By: Ziyu Ma & Rita Xia
Films, like all cultural exports, are representative of a nation’s soft power. No industries have done better than Hollywood to effectively promote the U.S. soft power overseas. China, with its 1.4 billion people, is a prime market not only for Hollywood’s cultural exports but also for its generation of billions in revenue for U.S. businesses. China is currently the second largest box office market in the world and is projected to surpass the United States in 2020. The online film market is just as valuable with more than 800 million internet users in China, almost three times that in the United States.
However, the revenue also brings rampant piracy issues. Presently, many countries utilize a pre-agreed distribution system in which each form of exploitation of a theatrical film—such as a theatrical release, DVD release, or television screening—takes place in sequence with no overlap. This industry standard provides an “exclusive window of time” for each form of exploitation and is crucial to ensure that copyright owners or licensees are able to maximize their profits without having to compete with other media at the same time. However, this system is compromised when copies of the film become available to the public through other media without proper rights or licenses. With the advance of technology, film piracy on the internet is now the main challenge for U.S. businesses. In 2016, the United States suffered a $4.2 billion loss due to piracy in China, and that number is projected to reach $9.8 billion in 2022.
Policy barriers are a major factor behind the rampant film piracy in China. Despite China’s improved efforts in recent years to combat piracy, its regulations on foreign film imports and lack of effective penalties for copyright infringement continue to incentivize piracy activities. The Chinese government uses an annual import quota to control the influx of foreign entertainment products. Over the last two decades, China has eased up on the number of U.S. films imported into China, but the annual quota has not broken double digits.
China’s stringent censorship and review process create another hurdle for U.S. film businesses. All foreign films and TV shows must be approved by China’s State Administration of Press, Publication, Radio, Film and Television (SAPPRFT) before they can be shown or distributed in China, and the standard of review can often be arbitrary. In response, some U.S. studios made necessary edits or cuts in order to get the approval stamp. However, with public demand for original, uncensored Hollywood films remaining high despite and because of these barriers, people instead turn to illegal means.
Since its accession into the World Trade Organization (WTO), China has increased efforts to crack down on piracy, including starting initiatives by the National Copyright Administration of China (NCAC) to censure unlicensed films and TV shows. However, the level of piracy has not changed significantly in part due to loopholes created by low administrative penalties and virtually nonexistent criminal prosecutions for online piracy.
In light of the recent trade tensions between the U.S and China, there is pressure within the Chinese market to slow down the importation U.S. films. The halting of imports would be financial costly to U.S. businesses and will further limit Chinese consumers’ access to U.S. content. As data of prior years has shown, consumers will not have the patience to wait but will turn to illegal channels to watch their favorite films and TV shows.
There are a few options to mitigate the impending piracy challenges. Shifting to U.S.-China co-productions is a good short-term solution to bypass the import restriction, as these co-productions count as Chinese domestic films. Seeking intervention from the WTO is another possible solution. China’s current copyright enforcement and trade regulations are not compliant with its responsibilities as a member nation of the WTO. In fact, WTO has already created measures that can address China’s transgressions. Instead of threatening China with unilateral tariffs and inciting retaliations that will potentially harm U.S. businesses, the U.S. can allow WTO to step in and place more neutral pressure on China.
Nevertheless, long-term plans are needed to implement market and policy changes and to promote better public and judicial knowledge of copyright law. There should be discussions about the possibility of eliminating the foreign film import quota or at least drastically increasing the number of film imports allowed in the near future. Moreover, the Chinese government needs to improve its criminal and civil enforcement measures against infringers. China should also work to improve the judicial and public knowledge of copyright protection and enforcement, so more people will recognize and respect the value of intellectual property and learn to see piracy in a negative light.