China's digital cable TV market expected to mushroom this year

Shanghai, China -- Chip companies expect the digital cable TV market will double this year, to about 25 million subscribers, as China continues its effort to switch users from analog services.

Subscribers to digital cable TV in China hit 14.2 million in the first quarter, according to a report from research house Analysys International. Last year, the digital cable market more than tripled.

Leaders in the DVB-C chip market here include STMicroelectronics and NXP Semiconductors. But rising demand is prompting a few local companies to get in on the action, including China's second-largest fabless design house, Vimicro Corp., which believes there is still opportunity despite the presence of the top chip makers. "There are no national operators here like Comcast in the U.S., so it's basically a city-by-city decision-making process. As a Chinese company, we can have some advantage there by offering a lot of support," said Mike Yu, a vice president at Vimicro.

China is slowly getting the digital transition off the ground, but it is still behind target. China had wanted to see 100 million DTV households by 2008; a 2015 deadline is in place to end free-to-air analog broadcasts.

By the end of 2005, 4.1 million households were using DTV services, mostly based on cable, according to government figures. That was up considerably from 1 million households the year before, but far short of the government's target, set in 2005, of 30 million households.

Hurdles include a lack of compelling content and the cost of the set-top box and services. Chinese domestic set-top-box vendors control the digital cable market for conditional access, led by Novel Tongfang with 44 percent and DVN with 33 percent. Overseas vendors Irdeto Access and Nagravision increased their market share in the first quarter to 10 percent and 11 percent, respectively, while NDS' share declined to 6 percent, according to Analysys International. Conditional-access card issuance totaled 1.8 million.

China is also a major exporter of digital set-top boxes. According to ABI Research, China will crank out 75 million digital cable and 9 million Internet Protocol TV boxes by 2012. This has drawn the attention of the MPEG Licensing Agency. Earlier this year, Chinese makers of digital set-top boxes appeared to be on a collision course with MPEG-2 patent owners over unpaid royalties.

As Chinese set-top makers ramp up production, the MPEG LA is warning them either to pay $2.50 per set-top box (STB) or face legal action. Chinese companies are cringing at that number, saying it will wipe out most of their profit. The two sides have been talking for months, but no deal has been reached. "Discussions concerning a memorandum of understanding with a representative organization for STB makers in China are on a continuing positive track," said Larry Horn, president of MPEG LA.

For vendors focusing on the domestic market, there may be good reason to stall. There are rumblings that STB makers in the cable industry are interested in switching from MPEG-2 to a locally developed codec known as AVS.

Originally, the plan was to use MPEG-2 for daily programming and H.264 for video-on-demand. "But nowadays, especially at big-city operators, they are also preparing for AVS," said W.S. Kim, director of set-top marketing in China for STMicroelectronics.

That would solve their local problem with MPEG LA, but with China being such a big exporter, there still will have to be some sort of reckoning.