An assault on online piracy in China

Public morals and private property

Chinese websites come to the defence of Western intellectual property

Who is protecting their morals?

THE government of China allows only a trickle of foreign films and television shows to be imported, claiming the restrictions are “necessary to protect public morals”. Yet there is no better place in the world for fans of Western television and cinema to live than in China. Although the authorities censor the internet heavily in other respects, the pearls of Western entertainment are usually just a click away.

Because foreign entertainment companies cannot sell their products in China, they cannot claim damages from the pirates. China’s government has vowed to protect intellectual property, but its enthusiasm is manifestly limited. Foreign spluttering has had little effect; observers had assumed that the government would not crack down until there was a domestic constituency demanding action. But now, for unexpected reasons, there is.

In mid-September the China Internet Video Anti-Piracy Alliance, a group comprising both big Chinese internet portals and foreign rights-owners, including the Motion Picture Association of America, announced a broad legal attack. It said that it had begun collecting evidence against more than 1,000 suspected violators of intellectual property and would start filing lawsuits, with the first target being 503 videos found on Youku, an increasingly popular website, that the alliance claims are pirated. Youku has counter-sued for defamation.

The legal assault constitutes an attempt to separate Chinese companies that produce their own content or pay Western ones for imported material, and then charge users from those that often lift it. The division is not entirely clean. Sohu, a leading member of the new alliance, produces its own games and entertainment gossip, which are the mainstays of its business. But it also permits its users to upload files, which can include pirated material. Still, lines are being drawn, even if they are a bit blurry.

The alliance’s first suit involves material used by Youku that belongs only to other Chinese companies. The damages sought are relatively small: 50m-100m yuan ($7.3m-14.6m). But the stakes are vastly higher. In addition to compensation, the alliance wants the court to stop websites using intellectual property without permission. That, in turn, could create a clear legal precedent for blocking unlicensed downloads.

If these suits succeed, the benefits to Western firms are obvious: their material will receive better protection. The Chinese litigants, however, are worried less about piracy than about losing out on traffic, and thus advertising, to less punctilious rivals. Chinese websites’ revenues from brand advertising rose 64% in 2008 to $1.7 billion, according to BDA, a research firm based in Beijing, which predicts average annual growth of about 25% in the next five years.

Capturing this advertising increasingly spells the difference between wealth and disaster for Chinese websites. Bandwidth is expensive, and many sites are thought to be losing money. One of the quickest ways to increase traffic, and thus appeal to advertisers, is to offer Western content. Youku was founded in 2006 by a former chief operating officer of Sohu. It has already attracted more visitors than Sohu.

Websites that pay for content are understandably upset about losing a war to rivals that do not always do so. If Western entertainment were no longer widely available, they might regain the initiative. Bereft Chinese consumers, in turn, might help to achieve what foreign pressure could not, by persuading their government to allow more legitimate imports.