China reels in the pirates

Marketing representative Tracy Zhao was once an avid patron of pirated shows - but after Beijing authorities forced her favourite website to shut down, she's learned to live without her guilty pleasure.

'It's harder to find the links because VeryCD, the website I used to go to, removed all the download links earlier this year,' said Zhao, who works for a technology firm in the capital.

The site stopped offering free films, TV series and music in January following pressure from authorities - one of many small victories in China's war on piracy, a pertinent issue as the nation approaches the 10th anniversary of its joining the World Trade Organisation (WTO).

But while the country has made leaps in protecting and respecting intellectual property rights (IPR) after opening its doors to foreign media, analysts say the government still has to loosen trade barriers and crack down harder on illegal practices.

China, once an isolated state, joined the WTO in November 2001, effectively linking the mainland's 1.3 billion-strong market to the rest of the world. Since then, it has seen a boom in cultural entertainment - films, TV shows, music, concerts and sporting events.

This works in tandem with the government's soft-power campaign to boost China's global influence through the media under the 12th five-year plan.

'With the help of digital technology, the mainland's release of many foreign cultural products, including Hollywood films and TV series such as The Big Bang Theory, has been basically occurring at the same pace as in the outside world,' said Professor Song Jianwu, dean of the journalism and communication department at the China University of Political Science and Law.

Foreign capital, products and services have entered the Chinese market more easily thanks to relatively light regulation and because consumers are demanding better entertainment, according to Professor Xie Luncan, who specialises in cultural entertainment management at the Communication University of China.

Foreigners - through their investment - can have minority stakes in joint ventures that are majority-owned by Chinese and, with approval from the Ministry of Culture, can also get involved in individual projects.

Often, foreign players can work in the entertainment industry as film producers, cinema-chain owners, performance agents or developers of multi-purpose venues.

Mason Xu, chief financial officer of Bona Film, a Beijing-based film distributor and production company, said since his firm was listed on the US stock market, businessmen 'can invest in Bona by becoming shareholders so that they can benefit from the booming Chinese film market'.

He says there are two ways foreign films can legally enter China: by paying a one-time, flat-fee licence or through revenue-sharing deals where box-office takings are split among the producer, distributor and cinemas.

This year, Bona distributed Hollywood science-fiction thriller Source Code with a flat-fee licence and will release The Three Musketeers this month.

Each year, 20 imported films are permitted to use the revenue-sharing model, while 'about 30' films could enter the mainland market after the Chinese side purchases the licence to screen and distribute them, according to Beijing-based media research company EntGroup.

Foreign entities could also get directly involved in the film market by jointly producing films - an increasingly attractive option, said Song, the journalism school dean.

'Films jointly produced with foreign [investors] are not subject to the 20 or 30 imported-film quotas so they can enjoy domestic treatment in production and distribution,' Song said.

There have been similar developments in live entertainment and television. The mainland has played host to many foreign concerts, dramas, musicals and sporting events.

'One of the reasons for the growth of the live music and entertainment market in China, especially in Beijing and Shanghai, is the development of state-of-the-art, multi-purpose venues,' said John Cappo, president and CEO of Anschutz Entertainment Group's China division.

One of the world's leading entertainment companies, AEG designs and manages venues such as the MasterCard Centre in Beijing and the Mercedes-Benz Arena in Shanghai.

Another telling sign of the influx of foreign content is the popularity of NBA basketball games, with 1,314 games from the 2010-2011 season broadcast by 51 television and digital media outlets, including CCTV-5, IPTV under the Shanghai Media Group, and

Despite such leeway, there are still limits in place, as the government strives to retain control over content. The Communist Party has been trying to build up state-owned media conglomerates to expand home-grown entertainment and promote the ruling party's views at home and abroad.

The government prevents the direct involvement of foreign capital in some aspects of the entertainment industry - from production and distribution to handling commercial event venues.

For instance, it is still off-limits for a joint venture to set up a performance group or troupe.

All jointly produced projects must be approved by central and local media bodies or government cultural agencies. Joint ventures may be set up, but the Chinese side must retain control with at least a 51 per cent share in the project. All media products must also pass strict government censorship based on dozens of regulations issued by the Ministry of Culture and the State Administration of Radio, Film and Television (Sarft).

Only two state-owned distributors are allowed to engage in revenue-sharing deals: the China Film Import and Export Corp and Huaxia Film Distribution. Private or joint ventures can distribute only flat-fee-licensed films.

The government hasn't taken steps to further loosen up the industry because it regards tight control on films, music, books and other media as an important tool to protect socialist values and political power.

Professor Xie Luncan, with the Communication University of China's Institute of Cultural Industry in Beijing, said pressure from an inflow of foreign products and management has convinced domestic market players to reform and start exporting overseas. This type of open market access was one of the original talking points during WTO negotiations before China joined the body.

The nation was accused in August 2009 of breaching international trade commitments by stopping foreign-owned firms acting as importers and wholesalers of films, DVDs, music, books and journals. The charge was upheld by a WTO appeal body, despite Beijing's vehement denial of the charge.

The trade body also called on China to eliminate discriminatory actions, such as imposing capital requirements, against US distributors of certain media content, and to allow US companies to form joint ventures with mainland firms to distribute music and other sound recordings over the internet.

However, Professor Zhang Hanlin, dean of the China Institute of WTO Studies at the University of International Business and Economics in Beijing, said China had not displayed favouritism towards Chinese firms in terms of market access.

'Both domestic and foreign films have to go through the same censorship process,' he said.

Others argue that unprecedented access to foreign media also leaves the country more vulnerable to piracy. Intellectual property rights was the main contention during China's bid for WTO membership, in light of trade conflicts with the United States and other nations.

Although there have always been problems, especially in the digital era, analysts say authorities have intensified lawmaking and enforcement. In fact, China's efforts were recognised earlier this year in the 2011 Special 301 Report, an annual review of IPR protection and enforcement released by the Office of the United States Trade Representative.

'The Chinese government has a higher incentive to protect intellectual property in the film industry because the beneficiaries of the clampdown are not only Hollywood filmmakers but also domestic companies such as China Film Group, Bona Film Group and Huayi Brothers Media,' said Xu, from Bona Film.

He said the rise of free video websites legally offering high-definition films several weeks after their release had driven many street peddlers of pirated discs out of business.

Legal video-sharing websites might help reduce piracy, but with the number of internet users rising, copyright infringement continues to be a source of concern, the report said. The shutdown of illegal websites and the arrest of operators in the government crackdown appear to be early signs of progress, it said. However, there are still cracks in the barrel, with pirated digital content on hard drives and discs still easily available, as Zhao, the tech firm employee, attests.

'My friend just gave me a birthday present,' she said. 'It was a hard drive with 500 gigabytes of US and [British] TV series she bought online. I guess the seller probably downloaded them from dodgy online sources.'

Tomorrow: the impact of WTO entry on China's major industries

Behind the Scenes

According to movie consultant EntGroup, a quota of Hollywood blockbusters are usually imported through revenue-sharing deals, while a certain number of independent US films and movies from Japan, South Korea, France and India are usually imported via flat-fee licences. Chinese-language movies produced in Hong Kong enjoy quota-free access to the mainland under the free-trade agreement Cepa. Meanwhile, films and TV programmes jointly produced by Hong Kong and the mainland are eligible for mainland-production status, according to the Hong Kong Trade Development Council.

Revenue-sharing: Swordfish, Pearl Harbour, The Mummy 2, Tomb Raider, Charlie's Angels, Avatar, Inception, the Harry Potter franchise, Kung Fu Panda (1 & 2), Transformers

Flat-fee: District 9, Source Code, Slumdog Millionaire, Resident Evil: Afterlife, The Tourist, The Expendables

Co-Production: Infernal Affairs (1, 2 & 3); Red Cliff; Snow Flower and the Secret Fan; The Flowers of War, Zhang Yimou's upcoming film; Bodyguards and Assassins; Crouching Tiger, Hidden Dragon