IP and Law

Music and movie pirates: if you can't lick 'em...

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Cops enjoy browsing through the latest pirate DVD releases

American writer Ellen Sander argues that "it's time to deal with counterfeiting as a fact of life instead of a problem that can be eradicated by ugly might" in an article originally written for Women of China magazine.

The Revenge of the SITH and the Rationale of The Pirates

by Ellen Sander

The long awaited last episode of the Star Wars movie epic, Episode III Revenge of the SITH, was released May 19, 2005. I bought a DVD of it on a Beijing street a few days later for the typical price of 8 yuan (a little under one US dollar). Conventional wisdom dictates that if you buy such a DVD too soon after the movie’s release, the quality might not be the best and, sure enough, the ever-busy Chinese internet chatrooms quickly advised that the Revenge of the SITH DVD on the street at that time had some defects. I found the video quality to be reasonable, compared with other new releases I’ve bought, some of which were so obviously videotaped in a movie theatre that silhouettes of patrons moving in their seats were visible.

The Revenge of the SITH DVD was watchable except for one thing: the English subtitles were from a completely different movie. Much to my relief, they could be turned off. Quality control is not the strong suit of pirates.

The Motion Picture Association of America (MPAA) issued a stern press release about the internet downloading that began almost immediately after SITH’s public release. It read, in part, “There is no better example of how theft dims the magic of the movies than … this type of theft [that] happens on a regular basis on peer-to-peer networks all over the world. ….If piracy and those who profit from it are allowed to flourish, they will erode an engine of economic growth and job creation; undermine legitimate businesses that strive to unite technology and content in innovative and legal ways and limit quality and consumer choice.”

Maybe that’s not true.

Let’s look at that premise, and see if it is really true or reasonable. Having lived in China for three years, I think I have a better perspective on the cultural and economic issues surrounding piracy of disc-based entertainment in developing nations. And let me first say that I don’t believe the Western entertainment business’ hard-line stance on piracy is intractable because of greed or protectionism. I think that they just don’t get it.

Piracy of disc-based entertainment is easy, profitable and serves a need, so it is popular to the point of being unstoppable; it exists all over the world and it has reached critical mass. It is so rampant and widespread that it would take more money and resources to enforce the prevention of pirated movies and music than the producers claim they are losing.

As of Jun. 21, 2005, SITH was the 4th top selling film in America and had grossed, according to US movie industry figures, $350,346,885 in the US alone. Overseas, it did even better, racking up $358,934,173, making the worldwide box office receipts a total of $709,281,058 as of that date, with $8,813,740 of it rolling in from China (1.25 percent, ranking 10th; it was not that popular in China). The production budget for this dazzling high-tech extravaganza was $113 million and the promotion expense for an American movie by a major studio is usually equal to the production expense. Clearly, nobody is going to the poorhouse over Internet or any other kind of pirating of this film.

While the Western entertainment industry, politicians and economic spokespersons are very publicly complaining, launching lawsuits, threatening and predicting doom over the worldwide DVD piracy of movies, they are drastically overlooking something of great, perhaps even greater importance: the distribution of film through piracy reaches an audience in numbers that can not be approached by current marketing practices. The net result shouldn’t be measured only by perceived economic loss in the present, but should be dealt with in terms of cultural benefits and future marketing opportunities.

Piracy exists for good reasons

It is unrealistic to expect developing countries to be able to strictly enforce anti-piracy policies the way that developed nations demand, most particularly in the area of entertainment. There are several very logical reasons for movie piracy and if they were better understood instead of impulsively vilified, reasonable compromises and workable solutions could be found.

When DVDs cost $15 to $20 USD, well beyond the reach of consumers in developing nations whose economies are growing rapidly but unevenly, how can you stop the demand for DVDs priced under a dollar? Isn’t charging what a market can not bear a recipe for undercutting?
As well, not all developing countries have enough movie theatres to satisfy the demand. The Los Angeles Times reported that China, for instance, has only about 2,500 screens and 1.3 billion people, and the Chinese government controls the number and selection of foreign movies that can be shown. So DVDs are the main distribution media for foreign movies, and Western movies aren’t normally released on DVD until months after the theatrical release. Pirate DVDs currently serve the hot market for fresh releases much more effectively than legitimate channels.


Emerson’s Mousetrap and Deng Xiaoping’s Cats

There is an oft-quoted maxim in English, “Build a better mousetrap and the world will beat a path to your door.” (Ralph Waldo Emerson, American author, poet and philosopher, 1803-1882). It means if your product is better than what is otherwise available, a landslide of business will come your way. Pirate CDs and DVDs are a demonstrably better mousetrap. The Chinese have a saying, "Whether it is a black cat or a white cat, as long as it can catch the mouse, it is a good cat." It was coined by Deng Xiaoping (1904-1997), pragmatist and revered architect of China’s economic reform and opening-up. He said this to put a stop to debate over whether a given new Chinese economic policy was socialist or capitalist in nature. It means if the solution is a good one, don’t worry about what it is called. It is possible for movie producers to deal with DVD pirates in a productive, win-win manner. But it will take a creative and farsighted combination of Emerson’s mousetrap and Deng Xiaoping’s cats.

The American film industry claims a $3.5 billion dollar loss to counterfeits. But in some way, each pirated DVD adds to the social and artistic success of a movie. There is value in having films sought after in countries with growing economies. Foreign film stimulates interest in foreign culture. Penetration, however achieved, only creates more popularity which inevitably stimulates a better market. The voracious appetite for foreign films is educating, inspiring and satisfying the curiosity of billions of citizens in newly-opened countries. It wins friends, promotes an understanding of different cultural values and establishes a thriving, albeit illicit, marketplace. Making the most of this phenomenon takes vision far beyond alienating efforts to exact legislative and punitive control.

If You Can’t Beat Them, Join Them

What if major releases of foreign movies had a multi-tiered release and pricing strategy? The first CD release could sell as priced, and a second-tier release might be priced considerably lower, much as paperbacks follow hard cover books. Another tier might be a legal license to sell an unlimited number of copies at a price determined by the licensee. In other words, supply the pirates with legitimate movies at a price they can tolerate and win their business. It might not replace the estimated $3.5 billion that the MPAA estimates as a loss, but some remuneration is certainly better than none. Current pirates could become legitimate entrepreneurs in a vital distribution system they already own and the revenues can be shared. And since they would be supplied with legitimate releases, it would certainly assure quality control.

It's time to deal with counterfeiting as a fact of life instead of a problem that can be eradicated by ugly might. These are new times. The opportunity to foster new business models is at its peak right now, at the dawn of this century of globalization. It’s going to take new paradigms to drive--or ride-- naturally emerging market trends, which is exactly how piracy should be thought of within the entertainment business.

Warner Brothers, one of the three top American movie production studios, is exploring just that. As an experiment in addressing piracy, they released over 125 movies on DVD in China at a low price (22 yuan or $2.66 USD). These are top quality DVDs and Warners hopes that the reliably better quality and reasonable price will compete with the cheaper pirate DVDs of unpredictable quality. They are waiting to see what happens. It is the first indication of awareness that there just might be some common, if as yet untraveled, grounds to proceed along.

Warner Brothers also announced it was setting up a joint venture with the state-owned company China Audio Video (CAV), becoming the first U.S. studio to distribute and market DVDs inside China.

"CAV Warner Home Entertainment will offer consumers a better alternative to pirated disks because our products will feature content not yet available from the pirate market and the assurance of receiving the highest quality product at an affordable, competitive price," said Jim Cardwell, president of Warner Home Video.

The China Factor

US politicians regularly admonish China (and other nations) for the rampant piracy that exists. However, it is not the Chinese government that is at fault. The government, tasked with respecting the intellectual property requirements of WTO membership while serving its own people, has actively sought solutions to a deeply entrenched situation from which hundreds of millions of Chinese (and gleeful foreigners as well) benefit.

In late December 2004, China promised to get tougher on piracy. Reinterpreting the law governing intellectual property rights, the country's highest court more strictly defined the terms for arresting and prosecuting intellectual property violations as crimes and laid out prison terms of up to 7 years for the worst offenders. "Protecting IP rights is necessary not only for China's honoring of its international promises, creating a favorable trade and investment environment and... improving the quality of the economy," said Cao Jianming, vice-president of the Supreme People's Court.

Shortly after that, in February 2005, People's Daily reported that about 100 Chinese music celebrities gathered at Beijing's Capital Stadium, performing on a huge CD-shaped platform for public support in the country's fight against rampant music piracy. The stadium was nearly full, and organizers said 150 million more watched on television. Pop stars sang their hit songs and occasionally urged their fans not to buy pirated products. Organized by the central government and associations in entertainment circles, the concert was just one of a series anti-piracy events aiming to show China’s determination to hit hard on piracy. Events included a forum, a Beijing anti-piracy declaration and a public destruction of pirated products.

"Though the government and justice departments work hard to stamp out piracy, we cannot win the battle against IPR infringement without public support," said Yan Xiaohong, vice chief of the National Copyright Administration, the state copyright watchdog, adding that the public's anti-piracy awareness needs to be raised.

However, what happened next put everything in the indisputable light of reality: “A copyrighted CD for 200 yuan, a pirated one for 10 yuan, what will you buy?" asked someone on stage. "The pirated one," answered the thousands of people in the stadium. (Xinhua)

In June, the Associated Press reported that China publicly destroyed more than 42 million smuggled and pirated discs in what the government called the largest-ever public destruction of pirated CDs, DVDs, and other video discs, part of a continuing anti-counterfeiting effort. CCTV ran footage of the destruction to raise the awareness of official attitudes about piracy. Xinhua reported that more than 140 illegal disc-production operations have been raided by Chinese authorities.

Shanghai cracked down heavily on pirated videos ahead of the 8th Annual Shanghai International Film Festival in June. Stores temporarily closed or boxed up unauthorized DVDs to avoid having them seized in police raids. Sidewalk sellers who peddled DVDs out of suitcases virtually disappeared.
"To crack down against the pirate DVDs is our job and duty," said Lan Yiming, deputy head of Shanghai's culture inspection bureau."We want to create a good cultural environment for the international film festival and give guests from home and abroad a good impression."

Such operations may be just a drop in the bucket, but it does show that the sincere intention is there just as much as it shows that it will probably, for the most part, be somewhat futile. When there is a demand, there will be a supply, one way or another. The piracy of disc-based entertainment is nothing more and nothing less than the product of the most basic principles of market economics and the enduring disposition of human nature. Working against it will inevitably be unproductive. Finding a way to work with it is the way of the future. And it can be done.

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