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Hollywood sees win in China WTO case as first step

 Shopkeepers wait for customers at a store selling pirated DVDs in Beijing April 24, 2007. REUTERS/Claro Cortes IV - Reuters
Shopkeepers wait for customers at a store selling pirated DVDs in Beijing April 24, 2007. REUTERS/Claro Cortes IV
— image credit: Reuters

By Sue Zeidler

LOS ANGELES (Reuters) - Hollywood scored a win with the World Trade Organization as it seeks inroads into China, but rampant piracy in the market means the WTO ruling is just a first step in a long slog for the U.S. entertainment industry.

The WTO said China broke international trade rules by restricting the imports of movies, music and books and other audiovisual content. The current system hinders studios, filmmakers, musicians, videogame makers and authors from marketing works at competitive prices, it said.

China has said it will evaluate the decision and had not ruled out an appeal.

Hollywood has sought for years to crack the world's third-largest economy, but has failed due to restrictions on getting films into theaters and a torrent of pirated media content, with DVDs going for $1 on most street corners.

The ruling was a landmark decision 10 years in the making, said Greg Frazier, executive vice president of the Motion Picture Association of America, representing the world's largest studios like Walt Disney Co and Time Warner Inc's Warner Bros.

But he said it was unlikely to yield quick results.

"Nothing in China is right around the corner except for pirated DVDs," Frazier said in an interview.

"This is a major change, but it will not change things overnight," said Richard Doherty, analyst with Envisioneering.

"If you want to buy a copy of 'Harry Potter' in the U.S., it's $20, but if you buy it in China, it's only $1 or $2, because so many copies there are pirated," he said.

Michael Pachter, analyst with Wedbush Morgan, said while the business atmosphere may improve, the studios may still face challenges in appealing to consumers, used to cheap DVDs.

"This is a culture that has grown very comfortable in paying for pirated media," he said.

Frazier said studios will now have the ability to distribute films more widely and more freely, whereas state-run distributors had previously taken cuts of box office receipts and charged hefty fees for movie prints and distribution.

"The studios will now have the ability to come into China and distribute," the Motion Picture Association of America executive said. "Before this, they didn't have the choice," he said.

"I know it's going to be better. This is a landmark. I can't tell you it's going to take place in the fourth, first or second quarter. But it's a positive development in one of the fastest growing theatrical markets," he said.

Most broadcasters, entertainment corporations and studios, including Time Warner and Viacom, declined comment, referring queries to the MPAA. Others, including General Electric's NBC and Disney, were unavailable for comment.

SHOW ME THE MONEY

Entertainment conglomerates are typically wary of commenting on sensitive issues of intellectual property and market access involving China, where many have or plan to have projects.

Some analysts say that, despite China's size and relative economic strength during the world's downturn, the country's media market is disproportionately small.

For instance, the country's film administration estimates that a 100 million-strong movie-going public generated total box office revenue of 3.3 billion yuan ($500 million) in 2007 -- a tiny sliver of the U.S. box office take.

The low Chinese box office revenue is the result of lower ticket prices but also endemic piracy, whereby first-release films are often readily available as pirated DVDs.

But some local film executives have predicted the number of movie-goers could leap to 300 million to 500 million in five years.

In a previous ruling this year, a WTO panel said China had failed to protect and enforce intellectual property rights. Hollywood has also been complaining about this issue for many years, to little avail.

(Reporting by Sue Zeidler; Additional reporting by Paul Thomasch and Yinka Adegoke in New York; Editing by Edwin Chan, Gary Hill)

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