China teaches West a lesson with video CDs

The video CD is sweeping across China and undercutting the conventional wisdom in the consumer electronics industry that acceptance in US and Japanese markets is the critical tests for products ranging from the Walkman to the Digital Video Disc (DVD).

Apparently, nobody told entrepreneurs such as Hu Zhibiao that the higher quality, more expensive DVD now being offered in Western markets was supposed to be the new alternative to VCRs and video tape.

Employing lower-cost video technology largely ignored in the West, Hu has earned his company, Guangdong Idall Electronics, a commanding share of a market worth an estimated $2.4 billion (£1.7 billion) in China last year while establishing the video CD (VCD) as the standard format for China's millions to watch movies at home.

The video CD is hardly on the cutting edge of technology. The player is basically an upgraded version of the audio CD and even after compression it still takes two to three compact disks to hold most feature films.

In the past, Hu and China's VCD mania might have been dismissed as an aberration. But some industry analysts think China's VCD experience has big implications for the global economy.

The VCD phenomenon "is the first sign that the focus of consumer buying power is shifting toward emerging markets, particularly China and its growing middle class," said Ted Pine, president of InfoTech Research, a US-based company that analyses the electronic publishing and multimedia entertainment industries.

The official Beijing Daily recently touted the VCD as "the pride of the Chinese people". In his first news conference as China's new Premier, Zhu Rongji cited China's upsurge in VCD production as an indicator of China's growing economic might.

But the dark side of the VCD industry is that it has opened up a troubling new front in Hollywood's ongoing battle against video piracy.

Cheaper to make and easier to conceal than video cassettes or laser discs, pirated CDs of recent Hollywood hits are fuelling a huge, clandestine economy all over China. Yet Hollywood film studios are optimistic that the increasing availability of legitimate VCDs, and stricter enforcement of China's copyright laws, eventually will win out over piracy.

"In every market place in the world, the legitimate market is always proceeded by a piracy market," said Tony Wells, senior vice-president in charge of Asia-Pacific markets at Warner Bros Home Video International.

So far, Warner Bros is the only major Hollywood studio licensing its movies on VCDs in China.