Widespread DVD Piracy in China a Blow to Hollywood

Hollywood’s hopes that the DVD format would prove harder to pirate than videos and CDs are being badly dashed in China and other parts of Asia, where DVD piracy has emerged on a major scale.

China’s experience shows that DVD piracy, once seen in the West as largely a hypothetical threat, is both possible and profitable. It also suggests that no video format, no matter how technologically advanced, is pirate-proof and that there’s a limit to what the film industry can do to stop increasingly sophisticated bootleggers.

“There is strong circumstantial evidence that organized crime is involved in copyright piracy,” including DVD piracy, said Tarun Sawney, the Motion Picture Assn. of America’s vice director of operations for the Asia-Pacific region. “The speed with which our member studios’ product is copied and distributed around the world is a sad testament to this fact.”

In a small neighborhood video rental store near Beijing’s Lama Temple, for example, the walls are lined with pirated Hollywood movies on digital videodiscs. For the equivalent of less than $3, one can buy a two-sided DVD, with “Three Kings” on one side and “Stuart Little” on the other.

Downtown, near the U.S. Embassy, one can buy for less than $2 DVD copies of more recent movies such as “Gladiator,” “Shanghai Noon” and “M:I-2” wrapped in cellophane. These movies, yet to come out on DVD in the United States, are what Chinese call the “cinema version.”

They’re shot with hand-held video cameras in movie theaters, or copied from other non-DVD formats. The cinema versions may include such basic functions as scene selection, but the visual quality is inferior to legitimate DVDs.

At its root, DVD piracy in China is driven by a dearth of imported movies and legitimate DVD titles and is aggravated by weak cultural traditions of intellectual property rights.

Chinese movie studios are turning out fewer and less-popular pictures, while the government limits the import of foreign films to about a dozen each year. Aside from Hong Kong films, there are about three dozen foreign films on licensed DVDs, mostly from Warner Bros. They sell for the equivalent of about $20.

“The consumer in China--and, indeed, in many emerging markets--is hungry for content, and quantity is far more appealing than quality in that scenario,” said Ted Pine, president of InfoTech Research, a Vermont-based multimedia consulting firm.

“Eventually, the novelty wears off and the consumer begins to appreciate a better experience and is willing to pay more for it,” Pine said. “It happened here, and it will surely happen in China.”

The DVD piracy in China is rudimentary compared with the Internet-based copying of DVDs that the U.S. film industry has been successfully battling in court this year. The MPAA sued 2600 Enterprises, a hacker Web site and magazine, which posted links to a computer program known as DeCSS. The program allows users to defeat the DVD’s encryption mechanisms and copy the DVD’s contents to a computer’s hard disk.

The courts sided with the studios, which said that the DeCSS program opens the door to potential DVD piracy. So far, no evidence has been found linking DeCSS to large-scale DVD piracy.

Experts say the first pirated DVDs in Asia came from legally licensed DVD makers in Taiwan. These firms supplement their legitimate sales by producing bootlegged copies for the mainland’s booming black market.

In December, police in the Taiwanese port of Keelung seized 225,000 pirated DVDs that were about to be smuggled into mainland China by sea.

Now, the quantity and price of pirate DVDs appearing in China suggest that bootleggers have begun manufacturing on the mainland as well.

“There might be a few factories in China, either licensed or underground, that have modified their video CD machines to produce” DVDs, MPAA official Sawney said.

China is still dominated by the video CD format, which is less expensive and has poorer audio quality. China’s burgeoning electronics industry is gradually upgrading VCD facilities to produce DVD discs and players. Many generic, low-cost DVD players sold in the U.S. are now made in China and are becoming affordable for more Chinese.

Chinese makers of DVD players have also bucked the industry by ignoring DVD “zone locks.” Licensed DVDs are classified into six zones, from Region 1 for North America to Region 6 for Asia. By design, DVD discs and players must come from the same region; otherwise, the machine won’t play the disc.

The idea is to prevent DVDs of recent movies from being imported to regions where the movie has not yet appeared in theaters. Many Chinese makers, however, have altered their machines so they will play DVDs from any region.

Chinese copyright officials say they are struggling to staunch the flow of bootlegged DVDs. In March, Chinese copyright officials launched a nationwide crackdown that netted 1.72 million pirated compact discs, of which 65,000 were DVDs.

“This showed people that we are going to hit bootleggers hard,” said Wang Huapeng, an official with China’s National Copyright Administration.

But, Wang admitted, “local authorities are often understaffed, and when the crackdown lets up, the smugglers and counterfeiters come right back. The Chinese market’s ability to absorb such products is just too huge.”