CCID Consulting: Review and Forecast of China's DVD Market in 2008

BEIJING — CCID Consulting, China’s leading research, consulting and IT outsourcing service provider, and the first Chinese consulting firm listed in Hong Kong (Hong Kong Stock Exchange: HK08235), recently released its article on China’s DVD market in 2008.

After ten years of development, China’s DVD player market has entered a mature period. The sales volume of China’s DVD player market maintained growth during 2003 and 2006, but the growth rate has slowed down. The sales volume of China’s DVD players had its first drop in 2007, and the market in 2008 continued this trend. In 2008, affected by RMB appreciation, financial crisis, intellectual property fees and patent fees, China’s DVD product export experienced unprecedented tests: high labor and expensive raw material costs, the price of DVD players were challenged again, and climate and natural disasters restricted DVD players’ transportation and sales.

In the face of difficulties, DVD player manufacturers sped up innovations. Products’ trans-boundary and channel expansion became DVD player enterprises’ new focus. China’s radio and TV digitization’s promotion and the Olympic Games’ HD TV broadcasting drove the development of China’s HD digital display industry.

At the beginning of 2008, with TOSHIBA HD DVD’s failure, a persistent war on the HD DVD format was unveiled. This market may become a highlight of China’s DVD player market in 2009.

(I) The market shrinks and sales volume decreases

CCID Consulting’s data shows that the sales volume of China’s player market in the first ten months of 2008 reached 11.092 million sets and the sales revenue reached 5.53 billion Yuan. In 2008H2, China’s DVD market had a slight recovery. The sales volume in 2008 will reach 15.192 million sets, down 18.5% year-on-year. The sales revenue will reach 7.66 billion Yuan, down 20.8% year-on-year. The compound growth rate of sales volume in China’s DVD player market during 2004 and 2008 is 1.17%. The compound growth rate of sales revenue is -5.1%.

SD DVD accounts for a large share of China’s DVD player market in 2008. After many years of rapid development, market saturation has increased: similar functions, insufficient innovation, and less efficient demands has resulted in the decrease of SD DVD sales, especially of desktop DVD. The market presentation shows that China’s DVD player industry has entered a final phase of protection maturity, with new substitutes being cultivated. In 2008, China’s DVD industry accelerated to transfer from SD to HD, but HD DVD players’ high cost and smaller amount of content restricted its development.

Size of China’s DVD Player Market, 2003-2008

                             2004      2005      2006       2007    2008 (E)
    Sales Volume
     (10,000 Sets)         1650.2    1874.4    1938.0     1862.9    1519.2

    Sales Revenue
     (100 Million Yuan)     105.3     108.3     103.2       96.7      76.6

Source: CCID Consulting, Dec. 2008

Figure 1 Sales Volume & Growth of China’s DVD Players, 2003-2008

Source: CCID Consulting, Dec. 2008

Figure 2 Sales Revenue & Growth of China’s DVD Player Market, 2003-2008(E)

Source: CCID Consulting, Dec. 2008

(II) Intense brand competition results in price drop

Because DVD players’ production access threshold is low, many small and medium enterprises enter this market. The competition in this market therefore was heating up, while an unfavorable economy made consumers’ behavior more cautious. The result was a price drop for DVD players.

In 2008, the leading products in China’s DVD player market were the low-end products less than 500 Yuan. Low- and medium-end markets still keep their positions; desktop DVD player market had a steady decline; mobile DVD players’ and recordable DVD players’ price had a large drop.

Figure 3 Average Price in China’s DVD Player Market, 2003-2008 (E)

Source: CCID Consulting, Dec. 2008

(III) Low cost export advantage gradually weakens

In recent years, the global DVD player market has presented relative saturation and growth slow-down. Global financial crisis, high core technology patent fees, RMB appreciation, high raw materials and labor force, and China’s domestic DVD export’s cost advantage has gradually weakened has resulted in the export of China’s DVD players in the first ten months of 2008 reaching 109.8859 million sets, down 6% year-on-year. Export revenue reached $5.10034 billion, up 1.1% year-on-year. OEM is still the mainstream of export.

Figure 4 Export of China’s DVD Player Market, Jan.-Oct. 2008

Source: CCID Consulting, Dec. 2008

(IV) Brand concentration: China’s domestic enterprises are still the backbone

The top five manufacturers in China’s DVD market in the first ten months of 2008 were BBK, Wanlida, Qisheng, Philips and Nintaus, and their sales volume accounted for 40% of the total market. China’s domestic brands lead the market. Facing a shrinking DVD player market, many of China’s DVD manufacturers adopted diversified strategy to reduce market risk, and invested in home appliances and mobile phone fields. Meanwhile, as China’s DVD player market’s backbone, China’s domestic enterprises shoulder heavy responsibilities. In order to reverse the DVD player market’s depressed situation, they increased investment in R&D of HD products, which drives the promotion of the HD DVD marketl; however, a technical bottleneck still restricts China’s DVD industry development. At this critical moment, China’s DVD industry should set up an independent core technology industry chain devoted to the development of new products.

(V) Electrical appliances to the countryside, channel expands capacity

On the original channel basis, many electrical appliance manufacturers strengthened their channel construction to improve their terminal brand image. Meanwhile, they used “appliances to the countryside policy” to expand their channels. “Appliances to the countryside” stimulates rural residents’ purchasing ability. The country market has a bright future. The policy of appliances to the countryside has notable effect.

(VI) HD market has slow start-up

In 2008, BD format conquered the HD DVD format in the global market. But in China’s DVD market, BD’s expensive price and insufficient content restricted BD development; BD camp doesn’t acclimatize in China, such as Sony, Panasonic, Pioneer and Philips. In order to solve insufficient content, BDA China actively cooperates with content providers and China’s domestic DVD manufacturers, enlarging investment in China’s market. As for promotion in the terminal market, in order to cultivate the BD market, blu-ray camp attracted consumers with a bundling sale. In Nov., Sony BDP-S350’s price drop was BD’s qualitative leap in China’s mainland market.

China’s domestic enterprises’ strengths cannot be underestimated. In order to get rid of passive position and deal with the competition of BD HD, China’s enterprises have three kinds of HD DVD formats: red-ray EVD, NVD and blue-ray CBHD; they have breakthroughs in resolution and disc capacity and set up industry chain, which runs through optical head, chip, whole machine, disc and content. China’s HD player market is in a guided period. Price, channel and relevant industrial supports are the advantage of CBHD, EVD and NVD. Meanwhile, relevant departments are preparing to unite CBHD and red-ray HD NVD to set up China’s HD alliance, which aims at developing independent HD format.

Based on the above analysis, CCID Consulting forecasts that China’s DVD player market will present the following trends in 2009:

• Common DVD players’ sales will keep a downward trend. It is forecasted that the sales volume will be down 10% year-on-year
• Price will be lower. The average price will be lower than 500 Yuan
• The HD DVD market will increase; the whole DVD market’s competition pattern will be adjusted
• DVD player exports will transfer to high-end products while still focusing on OEM
• The country market has a bright future, which will become DVD enterprises’ focus