In China, a Trend the Studios Can No Longer Ignore

Twentieth Century Fox should be delighted: More than 3.5 million video compact discs of “Titanic” were sold in China last year. The problem is they were all pirated copies--the studio hadn’t released it on VCD yet.

Last week, Fox decided that if they can’t beat the pirates, they might as well join ‘em. At a party featuring Irish dancers, a menu from the Titanic’s last supper and producer Jon Landau regaling the audience with tales from the set and a glimpse of his Oscar, the studio launched the authentic VCD version of the hit movie.

It’s a four-disc dubbed set unavailable anywhere but China and includes a bonus disc of Celine Dion’s music video and a documentary, “The Making of Titanic.” A limited edition is packaged in a box made of wood from a shipwreck.

To Chinese consumers, it’s about time the captains of the movie industry got on board. Hollywood studios have long ignored VCDs, considering them the poor cousin of digital video discs, or DVDs, and a cheap, low-quality form that would never take off in the United States or Europe.

But bootleg VCDs are selling by the millions in China, where a $2 disc set costs half the price of a movie ticket and the choice of titles is much bigger. No longer able to ignore the market, Warner Bros. was the first to jump in two years ago, releasing more than 60 titles in China. Walt Disney’s Buena Vista Home Entertainment and Seagram’s PolyGram have followed suit, and Paramount is coming soon, demonstrating the power of emerging markets to shape technology and influence big studios’ strategy.

“The VCD market in China is very robust,” said Mark Fuoti of Fox’s Home Entertainment division. “It’s become a big market by itself, so we decided to embrace it.”

Fox plans to release 30 more films on VCD in China this year.

VCDs are an upgraded version of a music compact disc, with quality close to that of videotape. DVDs have far better quality and sound and can hold about 10 times as much information as a VCD, which means an entire movie can fit on one disc.

The VCDs have turned out to be a direct route into a tightly controlled but giant market. China allows only 10 U.S. movies into its theaters a year, and convoluted revenue-sharing arrangements mean the studios see little profit. But there are no limits on VCD or DVD imports.

And while foreign films are subject to censorship for political or sexual content, VCD buyers can see every scene of their favorite movies. The scene in “Titanic,” for example, in which Leonardo DiCaprio’s character, Jack, sketches Kate Winslet’s Rose in the buff was dropped here from the theater version but appeared on VCD.

“That’s one more reason to buy the VCD,” Fuoti joked. “We’re hoping to get a bit of buzz off of that.”

To keep up with the bootleggers, the Hollywood studios are hoping to win over customers through quality and other extras, such as music videos. Elie Baroudi, deputy chief executive of Thakral Corp., one of the main distributors of international titles in China, projects that by the end of the year, there will be 200 legitimate movies competing with the pirated versions.

Thakral’s goal is to sell 50,000 discs per title, but so far the company has fallen short. “Sales initially have not met our expectations,” Baroudi said. “It’s a huge market, but a very complicated, very regulated market. . . . Every level of distribution needs a license.”

So far, the pirates are winning on price, timeliness and reach. The copies are cheap--ranging from about $1 to $3, compared with $6 to $8 for an authorized version. The legitimate versions also aren’t released until about 10 months after the theater debut.

“The pirates are very quick,” Baroudi said. “One or two weeks after the theater releases, the VCDs are on the street.”

But customers usually get what they pay for. Some bootleg VCDs are simply filmed from the back of a movie theater, with occasional interruptions when an audience member crosses in front of the camera on the way to the bathroom. But others are clear dubs, with Chinese subtitles and flashy packaging.

“We actually learn from the pirates,” confessed an international manufacturer in Shanghai. “They’re closer to the market. They know what sells. Thanks to them, every Shanghai girl knew who Leonardo DiCaprio was before the film hit the theaters.”

Indeed, while the industry decries the pirates, many concede the cheap and popular copies help create a market and a hunger for a better product. Fox is offering a discount on the authorized “Titanic” to those who trade in their pirated copies. “We’re hoping this interest leads to DVD, which is where our real market is,” Fuoti said.

But there are already 30 million to 40 million VCD players in China, according to Thakral, equal to about 10% of urban households. A family can buy a VCD machine for $75, or about the same price as 15 movie tickets. A 1997 survey by independent polling firm Horizon found that pirated Hollywood movies account for at least 80% of the programming on Chinese VCDs, though the percentage should fall as more legitimate titles become available. The rest are Hong Kong, mainland China and Taiwanese titles and karaoke music videos.

But the studios are hoping to push the market to upgrade to DVDs so they don’t have to make discs just for China. Last year, almost half the 700,000 DVDs sold internationally were purchased in China. The cost of DVD players is expected to drop this year by half, to about $250 per unit, putting them within reach of well-off families and sending projections for disc sales into the millions.