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Marc Wandschneider is a professional software developer with well over fifteen years of industry experience (yes, he really is that old). He travels the globe working on interesting projects and gives talks at conferences and trade shows whenever possible.

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Jan 15, 2009 | 07:05:38
Is China the future of Intellectual Property?
By marcwan
The Chinese sure do love a good Korean soap

Every twelve to eighteen months, the police here in China will swoop into one of the staples of the Beijing shopping scene – the cheap (read: pirated) CD/DVD store – and seize all of the merchandise within. Evening news programs will crow about the continuing victory of law and order, their cameras zooming in on the sullen faces of the shop owners as oficers carry box after box of their stock out to be destroyed.

Look a bit more closely, however, and you’ll see that this, like so many other things here in China, is a carefully choreographed show. It is not a coincidence that these raids occur in the weeks immediately preceeding the visit by an American trade representative with a laundry list of Hollywood’s complaints, or right before major international events, such as the Summer Olympics.

Without fail, however, the stores are operational again in a few weeks with “legitimate” merchandise, and with the regular materials maybe a month or two later. Locals and expats alike who enjoy reduced fare offerings will patiently ride it out and resume watching movies when they return. You see quickly that, in a free market without the West’s strict and particular intellectual property copyright laws, people are unwilling to pay the 10-20$ USD that a film or audio CD will cost them.

All the better reason, industry and trade officials will argue, to encourage countries such as China to join international organisations and start abiding by the same copyright regimes that they adhere to. When asked about the alarming decline in CD and DVD sales currently seen in the West, the ease with which anybody can download content from BitTorrent networks, or the unprecedented power Apple wields over the entertainment industry with its iTunes store, they’ll cough nervously. Ask about the increasingly desperate measures such as file-sharing lawsuits that far too often snare octogenarians or primary schoolers, and you can expect a rapid change in subject.

Looking elsewhere, it only gets worse. In October 2007 Madonna, a money-making brand-name machine, declined to sign a new contract with Warner Brothers, instead opting to sign with Live Nation, a tour promtions company (other big name artists such as U2 and Jay-Z have also signed with them). The move sent shockwaves through the industry, but was merely the latest manifestation of a trend that as already well under way. Here in China, rare is the musician or band that makes any money from CD sales and rarer is the one who expects to. Instead, all understand that the road to making money is though touring and merchandise. Other famous Western acts such as Radiohead or, more famously, Nine Inch Nails, are experimenting with alternative distribution mechanisms and making profits off things such as signed and numbered box sets and low-price online downloads.

Indeed, You see the music industry fighting tooth and nail against any changes that give the consumer more choice; purchasing only individual tracks instead of an entire album, being able to use puchased media on any number of personal devices instead of restricting them to just one, or somehow integrating music listening to the online experience (what’s that, you want to put a song on your YouTube video of your cat Chairman Meow attacking a ball of yarn? Not without paying you won’t!)

no, i am not paying royalties on this image
No, I did not pay for this image. I’m a bad boy.

Ultimately, as it is when any industry fights a tectonic shift as this, it is a losing battle. More and more bands will gradually defect and start trying to make a living in the new world. Eventually, to the great dismay of the others, one of the big record labels will jump ship, and the others will either follow or die. The new world of music will involve some officially free content as well as up-sells and touring.

Well enough, one might say, but what about the movie industry? There’s no touring there to make up for a decrease in theatre ticket revenues. But there are a number of other important factors to consider. Already, merchandising is a hugely profitable enterprise, and there’s no reason not to expect this to continue – kids love their Little Mermaid underwear. Secondly, there are large numbers of people who will pay for higher quality content than the average movie rental or iTunes download. With all of the hi-def TVs in use in the USA, some people will pay for access to better quality versions of their favourite films.

Perhaps the most devastating argument, however, against the status quo in the movie industry is the subtle shift occurring in Hollywood: TV is starting to get good. So good, in fact, that many people await the return of their favourite Television shows far more than they anticipate the arrival of the latest movie blockbuster, which has a high likelihood of being bad and costing a lot of money to go see. With the advent of TiVo-like devices, people no longer even have to be a slave to the schedules of the networks. They can watch their shows whenever they want. And if a show is bad, they’ll very quickly abandon it, encouraging Hollywood to develop better content.

No industry is safe. It gets harder and harder to make any money writing books. Most computer book authors I meet are thrilled to make enough to make a down-payment on a small car. Why purchase a book to learn a new programming language when there are hundreds of free tutorials online, all of which are likely to be more concise and useful. Few and very (very) far between are the Steven Kings of the world. At least in this industry there is recognition of the change at hand, and every possible avenue to survive is being explored – observe the relative success of Pearson and O’Reilly’s Safari book network. As Microsoft is learning, people are also increasingly unwilling to pay a premium for software when all they really want to do is surf the web. Equally few are the software companies making much money any more.

The problem is not that people are not willing to pay for things. It’s just that they want to have a sense that they’re getting good value for their money. Despite what Hollywood would have you believe, the decline in audio CD sales can partly be attributed to the broad perception that a lot of the acts coming out of Hollywood these days are poor, at best. Yet, sales for DVDs of TV shows are doing roaring business, as the Top 100 rankings on will quickly attest. Even here in China, where dubbed Korean soap operas dominate the airwaves, post-viewing DVD sales are significant. And one must not forget that iTunes continues to make Apple Computer – and Hollywood – bundles of money.

Some aspects of intellectual property are likely to remain reletively safe. As much as they rail against the huge number of fakes and rip-offs, luxury good manufacturers are probably not losing that much to piracy. People absolutely can tell the difference between a fake and the real thing, and enough people are still willing to pay for the prestige of the real deal (global economic meltdown aside). A real Burberry scarf is actually a lot nicer than a fake, and the people buying the fakes would certainly not be buying the real thing if there were suddenly no other choice.

But for music and film, which have enjoyed something of a Golden Age for the last half century or so, the glory days are over. They are running out of time to adapt, and this far don’t seem to be doing very well.

And so, as in so many other things, whereas some see the Chinese as rebels and rabblerousers, if you look closer, you’ll see that they just might be ahead of the curve.

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