China not following Hollywood's
script By Adam Minter
In April, the US trade representative
turned up in Beijing with several pirated DVDs and
announced that the US government was filing a
World Trade Organization (WTO) complaint against
the Chinese over intellectual property piracy, and
a lack of market access for US published goods.
Late last week, the US ambassador to Beijing
admitted that the complaint not only didn't
accomplish its goal, but actually resulted in the
Chinese slowing their efforts to halt piracy.
Nobody - not even the Chinese government -
will point to winners
in
this dispute. But what seems undeniable is that if
elements in Washington and Hollywood have their
way, China's urban middle class will no longer be
able to afford its American film and television
habit.
Hollywood isn't the only American
industry unwilling to adjust its prices (downward)
to the realities of the Chinese marketplace, but
it might just be the most clueless. On a recent
Sunday night, tickets for Ratatouille, the
computer-animated Disney cartoon were selling for
60 yuan (US$8) at my local Shanghai multiplex. The
takers were few: when I peaked into the theater,
there were two couples lost among a sea of empty
seats.
There are two competing
explanations for this sad state of affairs: either
ticket prices are too expensive or low-cost piracy
is cutting into the theater business. The latter
explanation is favored by the Motion Picture
Association of America (MPAA), the film industry's
trade group, which claims that the US motion
picture industry loses US$244 million per year in
China due to piracy (the total Chinese box office
take was $336 million in 2006, and much of that
was for Chinese films - which are also heavily
pirated).
Meanwhile, the former
explanation is favored by one of the two friendly
gentlemen who own my favorite Shanghai-area pirate
DVD emporium, who were kind enough to chat with me
about the entertainment market in China - so long
as I didn't name them. "Chinese people can't
afford those [ticket] prices," scoffs one partner,
as he stocks the bins with newly arrived copies of
I Now Pronounce You Chuck and Larry. In
fact, most Chinese people can't often afford the 6
or 7 yuan (US$0.80-US$0.93) that a pirated DVD
costs at this shop, either.
According to
Shanghai government figures, the average monthly
salary in Shanghai was 2,464 yuan in 2006.
Assuming that, say, 10% of that average salary is
disposable (a big assumption), then a $9 movie
ticket becomes an outrageous luxury, and a $0.93
DVD is only marginally justifiable.
Of
course, Hollywood isn't courting the average
Shanghainese salary-earner. It's seeking the
above-average one who drives a new car, owns an
apartment, and doesn't think twice about movie
tickets. As a percentage of the population, they
may be small, but - in China, like nowhere else -
small percentages can hide large populations. And
that's who shops at my favorite DVD shop.
According to one of the owners, the
customer base is 70% local Chinese, and 80% of
what they purchase is foreign entertainment. "But
they aren't as rich as the Americans, either,"
adds the partner. True enough: Middle class in
China - income of roughly $10,000, annually -
isn't middle class in the US. Other American
businesses have figured out that they have to
lower their prices to compete for these earners.
Today, among the educated classes in
China's more affluent cities, Desperate
Housewives, Sex and the City,
Friends, The Sopranos and years
worth of Hollywood blockbusters are common
touchstones for conversation (especially with US
citizens). True, the Spiderman franchise
isn't exactly the Federalist Papers, but it's far
better known than even the most popular European
serials and films. The studios and the MPAA will
never acknowledge it, but the mass audience that
American culture now enjoys in China would never
have developed if the studios had controlled the
distribution and - most important - the price of
their products.
From a business
standpoint, there is precedent here. In the late
1990s the US music industry found itself
confronted by declining sales that it attributed
to the sudden proliferation of mp3 music files
distributed freely via file sharing services such
as Napster. Instead of finding a way to compete
with file trading, the music industry - via its
trade group, the Recording Industry Association of
America - chose to litigate and lobby. Meanwhile,
Apple figured out a way to monetize the demand for
digital downloads. The rest is business history:
today, Apple dominates the digital music
marketplace and the rest of the recording industry
is trying to figure out a way to compete with a
computer company.
Similarly, until
recently the MPAA and Hollywood have appeared
determined to treat mass Chinese demand for
low-cost versions of their products as an affront,
and not an opportunity. Instead of figuring out a
way to compete with the pirates, they've spent
resources complaining to Washington. Fortunately,
some studios are beginning to realize that even if
they are granted total market access and a ban on
pirates, they'll still need to compete for the
limited discretionary income of Chinese citizens.
And so, in the last year, Twentieth
Century Fox and Time Warner began selling DVDs in
China at prices just slightly above those charged
by the pirates. And, reportedly, those DVDs are
selling. When I asked my local DVD seller about
these titles, he nodded. "Sure, the quality is
better for not much better price," he told me.
"I'd like to sell those, too."
If, as
seems likely, Beijing intends to continue dragging
its feet on piracy, Hollywood is faced with two
choices: compete or complain. In so many ways, it
has shown the ability to do the former, but
whether the industry really has the imagination to
monetize the mass Chinese demand for its products
remains an open question. If it declines to
compete, then the only certainties are $9 movie
tickets, empty theaters, WTO complaints and an
unnecessary distraction for US and Chinese trade
negotiators.
Adam Minter is a
freelance journalist based in Shanghai. He blogs
at Shanghai Scrap.
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