An Uneven Fight: Hollywood Versus The Pirates

The Age

Saturday January 27, 2007

MARY-ANNE TOY - Mary-Anne Toy is The Age's China correspondent

The big movie houses are taking on China's pirate DVD industry. The problem is their measures may be a drop in the ocean.

IT WOULD seem a David versus Goliath challenge: taking on China's massive pirated DVD industry.

Ironically, this time Hollywood is playing the part of David as US film studios launch a long-term assault on China's DVD pirates.

American film studios sick of not seeing much return from the sale of up to 3 billion DVDs each year in China, many of them their movies, have decided to try to claw back some of the action. And rather than rely on indignant lecturing by US politicians over their Chinese counterparts' failure to crack down harder on intellectual property rights violations, Warner Bros has decided to tackle the issues that helped create the massive pirate film industry.

US film studios typically license Chinese companies to release genuine DVDs, but the attempts have been largely half-hearted, with the China market an afterthought, very few outlets and high prices. Two years ago, after several years of research, Warner Bros decided to try to wean Chinese consumers off fake DVDs by offering them the genuine product, at cheaper prices with faster theatre-to-DVD release times and greater availability.

It was Hollywood's most visible punch in its fightback against Chinese piracy. Because foreign media companies can only operate in China if they have a local partner, Warner Bros joined with China Audio Video, an audiovisual publishing house affiliated with the Ministry of Culture.

Tony Vaughan, managing director of the joint venture, CAV Warners, estimates the size of the Chinese DVD market is 2.5 billion to 3 billion discs sold every year. Vaughan says that while this shows the Chinese love Hollywood movies, only a fraction of films traded were legitimate products. Warners' target is the estimated 550 million urban Chinese, 80 per cent of whom own a DVD player. A study commissioned by the Motion Picture Association of America last year estimated that 90 per cent of the movie market share in China was lost to piracy and the cost to the major Hollywood studios of piracy worldwide was more than $US7 billion ($A9 billion) last year.

Most ordinary Chinese buy their pirated DVDs from street vendors for about 6 yuan ($A1) in the big cities such as Beijing and Shanghai (prices can be even cheaper in second-tier cities). Foreigners also flock to various permanent shops and stalls, which offer a far wider range but at higher prices, usually 10 yuan per disc, but will give you a refund or exchange if they sell you a faulty illegal disc.

Consumers in China can now buy a genuine Warner Bros or Universal movie from as low as 15 yuan. Deluxe editions retail for up to 45 yuan from an increasing number of official outlets. Warners claims that, depending on demand for the individual movie, as many as 20,000 outlets will now offer the genuine product. This of course is a scratch on the millions of pirate outlets, but it's a start, Vaughan says.

Hollywood's failure to profit in China isn't just down to DVD piracy. China doesn't have many cinemas, even in the densely populated urban centres, and the Government permits only 20 foreign films a year to be released in Chinese cinemas. As well, there is still limited access to satellite or cable television.

Added to censorship issues is regulatory uncertainty. In 2003 the Government trialled allowing overseas investors to buy up to 75 per cent of cinemas, but in December 2005 changed the rules so that mainland investors had to own at least 51 per cent. The change prompted Warner Bros, who had been leading the investment in new cinemas across China, to announce in November that it was quitting the cinema business.

Vaughan says he has no delusions of transforming the market overnight but hopes that by getting into the marketplace Warners can eventually create a tipping point at which legitimate DVDs become viable and profitable for erstwhile piraters. Other Hollywood film studios are making similar noises about joining Warner Bros, a move Vaughan says his company would welcome. "Our competitors are the pirates, (not each other)," he says. News Corporation's Twentieth Century Fox announced a deal with a Chinese distributor late last year to introduce lower priced genuine DVDs and improve availability from its library, but other details were not forthcoming.

The Chinese Government, too, is responding and not just to continued pressure from Washington and its World Trade Organisation obligations. Beijing is recognising that as China evolves from being the world's factory, it needs to begin robustly protecting intellectual property for the sake of its home-grown entrepreneurs, scientists and inventors. Crackdowns against piracy, often timed to coincide with state visits between Chinese and American leaders, typically involve vendors of pirated goods moving the offending items out of sight for a few days or weeks, but increasingly have involved closure and fines against vendors.

The largely successful protection of Beijing 2008 Olympic merchandising from piracy shows that when the Government wants to act, it can. While reluctant to specify figures to illustrate whether the strategy is working, apart from volunteering that turnover is doubling every year, Vaughan offers an example of how attitudes are changing. CAV Warner also distributes local films and the surprise hit of last year was Crazy Stone, a low-budget comedy by 28-year-old mainland director Ning Hao. CAV Warner held a news conference with the entire cast and director to launch the DVD, which was priced at a relatively affordable 15 yuan.

"We had pirate outlets coming to us with suitcases of cash wanting to buy our legitimate products," Vaughan recounts proudly. CAV Warner obliged, selling them at wholesale prices and it has been working with wholesale networks, who deal almost exclusively in pirated products, to switch them to carrying genuine DVDs.

International intellectual property rights cases in Chinese courts have also been rapidly increasing in recent years. From 2002 to 2006, Chinese courts dealt with 931 cases involving overseas parties. During that period, the Beijing No. 1 Intermediate People's Court ruled in favour of overseas claimants in 60 per cent of its 670 IPR cases, local media have reported.

At one of the Beijing DVD shops most favoured by expatriates for its wide range and quality assurance, the owner, who prefers to be unnamed, says he has heard about Warner Bros' plans but says they are of insufficient scale to threaten pirate operators such as him.

The owner says his success in the past three years has been dependent on offering the latest movies and getting stock of big sellers quickly. He was shut down temporarily and partially last September during the last big IPR crackdown and admits that tightening Government restrictions may force him out of business by the end of this year, but he doesn't foresee the end of pirated DVDs for at least five years. "Chinese people's income is low," he says.

Mary-Anne Toy is The Age's China correspondent.

© 2007 The Age

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