The latest royalty will be imposed on domestic sales of DVD players from next year, significantly increasing costs.

Technology developers have asked to begin collecting the DVD royalties on the Chinese mainland on January 1, said Jin Zhenglong, vice-secretary-general of the China Audio Industry Association (CAIA).

The legal fine print is still being negotiated, Jin said.

In October, domestic DVD player manufacturers began to pay a combined royalty fee of roughly US$10 on each exported DVD player.

Two further charges will increase the total amount collected in royalties, Jin said.

Dolby Laboratories said last week that it will not renew its royalties collection contract with the association, opting instead to sign separate deals with enterprises using its technology.

Jin said the decision of the major audio standard owner may double the payment - currently set at less than US$1 for each DVD player.

A package contract could help push the fee lower, he said.

A group of seven companies is also requesting payment for recordable technology of DVD players, Jin said.

The association finished negotiations with Philips, Pioneer and Sony - collectively known as 3C - in October. Talks were also held in April with the so-called 6C alliance of Hitachi, JVC, Mitsubishi, Matsushita, Time Warner and Toshiba.

The negotiations with both alliances agreed a total royalty figure of US$9.

More than 100 Chinese manufacturers of DVD players have entrusted the association to be their representative in negotiations over royalties with foreign companies since 1999.

"We have been trying to win conditions that are as favourable as possible for domestic companies, but the impact on the domestic industry is unavoidable," the official said.

The 6C and 3C alliances previously tried to get Chinese manufacturers to pay 20 per cent of the retail price of each DVD player, which would have been about US$20 for each player.

Liu Huiyang, a manager with Skyworth Multimedia Co, said his company will increase the price of its DVD players on the domestic market next year when the new royalties are imposed.

The company's export price has increased by US$10 since October, he said.

"We have no choice but to increase the price further because fierce market competition has already pushed the current retail price very close to its cost price," Liu said.

Shinco spokesman Fan Jianwen said the price hike has cut the competitive edge of Chinese DVD players in the global market.

The prices of Chinese DVD players are rising, but the prices of foreign players are in decline because overseas firms have expanded their production scale, Fan said.

Manufacturers based in the United States and Europe are increasing their output as DVD players have become more popular on the world market, Fan said.

He said Shinco has co-operated with both overseas and domestic partners to develop the next generation of DVD criteria, he said.

"We have suffered a lot from the royalty issue and we do not want to sit back and wait for the next criteria to debut," said Fan.

The latest statistics from the China Center for Information Industry Development Consulting (CCID) showed that domestic sales of DVD players reached 3.4 million in the third quarter this year, rising 300 percent.

It predicted the industry will enter peak time beginning from next year because families will begin to replace VCD players with DVD players.

(China Daily December 2, 2002)