Last Friday, Sinco, a leading domestic DVD player manufacturer, priced one of its new products at 998 yuan (US$120). Competition may drive prices down further still, with one analyst suggesting players may cost 800 yuan (US$97) by October.

Industry insiders say the plunging price is driving up sales.

Guomei official Niu Haiyan, who is in charge of the DVD division, said the price of most domestic-made DVD players has fallen to between 1,100 yuan (US$133) and 1,200 (US$145). High-end players cost about 1,600 yuan (US$193) as of the end of last year, he said.

"Competition between domestic DVD makers is fierce, and the prices are going lower almost every week," Niu said.

That led to a sales surge since May for Guomei of 8 per cent each month. DVD players are now 40 per cent of the company's total video disc player sales.

Sinco spokesman Fan Wenjian said the growing availability of DVD format movies is increasing demand.

He said the former lack of DVDs made DVD player sales sluggish. VCDs do not offer the same quality of sound and picture.

Eight recent start-up domestic disc production lines have eliminated worries about short supplies for DVD sources. Those eight lines can produce 8 million discs yearly, and DVD production is cheaper than VCDs because films only require one DVD disc but usually at least two VCD discs.

"Once the DVD market gets started, the rate of growth will be quite startling," said Gao Wanjun, an official with the China Electronic Audio Industry Association.

DVD player sales are expected to reach 5 million units this year, up from 3 million last year.

Experts estimate the DVD player market will become a 100 billion yuan (US$12 billion) industry in China by 2003.

To seize the quickly growing market, the manufacturers of VCD players, once extremely popular first-generation digital video players in China, are preparing their production lines for DVD players. More than 30 domestic enterprises are now involved in the production.

Yet there are lessons to be learned from the development of the VCD market, experts say.

At its peak, more than 1,000 factories rushed to make VCD players. Price cutting followed as the market became oversaturated, and upgrading models was impossible because patents were owned by foreign companies. The VCD player's price plummeted from more than 4,000 yuan (US$483) to less than 1,000 yuan (US$120) within three years.

Gao said the price war cost the VCD industry 500 million yuan (US$60 million) in profits overall. The total output value for all of China's VCD manufacturers is now only about 20 billion yuan (US$2.4 billion).

"Whether it is the VCD or DVD player, only foreign companies which own the key technologies really win," Gao said.

When a DVD player is produced, patent fees of US$17 are paid to the technology owners.

The DVD industry must learn to master its own fate, Gao warned.

(China Daily 09/05/2001)