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To: John Rieman who wrote (35454)	8/25/1998 12:37:00 PM
From: DiViT	Respond to of 50808

CHINA TO GET INTERIM VIDEODISC 08/24/98 AUDIO WEEK (c) Copyright 1998 Warren Publishing, Inc. All Rights Reserved. China has authored home-grown video standard that would bring DVD-like MPEG-2 quality to current Video CD (VCD) format, and will have cooperation of VCD licensors JVC, Philips, Matsushita and Sony in developing system that's seen as affordable bridge to eventual DVD market there (AW July 27 p4). Confirmation of deal and proposed specs for Super Video CD (SVCD) came from VCD licensors and Toshiba executive Koji Hase, company's point man on DVD Forum, in response to our queries. All parties characterized SVCD format as interim product to rescue Chinese manufacturers from profitless VCD business while giving domestic industry means of sustenance until infrastructure for DVD launch emerges in China. Companies all affirmed commitment to establish DVD market in Region 6 China in cooperation with local manufacturers. They disputed any contentions that SVCD represents collapse of DVD Forum or disinclination of China to pay royalties on DVD system. Hardware makers also emphasized that emergence of SVCD doesn't portend format war -- or move to segregate China from worldwide DVD standard out of fear of software piracy or transshipments. "The decision to develop this is highly motivated by sensible business principles, and for valid economic reasons," Toshiba's Hase told us. "The fact is that Video CD is not profitable for the Chinese, either the hardware or software, and everybody really knows that DVD will take some time for significant penetration in China. So, the manufacturers need a stopgap product for the interim." Hase said insufficient software supply was one impediment to earlier DVD launch in China and that current DVD hardware prices are too high for consumers there. For time being, he said, tooling and components for DVD don't exist domestically: "We're deeply committed with the Chinese manufacturers to start DVD production, but it's tougher than most markets. There are so many domestic manufacturers compared with anywhere else -- it's a situation unique to China." SVCD was developed by Chinese consortium including govt. Ministry of Electronics Industry (MEI), Quinghua U., 5 VCD manufacturers. Instead of MPEG-1 fixed-bit rate compression now used for VCD to yield 74 min. of VHS-quality video, SVCD combines MPEG-2 used in DVD and variable bit rate up to 2.6 Mbps. At 2X speed, combination provides capacity of 40-50 min., depending on bit rate, along with 2- or 4 channel MPEG audio. As bit rate is increased, video quality improves but capacity decreases. Although typical movie would need 2 or more discs, proposed player would have 3-disc autochanger for near-seamless playback. Like DVD, interactive function is possible with SVCD, and MEI wants feature for education in schools, village homes, industry. SVCD players will be backward compatible with VCD software -- DVD manufacturers have option to add SVCD format to VCD playback that already exists in current machines, VCD licensors and Toshiba told us. SVCD has same physical specs as CD and music CD, Toshiba's Hase said, but uses different authoring system. All parties concurred that manufacturing process identical to CD formats would enable Chinese software industry and replicators to exploit investment in current facilities while DVD manufacturing base is established. Installed base for VCD players is 25 million in China, and software selection includes about 15,000 titles, said Howard Woo, consultant who works there for Philips, which produces 60,000 players monthly at joint-venture factory in Beijing. Domestically made players sell for under $100, and most sophisticated component is MPEG-1 decoder chipset from U.S.-based C - Cube . Patrick Henry, company's senior mktg. dir., told us C - Cube also will supply chips for SVCD players. He said transition to SVCD would occur over next 6-9 months and projected that DVD market wouldn't emerge in China for 2-3 years. Interim hardware format will sell at 15-20% premium over VCD, he said. C - Cube and LSI Logic are developing DVD kits for Chinese manufacturers, described as low-cost modules for easy integration in domestically made players. LSI spokesman said company's kit could yield player that would sell for equivalent of $240 in China.