China could gradually become a big market for Blu-ray Disc, but for now the optical disc format faces the problems of thrifty buyers, piracy and a competing Chinese disc format for playing high-definition video.
While high-definition TV and movies are just gaining traction among better-off Chinese, cheap pirated DVDs remain the first choice for most of China's cost-sensitive buyers.
Sales started last week for the China Blue High-Definition disc format, a competitor to Blu-ray Disc that its creators hope will drive the sale of hundreds of thousands of players this year.
CBHD's strongest card against Blu-ray Disc is lower prices, said Lu Da, a spokesman for the Chinese industry group promoting the format. CBHD's disc players, sold for 2,000 yuan (US$293), are half the price of their Blu-ray Disc counterparts in China, and the Chinese format's 55-yuan movies are one-third the price of Blu-ray Disc titles.
CBHD plays back in true 1080p HDTV, the same image quality provided by Blu-ray Disc, according to the industry group.
Lu hopes the price difference will persuade movie labels to choose CBHD to distribute their films in China. Indeed, CBHD has signed a deal with one big label, Warner Bros.
Lower prices are crucial, but foreign content providers are still likely to favor Blu-ray Disc since it is an international standard, said Horse Liu, China research head at industry watcher iSuppli.
Warner Bros. plans to sell films on Blu-ray Disc as well as CBHD in China, while Sony Pictures and Disney are only in the Blu-ray Disc camp. Popular films like Sony Pictures' Spider-Man trilogy are already available on Blu-ray Disc in China.
But neither disc format will perform well until it can offer players for less than 1,000 yuan, Liu said.
The importance of price means pirated DVDs, sold on city blocks across China for as little as 5 yuan, are likely to remain king in the country's home video market. Few Chinese will shell out the prices Western consumers pay for movies.
Blu-ray Disc itself has fallen victim to piracy in China. Police in southern China last year seized 800 pirated Blu-ray Disc films copied in the lower-resolution AVCHD format, according to the Motion Picture Association.
AVCHD, compatible with Blu-ray Disc players, uses the MPEG4 AVC/H.264 compression system to fit high-definition movies onto conventional DVDs. Software widely available on both Chinese and English Web sites helps users rip Blu-ray Disc movies and convert them into AVCHD.
Low user acceptance of HDTV in China is also an obstacle for Blu-ray Disc. Sony released its first Blu-ray Disc player in China early last year just as the country was preparing to launch an HDTV channel to air the Beijing Olympics, an event of huge national pride that drew several hundred million Chinese viewers on standard-definition televisions.
The broadcast of Olympic events boosted HDTV's popularity, but Chinese actually watching HD content still accounted for just a fraction of those with equipped TVs last year, said Michael Qiang Zhang, an analyst at In-Stat.
Blu-ray Disc sales fell globally as the economic recession started late last year, said Carl Gressum, principal adviser at Premonvision, a consultancy.
The downturn has likely dulled consumer interest in upgrading from standard DVDs despite the higher image quality on Blu-ray Disc, he said.