New Chinese Involvement Could Trigger HD DVD Price Plunge

China's strategy as a high-definition IP licensor

In April 2005, the first AVS specification was ready. Ten months later - just two years after Sun's grant to Prof. Ahmad at UTA - AVS was declared the national encoding standard of China. The AVS Standard Workgroup was formed to serve as the standard's caretaker. Its inaugural message stated quite boldly China's intent not only to distinguish its intellectual property from that of the rest of the world, but to compete head-on with it on a technological level.

Here is a portion of that statement as it appeared, translated (as best the group evidently could) into English, although the tone of the statement is not lost at all: "The outmoded technology and extortionate price of MPEG-2 will result in it withdraws from the historical arena. MPEG-4 appears the new patent permitting policy of MPEG-4 appears too harshly which makes it unable to be accepted, thereby besieged by the multitudinous business operators. As a result MPEG-4 falls into a deadlock and future is difficult to predict. AVS is China independent standard which based on homeland innovative technology and partial public technology. AVS coding efficiency is more than 2-3 time of MPEG-2, and similar with AVC. Moreover the AVS technical plan is succinct; chip is less complex."

As we now know all too well, the American, European, and Japanese implementations of DVD and high-def DVD are chock full of intellectual property. Video encoding technology, audio technology, security, the interactive layer, the silkscreened label - all of these things are compensated for with royalty payments. And for each technology, there are dozens if not hundreds of businesses and organizations - some of them who have studios, others who have garages - that have specifically measured stakes in its distribution and dissemination.

But the AVS Workgroup offers an intriguing alternative: a single patent license that covers the entire gamut of encoding, decoding, security, and format mechanisms necessary to produce a high-definition video disc. Royalties for that license are payable not to a collection of rights agencies, but to a single authorized licensor and technology source: China.

So why is the DVD Forum involved with this? The DVD Forum represents HD DVD as a standard (while the HD DVD Promotions Group represents its public face). It has an interest in seeing more HD DVD players manufactured at lower prices to the consumer.

In September 2005, as first reported by CDRInfo, the DVD Forum began talks with China's Optical Memory National Engineering Research Center about the possibility of that country's manufacturers being able to build optical drive components that are essentially HD DVD players, but not really.

Meaning, they would be just close enough to being HD DVD players that, if manufacturers wanted to go ahead and call them so, they could - by just paying the license fee. Or, as Chinese officials put it, they could opt to save as much as $1 billion per year collectively and not pay the license fee, if manufacturers were happy producing goods for consumption in China only.

It would save China the expense of developing its own format, which is something it did consider in the form of something called Enhanced Versatile Disc.

The result of that collaboration is the CH-DVD format, announced this morning. The HD DVD Promotions Group trumpeted the news in a message to BetaNews this afternoon. "This is great for the HD DVD camp," the spokesperson said, "since product developers do not have to start from scratch and can achieve shorter development times. The more drives that are made, the cheaper it is to make HD DVD players across the board."

The new Chinese consortium did its own trumpeting, though with a decidedly more formal tone: "The emergence of CH-DVD as a high definition format integrating Chinese-owned intellectual property clearly demonstrates that a Chinese optical disc technology is already at the world-class level. In the near future, all related industries in China are expected to make the transition from standard definition DVD to high definition DVD."

Consider that an order.

But before you get the idea that only China has an interest in CH-DVD, realize that the AVS Workgroup has a global membership list. Though many of the names on that list include Chinese universities and research labs, there are some other very interesting and notable members: the China branch of ATI, IBM, Intel, LG, Matsushita, NEC, Nokia, Philips, STMicroelectronics, TI, Tektronix, and of all the amazing ironies of this story... Sony.

While these companies may not have had a direct hand in creating AVS -- at least, not as direct as Prof. Ahmad's own -- they all have an interest in its success, perhaps just in China, perhaps elsewhere. Think of it as a hedge fund.

The HD DVD spokesperson told BetaNews this afternoon that CHDA plans to make CH-DVD players available in time for the Beijing Olympics next summer. That means the first working models could be on display at CES 2008 in January. Paramount's defection from Blu-ray the other day isn't the only mountain that's moving.