New China

New China

Thomas Wilburn | 13 Jun 2006 08:00
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Why so much? Well, for one reason, China's enforcement of intellectual property laws is notoriously inconsistent. It's not that they don't have them - if the laws were followed, China would be probably have piracy rates closer to the United States, around 21 percent. But while the PRC pays lip service to copyright violations during trade talks and may even temporarily crack down on the criminals, it almost always immediately loosens what little grip it had on the black market. For example, laws passed to shut down offending service providers might require overly-specific citations of which materials are being stolen - as a result, ISPs simply ignore the citation on a technicality.

And why would the communist leadership take serious action? Pirate knock-offs (of all products, not just games) are the engines behind the Chinese economy, along with the sheer brute force of its massive low-wage labor market. Both factors have the effect of lowering the country's cost of manufacturing to almost nothing. Meanwhile, China argues that its population can't afford to pay market prices for games - convenient, since cheap pirated Western entertainment no doubt distracts Chinese workers from the same low wages that contribute to the country's manufacturing success; it's a Catch-22.

Of course, publishers aren't staying idle in the face of all this theft. They've discovered that some games can be profitable in China - namely, multiplayer online games that charge by the hour, often through pre-paid cards or state-owned cell phone accounts (World of Warcraft uses the former). Companies also try the legal angle when possible. According to a high-level industry figure, who would only agree to speak off-the-record, gaming companies continually lobby international agencies to force China to follow its obligations under the U.S.-China Joint Commission on Commerce and Trade (JCCT) talks. The industry hopes that multilateral pressure from countries like Japan and the European Union will also be able to exert pressure.

"How's that working out for you?" I asked.

There was a pause. "Not so well," he replied. "But as a last resort, there's always the big guns: concerted action under the WTO trade agreements."

Not likely, according to Ted Fishman. He's the author of China, Inc., a book about how China is charging to the forefront of global trade. Over the phone, the soft-spoken Fishman stated that "piracy is one of the very top issues Americans face in China," but was pessimistic about the possibility of WTO action under the Trade Related Aspects of Intellectual Property Rights agreement, also known as TRIPS. The Clinton administration was much friendlier with China than the current White House, said Fishman, and yet still managed to bring more than 40 suits against the Chinese for violations under TRIPS. The Bush administration, after six years in office? Zero. Why so few?

"It's mysterious!" he said. "I can't figure it out."

Fishman could only advance the theory that the Republican-controlled government is more consumer-focused, more interested in low priced Chinese goods than taking action that might raise prices at Wal-Mart.

Additionally, Fishman is far more generous toward the Bush administration than I am. But no matter what your political persuasion, Fishman noted that WTO negotiations simply take more time than U.S. publishers can afford to waste. But every day, pirates continue to chip away at the "bottom line" - and even online games aren't immune, since server farms that mimic legitimate games spring up constantly.

The real shame of it all is that China is a market just waiting to be harvested. With more than a billion potential customers in a rapidly developing country, companies that figure out how to sell to the Chinese will make a killing. Of course, that's assuming the Chinese don't manage it themselves. When it comes to the supply side of the market equation, they're not exactly inexperienced ...

Air Supply
About a year ago, Blizzard Entertainment launched World of Warcraft in China, and to kick it off, they co-hosted an event with Coca-Cola. There was even a lavishly-produced ad campaign revolving around a Taiwanese pop group, called S.H.E. And by all accounts, the game has been a success. Sure, there are those pesky government censorship issues, but all in all it's been a smooth progression. Much is owed to partnerships with Chinese companies, who are running the day-to-day business of the game and providing localization, most likely at extremely reasonable rates, by American standards.

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