Will China Video Site Deals Mollify Hollywood’s IP Demands?

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Last week, the operator of one of China’s largest video hosting sites Ku6 Media announced that it had signed a content deal with two major American studios. Both Sony Pictures Television and Warner Bros. will provide the broadcasting rights for several hundred films and TV episodes. This makes Ku6, “the first Chinese local video portal to acquire legitimate copyright content from major Hollywood studios,” according to the Chinese company.

Youku, China’s largest video hosting site with 30 million unique visitors a day, is also working on content deals with major film studios in the U.S.

“You can’t stop piracy,” [BDA’s Duncan] Clark said. “For the studios, It’s more about converting this from a headache to a revenue stream.” (PC World)

Funny thing about that. It’s been apparent for quite a few years now that digital piracy is going to be a problem for a long time, perhaps forever. The question is what’s the best you can do given that problem. Apparently it took Hollywood this long to accept reality.

Well, perhaps that isn’t quite fair. Maybe Hollywood was simply waiting for the right kinds of distribution partners, the right kind of platform. To compete against pirates, you need to put several things together. First, you need some IP enforcement, which believe it or not has happened to a certain extent. The government has shut down a few sites, but more importantly, these Chinese video file sharing sites have cleaned up their act, mostly because of foreign investment and future IPOs (not that there is anything wrong with that).

Second, you need to have at least a decent price for the legal alternative. You can’t compete with free, but you also need a reasonably priced product or no one will buy it. Third, you need quality, which for video means primarily speed, and to a lesser extent high def and a user-friendly interface.

If pirated copies are a bit harder to find than they used to be, and you know that the site you like might get shut down in the near future, you might be interested in a legal alternative. If that legal site is cheap, easy to use, and the quality is guaranteed, you might switch over. This will only work for some folks, but with the gigantic numbers of users here in China, it’s definitely worth it for Hollywood to give this a try.

Will this mean Hollywood will be a bit more quiet when it comes to IP enforcement? Not likely. During bilateral and multilateral IP talks, Hollywood is the big player, whether they are in the meeting room or not, and that’s not going to change if they start making some money. My traditional problem with them is their inflated piracy statistics and knack of dominating the political dialogue. As long as there are movie quotas in China and large-scale digital piracy, the studios will continue with the hyperbolic language and questionable statistics.

We’ll see where this all goes. If I was a U.S. studio, by the way, I would not even bother with a license fee arrangement based on subscribers. Not worth the hassle of trying to determine whether the subscription numbers supplied by the site owners are total bullshit. We’ve been down that path before with respect to online ads. I’d go with some sort of flat fee based on the site’s overall traffic – just negotiate based on anticipated subscribers and adjust in a year or two. I realize that’s completely at odds with other licensing models for this sort of product, but unless the studios want a perpetual fight with China video sites, this sounds like a good idea to me.

Final issue. Every time “China” and “movies” are mentioned in the same story in the U.S. press, someone is bound to bring up import quotas. Behold the latest nonsense:

Currently, China limits the number of foreign films shown in the country’s theaters to 20 each year. Officially uploading the films to the web could provide a way for the movie studios to work around this regulation. But it remains to be seen how these content deals will be regulated and what role China’s censorship will play.

Um, no. Each one of these sites jumped through all kinds of hoops to get their telecom licensing in order so that they could stay in business. Some of their competitors were knocked offline when enforcement of the current regs was phased in. The last thing these guys would do is jeopardize that licensing, and yes, the government does pay attention to what they’re doing.

Ridiculous comment.