The franchise issue that once ensnared Chinese DVD producers may once again undermine the country's High Definition (HD) industry, reported China Business News on February 26.

This newspaper has learnt from Sony that the company, along with Panasonic and Philips, are currently in discussion with other patent holders on the subject of creating a one-stop Blu-Ray franchise license. The license, to be activated later this year, will cover the basic patents for Blu-Ray, DVD and CD. However, for the time being no Chinese holder of any Blu-Ray patent or other intellectual property is part of the new association.

The upcoming franchise demands US$9.50 for each Blu-Ray disk player and US$14 for each burner; while for the disks, US$0.11 will be payable on each Blu-Ray CD-ROM, US$0.12 on CD-R, and US$0.15 on each CD-RW to be produced.

A new company will be established to manage and operate the franchise with headquarters in the US and branches in Asia, Europe and Latin America. The three giants, Sony, Panasonic and Philips, agree that this one-stop product franchise is designed to promote and protect the global Blu-Ray market. Any company or individual holding a basic patent in Blu-Ray, DVD or CD will be invited to join the company both as a patent franchiser and a company shareholder.

Since Toshiba quit the HD-DVD business last year, the vigorous Blu-Ray has seized a monopoly in the high-definition video market.

According to Zhao Guizhi of the China promotion team of the Blu-Ray Disc Association, the popularity of Blu-Ray products is growing rapidly in developed regions like North America, Europe and Japan. In the US market, 107 million Blu-Ray players have been sold since the product made its debut in June 2006. Up to November last year, sales of Blu-Ray in Europe had increased by a factor of more than 13, while in Japan half of the HD market has been taken by products sold after November 2008. All this contributes to an expectation of a massive growth in the market for Blu-Ray products in the very near future.

In China, foreign-brand Blu-Ray products have already hit the market. Hualu Blu-Ray player, a home product with its own intellectual property became available to the public at the end of last year. At 1999 yuan (US$293.11), the price was highly competitive compared with foreign brands. Meanwhile, other domestic producers such as TCL, Hualu, Wanglida, Gowell, Desay and Qisheng have already been authorized to engage in OEM contract exports either in HD format or label.

Zhao Guizhi said that Blu-Ray is being optimized in the Chinese market, with the result that a huge industry chain including content making, editing, disc replication, and retail is being created. But to date the issue of Blu-Ray franchising has been set aside.

According to a higher ranking official with Hualu Group, this company started to produce Blu-Ray disc players in February last year; there was no agency or standard regarding the franchise. The new Blu-Ray franchise operator is likely to demand royalties for Hualu's players that are already in the pipeline. The official also expressed his concern that the "franchise surcharge will increase the cost."

Hualu is reported to have put forward a counter-proposal to the Blu-Ray Disk Association, hoping to fulfill its obligation by paying an agreed proportion of the retail price, for example, 3 percent, rather than a fixed price of US$9.5 or US$14. This consideration, as insiders point out, takes into account the fact that the price of Blu-Ray products will gradually fall, as has been the case with all other digital products.

(China.org.cn by Maverick Chen, March 2, 2009)