China Blue High-definition Disc (CBHD) launched as challenge to Blu-ray

http://business.timesonline.co.uk/tol/business/markets/china/article6732410.ece
Leo Lewis, Asia Business Correspondent
China has unleashed a new “format war” for control of the high-definition DVD market in an audacious attempt to unseat the Blu-ray disc as the sole global standard.

The launch of the China Blue High-definition Disc (CBHD) for domestic use is viewed by analysts as a dramatic assertion of the country’s rising technological confidence and they believe that the format could mount a serious challenge to Blu-ray.

China’s gambit comes just 18 months after the Blu-ray Disc consortium — a 100-strong group of technology and media companies led by Sony — declared victory over the similarly sized HD-DVD Forum led by Toshiba. Warner Bros, whose support for Blu-ray was the deciding factor during the 2008 war, has said it will support the new format as the technology finds its feet.

The potential growth of the format in China has already become clear. In just a couple of months since it was launched, the cheaper all-Chinese CBHD players are thought to be outselling Blu-ray players at a rate of about three to one. The discs, priced at 50 yuan (£4.50), set consumers back about a quarter of the cost of a Blu-ray.

Toshiba’s defeat last year followed a marketing showdown, allegations of giant payoffs and dirty tricks and an all-out charm offensive to win the support of the Hollywood studios. The sudden capitulation by HD-DVD cut short what might have been a long and expensive campaign in the VHS/Betamax mould.

But the sudden emergence of the CBHD this year has shattered the peace. Atul Goyal, technology analyst at CLSA, said: “You are looking at a technology that comes with the backing of the Chinese Government and has the power to win the support of the big studios if they sense it is a way to make money in China. Everyone thought the format war was dead, but it is clearly still alive.”

Toshiba confirmed that the CBHD format was based largely on technology developed for HD-DVDs and that it was “in a licensor-licensee relationship”.

China’s decision to back the new format — the Government owns the critical software — is understood to arise from a desire to protect its electronics industry from the royalty costs of using technology developed overseas. Chinese makers of ordinary DVD players have to pay about $22 per machine in royalty costs to a variety of patent holders; the dominance of Blu-ray would have condemned them to many more years of payments as that technology grew in market share.

The creation of a “home grown” format will fatten the margins of Chinese technology groups as Beijing pushes them to become internationally competitive.

From the perspective of Hollywood studios, meanwhile, the sale of movies on a cheap format may temporarily counteract the damage done by piracy.

CBHD was initially expected to flex its muscles as a format in China alone. Warner Bros has said that 100 titles will appear on the format by the end of this year and about 30 are already available.

But at least one other big Hollywood studio is understood to be considering support for CBHD, suggesting to some that it may creep out from China into neighbouring markets. CBHD players are available in Hong Kong and the cheaper format may prove attractive in other emerging markets in the region.

Although analysts believe that high- definition disc technology will only be a stopgap until the era of 100 per cent downloaded content, others believe that that time could be at least a decade away.