China: China's Online Video Providers struck by PRC Copyright Enforcement and a shifting Market are forced to transform.

Last Updated: 30 January 2011
Article by Richard Wigley

Hollywood and Hong Kong film studios have long struggled to monetize their content in China. Though revenues from traditional movie theaters are growing rapidly, the real action may be found in the online market, where Chinese youth prefer to obtain their entertainment (i.e. film and television programming). How then can a content owner best take advantage of this rapid movement to online viewing in today's China?

China has a well-established legal regime for enforcing copyright, but online infringement rates in the P.R.C. have been high since the advent of the Internet. Online copyright violations "made up about 50 percent of all copyright cases in 2009" in the P.R.C.1 While a natural reaction would be for the content owners to bring legal action against infringers, it can be seen from the experience of media companies in their court battles against unauthorized downloads of music in China, intellectual property ("IP") enforcement action, in and of itself, would not likely provide substantial opportunities to monetize content. Thankfully, for content owners, IP enforcement efforts in China are being nicely complemented by the best solution of all----market forces.

Recent efforts by the National Copyright Administration ("NCA") to identify and, if necessary, punish online copyright infringers related to pirated video works have shown the potential for meaningful results, with a number of links to pirated works already having been deleted. 2 The ongoing program targets the top 18 Chinese video websites and will "review and supervise the legitimacy of the 50 most viewed films and the 50 most viewed TV series on each major website".3 The NCA highlights its efforts in combating online piracy, citing, specifically, its efforts in having pirated content removed and, if necessary, to take efforts to suspend operations of infringing websites.4

While the above action by the NCA is laudable and it proves that the NCA is a useful ally in the fight against online piracy, market forces are actually playing a very significant role in moving the online video world in China towards legitimacy. For instance, the NCA cites the fact that "70 percent of Korean TV dramas ... have had authorization from the copyright owners".5 In a world where online piracy rates exceed 80%, why would Korean TV dramas prove the exception? The answer may be that, in addition to improved copyright enforcement, major providers of online video in China have embraced legitimate licensing of content as a viable business model. Popular Chinese online video site, Youku.com, has signed licensing deals with Korean televisions stations which, as per Youku.com, make it "China's largest platform for Korean television shows, which are enormously popular with China's online video viewers".6 The reason that only 30% of Korean TV programs are pirated online has, no doubt, something to do with the efforts of Chinese governmental agencies, such as the NCA, in improving copyright enforcement on the Internet and, equally if not more importantly, to Chinese online video providers embracing the licensing and subsequent distribution of content as a viable business model.

It has been estimated by iResearch that the market for advertising alone on online video websites in China was "approximately $346 million [in 2010], up from $83 million in 2008".7 It is clear that the online video market in China is now a viable business proposition and offers great potential for the future. Beyond today's model for monetization of online video in China, which is largely based on advertising revenues, there is a new and potentially huge market for paid downloads/streams of desirable content. In December of 2010, Youku.com began streaming the movie, "Inception", at a cost to users of 50 RMB (approximately 75 U.S. cents), based upon a licensing deal between Youku.com and Warner Bros. 8 Online ad revenues and, now, revenues from downloads, provide good news to content owners, as the profit potential of the online movie and television market in China may finally be realized by not just overseas media companies from Hollywood, Hong Kong, and Korea, but also by media companies in mainland China.

Sites focused on online video, such as the afore-mentioned Youku.com and others, such as Tudou.com, are among the most visited websites in the world. Online web traffic website, Alexa.com, lists Youku.com as the 48th most popular website in the world, 9 followed by Tudou.com in 51st place .10 Youku.com recently went public with an IPO and has a market cap of over $3 billion ,11 while Toudou.com has filed for an IPO of its own .12 There is clearly a belief in some circles that great deal of shareholder value can be created by offering legitimate online videos in China and companies such as Youku.com and Tudou.com hope to benefit from the 'first mover" advantage.

As noted by Loretta Chao in her Wall Street Journal article on the online video market in China, "Youku and Tudou have acknowledged that users have posted pirated content on their websites and said they would work with copyright owners to remove such material and obtain licenses for legitimate programming" .13 Websites such as Youku.com and Tudou.com now have an even greater vested interest in the protection of the IP rights of video works on their sites, as they are now actually producing their own content for distribution. 14In a recent New York Times article, David Barboza notes that "Anita Huang, a spokeswoman for Tudou, based in Shanghai, says that the company is positioning itself as a Chinese version of HBO".15 Just as major media companies such as HBO aggressively seek protection of their IP rights, we may expect much the same in next-generation media companies, such as Youku.com and Tudou.com.

The efforts by the NCA to monitor the legitimacy of video content on the Internet will be of great help in reducing online piracy and it is good to see that its efforts are already producing positive results. The marketplace and the P.R.C. legal regime are sending clear messages to online video providers ----- the future of online video in the P.R.C. is with legitimate, licensed content and that future may be very profitable indeed.

1. Qiu Bo, China Daily, "Blacklist system to monitor online video copyright", January 29, 2011, page 3.

2. Ibid

3. Ibid

4. Ibid

5. Ibid

6. Youku.com, "Youku Launches Partnership Plan 3.0: Latest phase of strategic plan promotes healthy development of online video copyright market, April 8, 2010, found at http://www.youku.com/about/en/pressroom._view_id_288.html (last visited January 30, 2011).

7. David Barboza, New York Times, "Booming Demand for TV on the Internet in China", July 18, 2010, found at http://www.nytimes.com/2010/07/19/business/global/19chinavideo.html (last visited January 30, 2011).

8. Loretta Chao, Wall Street Journal Online, "China's Youku Goes Hollywood", January 6, 2011, found at http://online.wsj.com/article/SB10001424052748703675904576063510245910424.html (last visited on January 30, 2011).

9. Alexa.com, Site information for Youku.com, found at http://www.alexa.com/siteinfo/youku.com# (last visited on January 30, 2011).

10. Alexa.com, Site information for Tudou.com, found at http://www.alexa.com/siteinfo/tudou.com# (last visited on January 30, 2011).

11. Yahoo, Yahoo Finance, Youku.com Inc. American Depository, January 20, 20110, found at http://finance.yahoo.com/q?s=YOKU (last visited on January 30, 2011).

12. Loretta Chao, Wall Street Journal Online, "China Video Site Tudou Files for IPO", November 9, 2010, found at http://online.wsj.com/article/SB10001424052748704635704575604691206357922.html (last visited on January 30, 2011).

13. Supra at 8.

14. Supra at 7.

15. Ibid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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