The People's Republic on Video CD

Emedia Professional, March, 1998 by Dana J. Parker

Everybody knows that China represents the world's biggest potential market for multimedia and consumer electronics. But of course, this market hasn't completely developed yet, and China exists only as a target market, not as a source of products or standards. Right?

Look wain. Not only is China the hottest and fastest-growing market for multimedia, it is in a position to set the standards for the renaissance of a disc-based video format that could ignite a global market just waiting to explode.

China has the largest Video CD (VCD) market in the world, with yearly sales increasing from two million players in 1995 to an estimated 15.2 million in 1997. In China, where VCRs and other consumer electronics arrived in the market more or less concurrently with VCD, a Video CD comprises the heart of a home entertainment system, combining a CD Audio player, Karaoke machine, and video player in one. More than 300 Chinese companies now manufacture VCD players, and they have perfected the art of making and selling them cheaply. In China, a Video CD player costs about $100, and that price is on its way down. While $100 may seem like more money than Westerners credit the average Chinese citizen with being able to throw around, remember, the cost of living in China is low. The average household spends only about $5 a month on rent, and saves about 35 percent of its monthly income. In fact, a Video CD player in China sells for about the same price as a pig--and is arguably far more entertaining.

Another factor in Video CD's Far East success story is the relative absence of other sources of entertainment and information that Westerners take for granted. Chinese broadcast television is so heavily censored that it is often described as not worth watching, let alone recording, and the telecommunications infrastructure hasn't advanced to the point where widespread Internet access is an option--yet. These factors have led to the proliferation of pirated software, certainly, but they have also created a large demand for legally published software of all kinds, very low disc replication costs, and a bonanza for hardware makers, foreign chip vendors, and component suppliers.

With this kind of market clout, it's no wonder that the Chinese government's Ministry of Electronics Industry is becoming involved in defining China-specific extensions to the Video CD 2.0 White Book specification, owned by Philips, Sony, Matsushita, and JVC. It's also not surprising that they are planning to sell Chinese Video CD players to the rest of the world. The market, in other words, is going to become the marketer.

VCD 3.0, OR ... SUPER VCD!

But what will the marketers be marketing? There are two factions courting the Chinese government; one, led by American chip maker ESS and software tool developer EnReach, proposes extensions to the existing White Book spec, called Video CD 3.0. These extensions reportedly include more interactivity by using HTML and Java as programming tools, and could be added to existing VCD players by changing a ROM chip. The government has its reasons to endorse VCD 3.0 as a China-specific format; it would establish a way for them to control content, stem the flow of pornographic titles, and crack down on disc pirates.

The other faction, led by Philips and friends, proposes Super VCD, which concentrates on improving video quality to near-DVD levels. This also increases the space needed to store the same amount of video, so this solution would include new players with three-disc changers. This approach appeals to Chinese OEMs, because it could effectively eliminate the market for DVD in China.

In the end, it doesn't really matter what the government, the OEMs, Philips and friends, or the chip makers want; the masses will decide. Whatever the masses decide they want, the suppliers will supply. In all likelihood, the inheritor of Video CD in China will be some combination of the two.

GLOBAL IMPLICATIONS: WILL THE VCD REVOLUTION BE TELEVISED?

It's a tiny step from a VCD player with enhanced interactivity to a Video CD/PC hybrid. Just such a device has been announced by the Acer Group of Taiwan, for as low as $200, starting in first quarter 1998. These "XC" computers will be based on the VCD 3.0 specification and will be suitable for Internet access, education, video games, home banking, and entertainment. The potential global market for these devices could outnumber the market for full-blown personal computers by ten to one.

Well, that's been tried before, with CDTV, Tandy VIS, CD-i, Web-i, and Video CD. Why should a new appliance-type set top box PC based on compact disc have any more chance of success now that it did in 1992?

The answer is timing, the right price, and the right target market. In a July 1997 Wired article, Peter Schwartz and Peter Leyden argue that "Fundamentally, new technologies generally don't become productive until a generation after their introduction, the time it takes for people to really learn how to use them in new ways." Technological advances--which in the truest sense include popularizing useful technology as well as budget- and envelope-busting capabilities--come when people start experimenting or looking for market niches, rather than trying to create them. In this case, it is not a niche in the competitive and gadget-clogged markets of affluent Countries that's being considered, but a truly global mass market consisting of awakening nations with little or no entrenched consumer electronics or computer technology.