Chinese television makers face a sharp cut in margins with a requirement to pay a ten-U.S.-dollar digital TV patent fee for each box exported to the United States, said an industry association.
According to the U.S. digital TV switching timetable, all sets sold from March 1 this year must conform to the technical requirements of the U.S. Advanced Television Systems Committee, or ATSC standard.
The China Chamber of Commerce for Import and Export of Machinery and Electronic Products said in a report that five of the more than 170 patent holders of the ATSC standard, including Sony, Thomson and Tri-Vision, have demanded Chinese producers pay ten U.S. dollars per set sold in the U.S.
The patent fee could amount to 160 million U.S dollars as Chinese manufacturers were estimated to have exported 16 million color TV sets to the U.S. last year, according to China's Ministry of Information.
The fee may rise with more members of the standard demanding a patent fee in the future, Guangzhou-based Southern Metropolis News quoted the chamber as saying. An earlier report said it could be as high as 23 U.S. dollars per unit.
"Our South Korean peers are being charged 20 to 30 dollars for each box exported to the U.S. It could possibly to be the case in China too," said an intellectual property consultant at China's leading home appliance maker Changhong Electric Appliance, who refused to gave his name.
The fees will deal a heavy blow to China's TV industry as its profit margin is very thin, Bai Weimin, of the products bureau of the Ministry of Information, was quoted by the China Securities Journal as saying.
Chinese manufacturers priced CRT sets at an average 61.2 U.S. dollars and LCD TVs at an average 320.39 U.S. dollars. The gross profits only accounted for 10 percent of the price, and the patent fee would mean no profits for Chinese producers, Bai said.
"As a result, some firms may have to retreat from the U.S. market."
Since the early 1990s, China's color TV producers have paid five to seven U.S. dollars in patent fees to foreign appliance makers like Thomson, Sony and Tri-Vision for each TV set they sold.
Analysts said TCL, China's biggest TV maker, and Xiamen Overseas Chinese Electronic Co., Ltd. (Xoceco) were expected to be hit hardest as they had the largest share of TV exports to the U.S.
However, the ATSC standard offered no guarantee of the patent fee value from May 1. Analysts said the exact amount would only be agreed after a series of negotiations and even lengthy lawsuits, which could last years.
Bai said the China Video Industry Association (CVIA) had employed lawyers to negotiate with Canada's Tri-Vision and work with the High-Definition Multimedia Interface founded by electronic multinationals, including Sony Corporation, Thomson and Hitachi, to slash the patent fee.
The CVIA said 13 Chinese producers, including TCL, Changhong, Haier, and Xoceco, would open a joint venture in Shenzhen at the end of this month to negotiate the digital TV patent fee with foreign patent holders.
Company officials said negotiations would help in solving some, but not all, of the struggling TV industry's problems.
Xoceco spokesman Wei Zili said: "Domestic TV producers should accelerate the development of core technologies. This is the ultimate solution."
Wei said the 13 major home appliance makers had started work on their joint digital TV patent pool.