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2 US movie giants swim with China's
sharks By Gwynn Guilford
BEIJING - China's pirates may be the
world's most prolific DVD (digital video disc)
counterfeiters, but now Hollywood studios are
pinching some pirate sales strategies for
themselves. MGM and 20th Century Fox are the
latest to join the chase for the Chinese
consumer's yuan, and their marketing ploys treat
the fakers as just another competitor.
Fox
announced in late November that Zoke Culture
Group, China's biggest retailer of legitimate
DVDs, will distribute Fox's and
MGM's home video selection.
Guangzhou-based Zoke joins CAV/Warner Home
Entertainment in opting to compete in the
pirate-dominated economy instead of waiting for
the Chinese government to suppress counterfeiting,
which resulted in the loss of what the
International Intellectual Property Alliance
estimates to be about US$2.6 billion in 2005 for
the US film industry. These studios are the first
to battle pirates on their own turf.
"You
have to create a legitimate market that's viable
for the Chinese consumer," said Tony Vaughn,
managing director of CAV/Warner Home
Entertainment. Warner's DVDs are now available
alongside pirated ones in stores around China - a
model that a Zoke press-relations representative
who refused to give her name said her company will
follow.
In China's urban areas alone,
there are about 100 million households with DVD or
VCD (video compact disc) players, according to
Warner estimates. The government also only permits
an annual total of 20 foreign films to enter
Chinese cinemas. This means consumers are hungry
to see the movies that didn't make it to local
screens.
These conditions have made for a
burgeoning demand for pirated DVDs of Western
movies and TV shows among Chinese. The expatriate
presence in urban centers that has boomed since
the late 1990s adds demand.
The dominance
of pirate DVDs over legitimate options is due to
price (they sell for about $1) and timeliness
(low-quality pirate copies usually hit Chinese
streets within a week or so of their US cinema
debut; high-quality versions are released around
the same time as the movie's US DVD release) and
availability (legitimate DVDs are typically sold
only in expensive grocery stores such as Carrefour
and Wal-Mart).
Vaughn said that with a few
of its 400 or so titles, Warner has proved that a
combination of the right strategies can win
profits. Its "short window" strategy means that it
releases films in DVD format before the pirates
have a chance to copy them.
For Chinese
films this means the DVD comes out within two
weeks of its cinema release. Western pictures hit
shelves weeks before the release of the DVD in the
US.
The release window is the most
important factor in competing with faked goods.
Pirates can release camcorder-filmed versions of
movies within days of their US debut. But Vaughn
said Warner has pretty much written off the
customers who spring for the "quick release"
versions.
"There's another spike in the
market when the DVD quality comes out. So what
we've done over the past two years now ... is
release first in the world on DVD," he said. "With
Superman [Returns] we were two months ahead
of the rest of the world on DVD."
To take
advantage of this, though, placement is key. While
selling in Wal-Mart reaches a certain upmarket
swath of customers, retail stores are not ideal,
said Vaughn, because people don't go to such
places to buy DVDs. With this in mind, Warner has
started selling its discs in shops whose inventory
is almost entirely pirated DVDs.
"We're
talking about the permanent ones, not the ones
that just waltzed up on the street," said Vaughn.
"Our belief is that those guys are [catering to a
demand]. So if we can get them to sell legitimate,
then there's a ready-made distribution service."
Warner and Fox are both targeting what are
known as "semi-legitimate" DVD shops - stores that
sell mostly pirated discs but are open to selling
legitimate ones as well.
"If the customers
want the real thing, we'll stock it," said a
saleswoman in one such store in Lido, an area of
Beijing where many expatriates live. "But I think
most customers just want the cheapest price."
Wise to this problem, Warner took a new
sales tack last July. Starting with China's
sleeper hit of the summer, Crazy Stone, it
sold DVDs with bare-bones features and cardboard
packaging for 12-15 yuan ($1.50-$1.90). In fact,
the folded-cardboard look made them virtually
indistinguishable from pirated versions. And even
though most customers didn't know the difference,
several store clerks around Beijing said Crazy
Stone was never pirated.
Yet while
this gives legitimate sellers a jump on the
pirates, ultimately, it's up to the stores to
choose which to stock - which could mean fakes of
the China-specific DVD releases. For
