interested in Video CD, most traditional consumer electronics manufacturers proceeded with extreme caution.
But some market signals were misread. Marty Levine, a partner at Digital Technology Consulting (New York), said that many in the electronics industry had interpreted the low penetration of VCRs in China as a lack of interest in video programming among Chinese consumers. "Exactly the opposite" turned out to the true, Levine said: The Video CD proved a perfect fit for the Chinese market. The VCD's low replication cost compared with videocassettes unleashed the colossal pent-up demand for video entertainment in China.
Enter C-Cube, which needed a killer app for its MPEG compression chips but had found few PC companies clamoring for its hardwired solution. Even as consumer electronics companies rallied around MPEG, a number of U.S. PC companies, including Intel Corp., were developing proprietary video compression algorithms that could leverage the PC's host processing power.
Although CD-ROM was popular at the time, using the video compression algorithm to record movies was curiously not on anyone's agenda. PC and multimedia add-in vendors tended toward such functions as videoconferencing as the killer apps for their encode and decode technologies.
It was Chinese engineers and entrepreneurs who gave the Video CD its second lease on its life. Du Baichuan, vice president professor at the Academy of Broadcasting and Science (Beijing), once talked about how he and a few other consultants in China pulled the strings behind the curtain in China's digital Video CD debut. Edmund Sun, chief technology officer and co-chairman of Digital Video Systems (Mountain View, Calif.) and a co-founder of C-Cube, aided that debut by creating the first reference design for Video CD players. C-Cube pounced on the opportunity with its MPEG-1 chips.
Nobody argues that without the enterprising work of Chinese manufacturers, the Video CD would never have taken off in China. With revolutionary intensity, "they ignited their own manufacturing in 1996," recalled C-Cube's Wood. "The ramp was unbelievable." C-Cube not only attended at the birth of the Chinese Video CD market but remained focused on serving Chinese OEMs.
By 1997, the Video CD market was owned by Chinese manufacturers, Wood said. And in 1997 and 1998, Chinese-made VCDs began trickling out of China, to such Southeast Asian countries as Indonesia and Vietnam.
Industry estimates vary, but Digital Technology Consulting's Levine believes that the annual shipment run rate of Video CD players in China have ranged from 14 million to 16 million units in the past three years. C-Cube believes that more than 18 million Video CD players have been sold in China this year.
C-Cube did not see itself as just a chip supplier to the Chinese Video CD market. It defined its role as a vital coordinator and a creator of "the rest of the Video CD market," Wood said. The company's far-reaching efforts included closely working with Chinese OEMs and government officials to write new specifications, developing authoring tools and making content available.
The Chinese take pride in their ability to build a manufacturing infrastructure and cultivate a huge consumer market for domestically produced equipment. China has even developed its own spec to claim ownership of its VCD technology. In 1998, a format called Chao Ji Video CD (initially called CVD) became an industry standard in China, solidifying a number of mutually incompatible specifications-CVD, S-VCD, HQ-VCD-that all popped up during the same year.
The proliferation of specifications was the product of heated competition among Chinese OEMs, U.S. chip vendors and Asian consumer electronics manufacturers as they vied for share of the VCD market. The new specs, all using MPEG-2 video compression technology instead of MPEG-1, marked a dramatic improvement in video quality and added certain interactive features.
Today, Chao Ji Video CD is no longer a disk-based standard but instead describes a multistandard player that accommodates the original CVD spec along with S-VCD, Video CD 2.0, Video CD 1.0 and CD-Audio.
C-Cube was criticized by some industry observers when it sided with several leading Chinese OEMs to help design and launch CVD in June 1998. The skeptics said it didn't make sense to launch CVD at a time when the demand for Video CD was tailing off and DVD was in the offing.
"We were warned by so many people that there are a hundred reasons why it wouldn't fly," said Wood. But in the end, he said, the energy and drive of Chinese OEMs convinced C-Cube to stick to its guns. Despite the negative predictions, Chinese consumers' insatiable appetite for higher quality Video CD drove sales of CVD Chao Ji Video C to 2 million units in the first seven months after its introduction.
More surprises may be in store. While most Western consumers have yet to see recordable DVD video systems-indeed, as consumer electronics manufacturers continue to bicker over incompatible recordable formats-Chao Ji Video CD already incorporates a standardized specification for video recording. Recordable Chao Ji Video CD systems are expected to reach the Chinese market next year.
China could thus once again leapfrog the West by becoming the first nation to enjoy digital video recording at home. Talk about a cultural revolution
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