Chinese Crackdown On Piracy Enters The Digital Domain

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Since late last year there have been rumblings that China would soon carry out another crackdown on piracy. During the last week reports suggested that the country's actions were mainly in the physical domain but now, alongside reports that 4,000 people have been arrested, it seems China is conducting both a music and video piracy purge. More than 200 sites are under orders to remove music and some of the country's leading video sites are deleting illicit content and cuddling up to Hollywood.

usa chinaAs it comes under increasing pressure from the United States, not for the first time China has announced that it is getting tough on copyright infringement. With a campaign set to run until at least May 2011, China says it can make significant headway with the problem. The US reasonably thinks it will take rather longer than that.

But with trade talks looming between the two countries next week, China has been keen to announce significant progress. In the last few weeks China says that 650,000 law enforcement personnel have carried out 4,000 arrests while investigating 2,000 cases of serious infringement with a financial value of around $350 million.

With the authorities promising harsher punishments, China has been getting tough with the physical side of piracy with the recent destruction of huge numbers of counterfeit DVDs and other products. A show of force on Monday saw the authorities conducting public book burnings in Beijing, Tianjin, Shanxi, Jiangsu, Guangdong and Sichuan, with a promise of more in the lead up to World Intellectual Property Day in April.

But increasingly it is the digital domain where piracy is running most rampant and up until now China’s actions have largely appeared limited to the physical world. That, apparently, is changing.

Just before the holidays there was an investigation by the authorities into 500 music download sites. The Ministry of Culture said that 237 of those sites (list) were suspected of illegal activities, citing a lack of licensing, failure to register and/or distribution of copyright infringing material.

On Monday the authorities issued a list of music – much of it from Universal, RCA, Warner, EMI and Sony – to be removed from sites by February 28th. The list features music from artists such as Eminem, Christina Alguilera, Kylie Minogue and KT Tunstall but isn’t particularly long. Indeed, many single DMCA takedown requests sent to Google by IFPI are substantially longer. That the government mentions “illegal music products” and “piracy” separately in respect of these products is sure to raise questions of censorship.

But music isn’t the only media being targeted or becoming the subject of self-imposed censorship online. According to a report this morning, China’s three leading YouTube-like video sites – Youku, Tudou, and Ku6 – have been deleting US TV shows and movies from their servers en masse.

Although Ku6 claims it has been deleting infringing content since 2009, the latest move comes as less of a surprise following the announcement last year that it had reached content deals with Hollywood studios Sony Pictures and Warner Brothers. This deal made Ku6 the first local site to acquire legitimate copyright content from major Hollywood studios and with 10% of the market in China, Ku6 has impressive potential.

Then last week, competitor Youku announced that it too had done a deal with Warner to stream the blockbuster Inception for the modest price of $0.75 per view, a move which resulted in company shares increasing by 6.6%.

No surprise then that hot on the heels of a fine for copyright infringement last November and their chase for legitimacy and access to more premium content, Youku has just implemented a YouTube-like filtering solution for infringing content.

However, removing huge amounts of pirate content and replacing it with increasingly expensive licensed fare is taking its toll on Youku. While the price of its content goes from zero to through-the-roof, the fees advertisers are paying the company remain static. Couple this with competition from sites still offering infringing, more attractive and zero-cost content, Youku have a serious problem if they can’t convince users to pay for premium content at prices that make sense.

“This is the worst kind of diseconomy of scale,” writes Business Insider. “The bigger Youku gets, the bigger its losses.”

When Barack Obama and Chinese leader Hu Jintao meet in the United States next week, the progress against music and video piracy will certainly add to the positive mood set by the earlier agreement for the Chinese to crackdown on software piracy. The road to legitimacy, however, will be a complex one for China’s markets but one that the US will be keen to see succeed.

Just don’t mention the J-20 or, in the content vacuum that’s likely to exist before all shows and movies become available legitimately, BitTorrent.

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