Warner Bros has becomethe first US studio to establish an in-country DVD/VCD distribution andmarketing operation in China.

Warner Home Videoannounced yesterday the formation of CAV Warner Home Entertainment Co., a jointventure with China Audio Video that is based in Shanghai and is nowoperational.

The announcement followsextensive analysis by Warner Home Video of the dynamic Chinese home videomarket and its potential for continued growth. The hope is to provide a betteralternative to pirated discs by featuring content not yet available from the blackmarket at an affordably competitive price.

As a result of thisresearch, Warner Home Video chose to partner with China Audio Video "tocapitalize on China's enormous consumer demand, which is projected to exceedone billion units this year and includes a growing appetite for legitimatealternatives to poor quality pirated goods."

"China has been an important market for years, but toooften Chinese consumers have had to choose inferior products on theillegitimate market that were available sooner but with poor quality," saidJim Cardwell, president, Warner Home Video.

"CAV Warner Home Video iscommitted to creating a better consumer experience and increased demand forlegitimate products via world-class quality, reduced pricing, Mandarin dubbingand sub-titles, enhanced content and shortened release windows."

As a precursor to thefull-scale nationwide rollout for CAV Warner Home Entertainment scheduled to becompleted by the third quarter this year, China's foremost retail and videooutlets including Wal-Mart, Sam's Club, Xinhua Book Store, Carrefour, R.T. Martand Maya began carrying select new releases in November, including Troy, The Last Samurai and three NBA professional basketball titles. These titles debuted in key cities suchas Shanghai, Beijing, Guangzhou, Shenzhen and Nanjing.

More than 125 titles willbe available at launch, including Harry Potter And The Prisoner Of Azkaban.

"With an installedbase already over 100 million players (60 percent VCD/40 percent DVD) and aplayer price of under $40, the potential for legitimate sales in China isextraordinary," claimed Wang Xiaoran, president of China Audio and VideoPublishing House (CAV), who also will be the president of the jointventure.

"We are workingclosely with the Chinese government and the Ministry of Culture to solidify thelegitimate home video market in China and while we have made great progress todate we have much work to do in the future," acknowledged Wang.

CAV Warner HomeEntertainment will issue new releases on DVD in a two-tier product release andpricing program.

"SilverReleases," available shortly after a film's US theatrical release, will feature English and Mandarindialogue tracks and Mandarin subtitles.

"GoldReleases," will be available in China later than Silver Releases and willroughly correspond with their US market DVD release dates. These releases will have all thefeatures of a Silver Release, as well as enhanced DVD extras such as additionallanguage selections, behind-the-scenes footage, talent interviews anddirector's commentary.

All product will bereplicated locally in China.

Silver Releases andcatalogue titles will have a suggested retail price of RMB 22 ($2.65) and GoldReleases will be priced at RMB 28 ($3.38). All 2 disk VCD titles, which willhave the same features as Silver Releases, will be priced at RMB 16 ($1.93).