"...Under public pressure to pay what they consider excessive royalties on DVD products, manufacturers in China are threatening to roll out their own specification for DVD-like disks and players for the Chinese market. The spec for China's so-called Advanced Video Disk (AVD) technology, which foreign companies would be required to license for products they sell in China, could be published this year if DVD royalty issues are not settled. But industry sources outside mainland China said AVD may be a ploy to gain leverage in negotiations over DVD royalties.

Chinese manufacturers raised the topic of the new AVD standard after members of the DVD Forum said at the 2001 International Consumer Electronics Show earlier this week that they are stepping up efforts to get DVD system manufacturers to pay intellectual-property royalties, which can amount to as much as 10 percent of DVD hardware's total cost.

"The unilateral high royalties will be very harmful for the global industry and customers. It sets up a terrible barrier to further negotiation and cooperation," said Jin Zhenglong, secretary general of China Audio Industry Association (CAIA), which represents about 90 DVD and video CD player manufacturers in China. "It probably will drive Chinese manufacturers to give up on the DVD format. It also means foreign companies [will] need to pay high royalties for adoption of China's homegrown format in this growing market."

But Lu Shuh-tai, director of the Optical Electronics and Systems Laboratory in Taiwan, said he believes the Chinese government "wants to negotiate with the DVD Forum to see if it can get greater benefits from the royalties." The proposed AVD spec could be used "as leverage," Lu said..."