China Piracy and the “Like It? Buy It!” Model

February 16, 2013

One of the many IP topics we’ve discussed on this blog concerns the varying strategies employed by owners to combat piracy by changing the behavior of consumers. Many years ago, if you recall, everyone was talking about Microsoft’s China pricing strategy and whether its sky-high retail price for Windows was driving Chinese users into the arms of the copyright scofflaws.

There are many different subsets of this area. In addition to pricing, or perhaps the extreme pricing option, there is the idea that if a content owner gives away a certain amount of product for free, this will “hook” the consumer, who will be willing to pay for future works ’cause, you know, they can’t go without.

This model came up during a recent Businessweek interview with Time Warner CEO Jeff Bewkes, who had this to say about China and copyright piracy:

If you go to Asia, we’re probably not getting paid for 95 percent of our movies. People like our stuff but they’re not paying us to watch it. Look at the papers. The Chinese government is hacking newspeople if you even suggest things that they know to be true. I spoke to the president about piracy. We even tried a little thing: “How about you can give all our stuff to your people for free, but how about you don’t reship it to every country around the region?” That didn’t work. It’s a concern.

A couple things here. First, I have no idea what that sentence about “hacking newspeople” is doing in there. No relevance at all to IP infringement that I can see, but if the goal was merely to make China look like a scary place, then mission accomplished.

Second, I don’t know who the “you” is in the sentence about giving away free content. Since he follows it with “your people,” it sounds sort of like the “you” is “China.” This is bizarre and only makes sense if you are one of those ignorant folks who thinks China is a totalitarian Communist state where the government is responsible for all media content creation and distribution. Sure, media is highly regulated here, but c’mon, there’s more here than CCTV and People’s Daily. This guy sounds like he has absolutely no clue about modern China at all, which is scary for the CEO of Time Warner.

As to the merits, what if Time Warner did in fact give away all their content here on the condition that it would not be “reshipped” to other nations? Again, my first reaction is to wonder if this guy has been hiding under a rock or something. Is he still thinking along the lines of vinyl records and CDs? Has he ever heard about digital media? How did this guy get his job, anyway?

Countries can implement rules that cut down on copyright piracy, including online digital media. But this is not so easy these days. It doesn’t take much for individuals to “reship” digital files across borders, and even DVD printing shops are incredibly mobile, with pirate gangs operating across borders. I would be suspicious of any commitment to content owners regarding redistribution by any country, particularly China.

If China could actually shut down all redistribution, would it then make sense for Time Warner to make such a free content deal? Maybe, assuming competitors in Southeast Asia and Eastern Europe didn’t jump in to pick up the slack. But hey, the hypothetical is so unrealistic, it’s almost not worth contemplating.

I’m not the only one who found Bewkes’ comments unconvincing. Jeff Bercovici, writing in Forbes, had this to say:

It’s hard to understand how Bewkes’s “little thing” could actually make sense on an economic level. For it to succeed, you’d have to assume, for starters, that the Chinese regime is in fact capable of shutting down the production and flow of pirated DVDs within and across its borders. You’d also be assuming that counterfeiting operations wouldn’t immediately sprint up in other Asian nations to fill the void. Those are some pretty questionable assumptions.

Preaching to the converted. Bercovici is right — this doesn’t make sense at all. But he also brings up a second issue concerning “free content” models in general:

Meanwhile, you’d be undermining your own pricing structure in a huge swath of the globe, training 1.3 billion people to think of premium movies and TV shows as things that don’t cost  anything — not even the dollar or so they’re used to paying for counterfeit copies. Think that’s an experiment that could have some unintended consequences? Maybe Bewkes should ask America’s newspaper publishers how giving their content away for free on the internet worked out for them.

Good example. One could also discuss the music industry’s current woes. I asked my last batch of law students (last year) if any of them could remember the last time they paid for music. None of them raised their hands.

If you teach your “customers” that content should be free, they will eventually feel that they have an inherent right to it. Moreover, I doubt they will think twice about redistribution. Really not the way to combat piracy.

Any other brilliant ideas out there?