China’s and Taiwan’s Entrance into WTO – The Influence on DVD Optical Storage Media Industry Supply Chain

2002.06.05

U-TECH Media Corporation Dr. Jyh-Huei (Jeffy) Lay

賴志輝

Outline DVD Optical Storage Industry • 1. DVD Era • 2. DVD Global Supply Chain • 3. DVD Business Cluster Effect in Taiwan • 4. DVD Business Fast Growing in China • 5. China Government Policy Influence After Entrance into WTO • 1. Influence on Taiwan DVD Industry Supply Chain • 2. U-Tech Supply Chain Strategy • 3. Optical Storage Industry Future Collaboration

DVD ERA

Pre-recorded Media History

Video

Audio

Interactive

VIDEO

FILM BOOK

PHOTO

CASSETTE RECORD

FLOPPY DISK

CARTRIDGE

Paper & Plastic 1956 Magnetic 1982 CD (Digital)

Digital Versatile Disc (DVD)

CD’s limited capacity and slow throughput bit rate made it unsuitable for high bandwidth or larger volume applications such as high quality digital video.

In 1994, Sony and Philips proposed the MultiMedia Compact Disc (MMCD). In 1995, Toshiba and Time Warner proposed the Super Density Disc (SD).

A consortium of manufacturers known as The DVD Forum was formed to develop the DVD families of formats. (Preliminary format was announced on 1995, Dec.)

The DVD families include DVD-Video, DVD-ROM, DVD-Audio, DVD-R/RW, and DVD-RAM.

DVD-Video Merits • 1. High data storage capacity • 2. Multi language (at most up to 8 language) • 3. Multi angles • 4. Multi texts • 5. Multi stories • 6. 16:9/4:3 Screen display • 7. AC-3, 5.1 Channels • 8. Parent control function • 9. Anti piracy • 10. Region Code Design

In 2002, global market volume will reach to 3,145 million pieces.

DVD Player Worldwide Market Volume

Source : Denpa News, Digital Times, 2001/01.

Unit : M pcs

Others USA Europe Japan Asia China

Fastest-selling Electronics Product Now in One in Four American Homes

DVD sales is ahead of VHS in 2001 for the first time.

Source：Newsweek, 2001/08/20.

Household-penetration rate

0

5

10

15

20

25

1 2 3 4 5Years after introduction

%

DVD

CD

PC

VHS

23%

11%

8%

0%

household-penetration rate

1111

2222

3333

4444

5555

DVD

PC

CD

VHS

Years after introduction

%

Household-penetration rate

0

0

0

0

2

1

0.5

0

5

3

2.5

0

15

5

4

0

23

11

8

0

Sheet1

DVDPCCDVHS

10000

2210.50

3532.50

415540

5231180

Sheet2

Sheet3

IT Industry

Multi-media

Audio Video Home Entertainment

DVD Niche Market

DVD-Video、DVD-ROM、DVD-RAM、DVD-R/RW、DVD+RW

Newly Launched Most Popular DVD Movie

怪獸電力公司

Newly Launched Most Popular DVD Movie

Record 1887

Cassette 1956

CD-DA 1982

DVD-Audio 1998

DVD-Audio is more and more public from the first opera, symphony, to the latest movie

soundtrack. e.g. Artificial Intelligence (A.I.) Soundtrack

(Directed by Steven Spielberg and composed by John Williams)

Potential Growth of DVD-Audio U-TECH developed and produced the first DVD-Audio in Taiwan from

CEA to replication .

1980年 1990 2000 2010

Recording D

ensity (GB / Inch^

2)

CD-ROM (650MB)

Infrared Ray Laser

100

10

1

Source : Panasonic/Matsushita.

DVD-ROM (4.7GBX2)

HD-DVD-RAM (15GBX2) DVD-RAM

1X(2.6GBX2)

DVD-RAM (4.7GBX2)

HD-DVD-ROM (15GBX2)

Red Laser Blue Laser

DVD Disc – Continuously Progressive Recording Density

U-TECH joined Advanced Optical Storage R&D Alliance for

next generation specs.

DVD Global Supply Chain

DVD-Video – Designed to be a Worldwide Product

DVD is designed to be worldwide product – Multi language, Multi text, Region Code Hollywood major home entertainment studios, as the most important content provider, dominate the 80% worldwide market. Local production/warehousing and international production capacity supporting if necessary Major raw material import, partially from local supplier. Depend on available sources,quality, stability, pricing and delivery Global Distribution through authorized agents

Material Vendor PC, Glass Substrate, PR, Ni, …

Contents Provider Music, Movie, Multimedia, Software, e-Map, …

Replicator or Pressing Plant CD, VCD, LD, CD-R/RW, MD, DVD pressing, …

Distributor Music, Movie, Multimedia, Software, e-Map

publisher, OEM client, Retailer, …

Consumer

Upstream

Midstream

Downstream

Pre-recorded Media Industry Supply Chain

Hollywood Major Entertainment Studio and WW Major Replicators

Replicator Major Studio Global Location Production

Line Note

Technicolor Disney Trimark /Lions Gate

(Warner for VHS)

United States, Europe (UK,

Lux.), Mexico, Canada

DVD, CD replication and packaging, VHS,

distribution

U-Tech ‘s Strategic Alliance

Panasonic Disc Services Paramount Universal

United States, Japan, Mexico,

Ireland

DVD replication and packaging

U-Tech ‘s Strategic Alliance

WAMO Warner MGM

New Line

United States, Germany

DVD, CD replication and packaging

Sony DADC Sony Pictures (Columbia /Tristar)

United States, Austria, Japan

DVD, CD replication and packaging

U-Tech ‘s Strategic Alliance

Cinram Fox (Domestic N.A.)

United States, Netherlands,

Canada, Mexico

DVD, CD replication and packaging, VHS,

distribution

Infodisc / Mediacopy

(Affiliate of WAMO) Warner Asia

(MGM for VHS)

United States, Germany, Taiwan, Korea

DVD, CD replication and packaging, VHS,

distribution

RGM/ U-TECH

Fox (International) Disney Asia

Columbia /Tristar Asia Image

United States ,Taiwan,

Ireland, Australia

DVD, CD replication and packaging

U-Tech Belongs to RGM Globalization System

中國大陸 澳洲 RITEK Australia PTY.. LTD. ( Ritek 100%)

北愛爾蘭 Multimedia Info-Tech Limited ( Ritek 100%)

美國 MRT Technology LLC ( Ritek 100%)

台灣 Ritek Corp. U-Tech Media

德國 Primedisc Technology LTD (Philips 30%+Ritek70%)

(China)

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Region III

Operation Globally, Service Locally

• U-Tech locates in Taiwan. Aiming for the biggest production/service center in the DVD region III .

• Under RGM system,cooperating with overseas strategic alliance to develop global market.

U-Tech Pre-mastering Facility

Multi Channel Mastering Control Room

Authoring

LBR(Laser Beam Recording) Mastering Facility

Disc Replication/Warehousing Facility

DVD Production Line

DVD Inspection System

DVD Bonding

Auto Retrieving System

DVD Business Cluster Effect in Taiwan

Taiwan WW Market Share (Drive)) Unit: Thousand PCs

CD-ROM

DVD-ROM

Taiwan WW Market Share (Disc)

Source: ITRI

Unit: Million PCs

DVD-Video/ROM

DVD-Video/ROM

CD-R

Key Components on DVD Business

Disc

Spindle Motor

Chip Set

Pick Up Head

DVD Industry Clustering in Taiwan DVD industry environment in Taiwan is more and more

complete basing on CD industry.

DVD Industry

Chipset MediaTek, Ali, VIA…

Pickup Head Aatek, Optrodyne…

Disk Pre-recorded : U-TECH, Infodisc, CMC, … Recording : Ritek, CMC, Prodisc, Infodisc, …

CD-ROM Aopen, Lite-on, BTC, Ultima, BenQ, …

DVD Lite-on, BTC, Ultima, BenQ, …

CD-R/CD-RW BTC, BenQ, Aopen, Lite-on, …

Video-CD BTC, Esonic , …

Spindle Motor Delta, Epoch Electro …

DVD Business Fast Growing in China

China is the WW No. 1 DVD Player Manufacturer

China launched VCD player in 1994, SVCD player (China’s own format) in 1997 and start DVD player in 1998. According to China’s statistics, up to 2001, China

is the WW No.1 DVD player manufacturer and USA is the WW No.1 DVD player consuming market. In 2001, in USA, the import and selling of DVD

player from China is even higher than Japan. In China, key components (chip set, pick up head

e.t.c) for DVD Player should be imported. The top urgent problems need to be solved.

DVD and VCD Player Growing in China

0200400600800

1000120014001600

1995 1996 1997 1998 1999 2000 2001 2002

DVD¾P °â ¶qVCD¾P °â ¶q

DVD Video Player

單位: 萬台 Unit: Million Sets

Sale Sale

China Government Policy Political constraints on disc manufacture - Without licensing from government (PPA), not

allow for optical storage (disc) production - Not allow foreign company investment except

joining adventure with China partner and China partner dominates the company

- Change from “Restrict” investment business to “encouragement” business recently step by step

Influence after Entrance into WTO

Obstacles to Effective Supply Chain Management in China

Poor Infrastructure – China’s east coast is much better than the inland provinces. Need to upgrade highway, air, communications infrastructure. Poor Payment System – despite financial

reform, automated payment systems are still underdeveloped Legal Issues – China’s lack of a modern

legal system is still hindering all aspects of doing business in China

Illegal Copy on Prerecorded DVD Shrinking China Domestic Marketing Size

Serious piracy issue for copy right – More than 90% illegal copy, no interest for Hollywood major studios to distribute in China Serious concern for production

prerecorded DVD on poor security environment or factory

Dependence between China and Taiwan DVD Business

China’s Strength - Low Production Cost (Labor Cost, Utility,Land, and Knowledge) - Huge consuming market - Fast growing economy Taiwan’s Strength - Well-established infrastructure (marketing, production and technology) - Globalization experience

Post WTO, Influence on Taiwan Opportunity: - Taiwan has the change to enter China domestic market - Taiwan’s company in China has lower production cost through cheaper labor cost and land investment - Deduce the business operation uncertainty. China has to align along the rules and disciplines of the WTO. Threaten: - Taiwan capital infusion into China - Price competition, even in Taiwan market

Post WTO, Influence on Taiwan DVD Industry Supply Chain (1)

Most of Taiwan DVD products (drive/disc) exporting to foreign market, post WTO, through the tariff reduction on imported raw material, that will be beneficial to lower production cost. China will be beneficial from the transfer of

Taiwan’s experience (drive). More competition as well as collaboration at more levels. Especially, the strong marketing competition in the foreign market. DVD industry is an open, free and no tariff

obstacle market. Post WTO, generally speaking, advantage is more than disadvantage for Taiwan.

Post WTO, Influence on Taiwan DVD Industry Supply Chain (2) Consolidation of local companies for

enhancing competition China’s political constraints on disc’s business activities will not change shortly More and more alliance between China,

Taiwan and international companies More and more Taiwan’s companies go

directly into China

Taiwan’s Role for China

Transfer of Taiwan’s experience in production, technology, marketing and infrastructure to China will accelerate China’s developing in DVD business and key components localized In near to medium term, Taiwan’s

companies still will be the major DVD drive/player key components supplier to China, aiming for global market

U-Tech Supply Chain Strategy

Enhancing R&D. From “production oriented” to “product developing oriented” and diversification on products Hollywood major studios are U-Tech’s focused

customers USA and Europe are still U-Tech’s target market Remains the biggest and most efficient production

center in Asia Implementing U-Tech well-established

globalization operation model to China whenever political constrain disappears

Optical Storage Industry Future Collaboration

Taiwan and China join developing the next generation new format HD-DVD

- Since 2000 April, several conferences had been held - Focus on DVD marketing developing, Intellectual property, standardizing industrial specification for new format International Collaboration e.g. Data Play

DataPlay International Collaboration Model

• Founded November 1998 to create a universal media for the distribution and recording of digital content

• Headquartered in USA

– Office in Japan – Joint Venture with Toshiba (51% DataPlay Owned) – Optical Head Manufacturing in Singapore -- Media Developing in Taiwan -- Player Manufacture in China

DataPlay digital media – Universal Media for Everything Digital

Music Players

Cell Phones

Computers

Gaming Devices

Digital Cameras

PDAs

Home Audio

Car Audio

Conclusion Post WTO, Taiwan should aggressively joins in the

international collaboration system, in term of our advantages in R&D, marketing, capital financing and geographic location, find out our own position and share the profit through globalization. For industry, especially in optoelectronics industry

(including optical storage), joining WTO, advantages is more than disadvantages on supply chain. For the DVD business, there are mutual

dependence and compensation between China and Taiwan. Aiming for next generation format of optical storage is under developing.

鈺德科技廠辦外觀 Thank You

China’s and Taiwan’s Entrance into WTO – The Influence on DVD Optical Storage Media Industry Supply ChainOutlineDVD ERASlide Number 5Slide Number 6DVD-Video MeritsSlide Number 8Fastest-selling Electronics Product Now in One in Four American HomesDVD Niche MarketSlide Number 11Newly Launched Most Popular� DVD MovieNewly Launched Most Popular� DVD MoviePotential Growth of DVD-AudioSlide Number 15DVD Disc – Continuously Progressive Recording DensityDVD Global Supply ChainSlide Number 18Pre-recorded Media Industry Supply ChainHollywood Major Entertainment Studio and WW Major ReplicatorsSlide Number 21Operation Globally, Service LocallyU-Tech Pre-mastering FacilityLBR(Laser Beam Recording) Mastering FacilityDisc Replication/Warehousing FacilityDVD Business Cluster Effect in Taiwan Unit:�Thousand PCsSlide Number 28Key Components on DVD BusinessDVD Industry Clustering in TaiwanDVD Business Fast Growing in ChinaChina is the WW No. 1 DVD Player ManufacturerDVD and VCD Player Growing in ChinaChina Government PolicySlide Number 35Obstacles to Effective Supply Chain Management in ChinaIllegal Copy on Prerecorded DVD Shrinking China Domestic Marketing SizeDependence between China and Taiwan�DVD BusinessPost WTO, Influence on TaiwanPost WTO, Influence on Taiwan DVD Industry Supply Chain (1) Post WTO, Influence on Taiwan DVD Industry Supply Chain (2)Taiwan’s Role for ChinaU-Tech Supply Chain StrategyOptical Storage Industry Future Collaboration DataPlay International Collaboration ModelSlide Number 46Conclusion鈺德科技廠辦外觀