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March 29, 2007

China Ho!

We talked about it in New York. We danced around it in Mumbai. And its dark cloud has hovered above every conversation we’ve had about media and content over the past three weeks. I’m talking, of course, about piracy. And next week we’ll be heading into what is arguably the world’s epicenter for IP infringement: Shanghai, China.

Surrounding Shanghai are wholesale distribution centers that sell thousands of tons of goods to hundreds of thousands of distributors every day. And a large percentage of those goods are, well, less-than authentic. Some experts estimate that a full one-third of China’s GDP comes from pirated and counterfeited goods. More than 90 percent of software used in China is pirated, and the same goes for video games. But it’s not just about software and games anymore.

Budweiser beer, Tide detergent, Kotex feminine care products, Marlboro cigarettes. These are just a few of the American brands that have been co-opted by counterfeiters in China. Yamaha estimates that more than 80 percent of the motorcycles in China with Yamaha emblazoned along the side are phonies. The problem is pervasive, and there are few signs that it is getting any better.

With an epidemic this bad, any self-respecting multi-national would want to take action. So, what are the options?  Well, they can reduce their prices to make pirated products less appealing. This also happens to make their own margins less appealing. Or they can send armies of lawyers into action. Expensive, and not that effective. Then there is the strategy of tightening up product cycles to constantly outpace the counterfeiters. Great if you make software. Not so good if you make motorcycles.

It is a vexing problem. And one that threatens many different brands and businesses. And no industry is more concerned with this than the entertainment business. Perhaps that’s why the New York deep dive was dominated by talk about the Digital Millennium Copyright Act and digital rights management.

It can all seem so hopeless sometimes. But there was one idea that came out of New York that seemed to have potential. Admittedly, it is still unclear how it would work. But the basic theory was that if you could embed a piece of code into a piece of digital content – a movie, a song, a game – and that code could report back to the copyright holder the usage of that content, like how many times it was played and on what devices, then maybe a pricing model could be developed that would appropriately measure the value of that content. The code wouldn’t prevent you from sharing the content, it would just report the usage patterns back to the rights holder.

Then the idea went a step further, when someone suggested that using this theory, you could then know how many people had viewed the content, and assign value accordingly. The exclusivity of that content would factor into its value. You would pay more to be the first to see a movie, or hear a song. Or you might want to know many people had read the same stock tip as you, and would pay more for a tip that was less well known.

These ideas are not rocket science. But the business models that might emerge from them could change things dramatically. Still, they are just germs of ideas. And that’s what we like to see from the GIO. In the meantime, there are some people that are hoping China’s piracy days are but a phase in the maturation of a nation. Some point out that the U.S. was a big offender of copyright law during its younger days. And that countries don’t really get serious about IP protection until they have something of their own to protect.

That may be. But if companies sit around waiting to find out if that will change, they run the risk of having culture shift under their feet, and never commanding the same prices and margins again. We’ll just have to see how the folks in Shanghai feel about all this.

March 29, 2007 | Permalink

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