Chinese Technological Standards

This Christmas, when you buy that new Blue Ray DVD player, you run the risk of not being able to play movies from certain movie studios for an unknown amount of time. Similarly, if you buy a Microsoft Zune, you won’t be able to use your massive iTunes library you’ve assembled piecemeal for 99 cents a song.

At times, it seems like the US personal / entertainment electronics industry is being ground to a halt by digital rights management (DRM). While Hollywood, Sony, and most of the outside world have been squawking over the next format of high capacity DVDs, China has just developed their own standard, EVD. EVD boasts big sound, big storage, and big screens without the license fees to foreign companies who administer the DVD standard and products. With over 80% of the world’s DVD players made in China, Chinese electronics companies and consumers have lost the incentive to pay license fees to play their own movies. They plan on phasing out domestic production of DVD only-players by 2008.

The personal music player market in China has also created an interesting situation concerning a general disregard for DRM. Consumers in the US often factor buying decisions of mp3 players on the after sales music delivery services: by an iPod, use iTunes, buy a Samsung and use Yahoo Music, or buy a Zune, and use Microsoft’s network (or illegal downloads, of course). As a result, the few products that have captured significant market share remain in dominance. Similarly, phone manufacturers are still bogged in their efforts with DRM and haven’t produced a half decent mp3 hybrid phone.

The Chinese market, on the other hand, has very little respect for digital rights management and music player brands, both big brand and no-name, are a dime a dozen. This trend has been drastically beneficial for the development of Chinese brands, and even more beneficial for the Chinese consumer. Without DRM locking consumers into a product, mp3 players are a low priced commodity product, and phones are considered anemic if they can’t play mp3s, mp4s, AVI, and mpegs.

This by no means justifies the rampant violations of intellectual property here in China, just merely an observation that the vacuum of DRM has allowed the consumer electronics market to focus solely on something fairly important: the consumer.

As a result, the Chinese consumer electronics market has become so competitive beyond the realm of protecting after-purchase license fees, that it is starting to dictate the technological standards it will be using, and how they are managed. While the current lapse of DRM rights will not last forever, the jump-start of the current situation has given this market a significant fast-forward. Foreign-owned firms of consumer electronics will have an even more paramount challenge in capturing the market in China: a significant amount of domestic competition already in tune with the Chinese consumer.