A report by China Daily on Wednesday indicates that some Chinese TV manufacturers may be banding together to negotiate lower royalty rates for the patent licenses required to build televisions with digital tuners for the United States Market. All TVs must have digital tuners starting next March.
According to the report, the Chinese government claims that manufacturers have to pay $23 per unit to include an ATSC tuner. That is not a burdensome addition to the product costs if the device costs $10,000, or even $2,000. But the little 15″ LCD TVs sell for under $200, and more than 10% of the retail price just for the tuner licensing fee is clearly a competitive burden. The equivalent royalties for the European DVB-T standard tuners are reported as only $1.
Whatever the accurate figures may be for this situation, it shines a spotlight on an issue that is part of almost all high-tech consumer electronic products. As the production costs fall and the volumes increase, licensing fees can become a major part of the total cost and manufacturers will sooner or later push back to get an equivalent reduction. With China making 50 million TVs a year, a potential cost of $1o billion just for tuner licensing fees is a lot of money. And the companies collecting those fees are counting on the income, so they won’t give them up without a fight. The power of licensing fees is why we have not seen a compromise between HD DVD and BluRay high-definition DVDs. So don’t ignore the power of the patent when looking at the costs of products.