November 3, 2006
The double-edged sword of piracy
Carrying our (fake) LV bag, slung as an afterthought over our arm sporting a (fake) diamond-encrusted Rolex, on our way to load up on the latest in (fake) DVDs at the neighbourhood store, Shanghaiist wonders why any country would not resort to the levels of rampant piracy that afford us such (fake) decadence. But intellectual property rights (IPR) have their merits, we suppose ... if they didn't, why the big push by economists and government officials to step up IPR protection in developing economies?
Displaying a wanton disregard for IPR can often be a good thing. Companies gain access to patents and inputs that allow for rapid progression up the technological food chain. This is particularly evident in the pharmaceuticals industry, where knock-off drugs provide significantly cheaper versions of advanced treatments, allowing China's poor access to medicines that would remain otherwise unaffordable.
So where are these purported drawbacks to a lack of IPR enforcement? One only need look at new products emerging from Chinese industry to find the answer. Chinese companies earmark on average less than 0.5% of their annual budgets for research and development (R&D), compared with the average 2-5% spent in the West. The result? Lack of homegrown technology that will propel Chinese innovation.
One specific instance of stifling domestic innovation that we found interesting is detailed in an article on DiligenceChina.com, which tells the fate of China Star software at the hands of pirates:
Old China hands remember China Star software. In the early 90s, we started using that now-familiar breathless VC tone to describe the Next Microsoft. Selling at a retail cost of about 30% of its rival Windows Office, it was bilingual, stable and functional. What happened?Rmb 10 is what happened. China Star would kill Microsoft when Windows sold at US$500 per copy, but didn’t stand a chance at $1.20 per copy. Imagine what China’s software industry might look like if piracy hadn’t killed off a viable, home-grown alternative to Microsoft? What if the Chinese software industry had had 15 years to develop? The ramifications are tremendous. We’re not talking about a single company growing rich and powerful – we’re talking about a whole new class of industrial superpower. What if China Star had been allowed to develop into a whole new software platform – incorporating open-source developments that would come along 10 years later and powered by China’s eventual rise to economic superpower? Consider what China would look like if its universities were churning out computer engineers and software writers who would find challenging work at Chinese companies in software centers around China?
Well, never mind. Maybe I just imagined it all. I can’t even find China Star in search engines now. Today the Chinese software industry is about networked gaming and staffing western-run R&D centers. Anyone buying a computer in China now gets pre-loaded Windows, just like everywhere else in the world (including this laptop). If you go to the cut-rate no-name assembly-shops to have a cheap computer put together for you, they’ll throw in a bootleg copy for free. No one under the age of 30 in China even knows that a Chinese alternative ever existed.
Food for thought, no? Chinese homegrown software developers are not the only victims of pirates. The Motion Picture Association estimates that the Chinese domestic film industry loses upwards of US$2.7bn per year due to piracy, largely because Chinese films cannot expect DVD sales or long runs at the box-office to recoup expenses. Less promise of returns on investments in the film industry means less money is available to fund projects that might lead to a more vibrant domestic film culture. Companies stick to the wushu blueprint or pump out romantic comedies because those tried-and-true formulas hold the promise of at least some minor profit.
So the next time you sit down to watch your pirated copy of MI:3 to see Tom Cruise running through the streets of XitangShanghai, or head to the CyberMart to load the latest releases of Adobe Premier and Microsoft Office onto your machine for RMB 20, think about the software designers and independent filmmakers you are marginalising with your actions. The next time you lament the lack of "truly independent Chinese filmmakers" take a look at the shelf next to your TV at home.
Does this mean that Shanghaiist is going to start buying legal DVDs and paying for our software? Well, we already do the latter, and as for the former it seems that Canada might be working to guide us in that direction anyway. The real purpose of this article is a simple reminder: Someone somewhere is paying the price for the pirated conveniences we enjoy.
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Would "China Star" have any relation to "Word Star"?
Word Star was THE office package to have, ran on early versions of windows, IBM, AT&T, Radio Shack, TI and Apple. It too was stable and cheap.
Personally, I think pirated DVDs are great. The massive horizontal flow of cultural information between east and west via DVD pirating, in the long run, will do more to create peace on earth than our elected (or otherwise) leaders and diplomats. Through pirated DVDs, Chinese learn about the west, and the western world experience becomes their world experience.
Years ago when Bill Gates was first apprised of Windows software pirating, his response was to let it happen. Let them familiarize themselves with Microsoft. It's all about those little brain scheams in our brains that work like our own personal operating system. Come cash in later, Gates decided, but for now, just let the people become accustomed to it.
I don't think humans can be trusted to avoid IPR issues. People are going to make copies of DVDs and people are going to buy them. High media lawsuits won't solve the problem either. The only way to do it is through better technology. But really, in the end, I'm all for the horizontal cultural flow of information, and less about that $2.7B (boo hoo).
People realise the 'cost' of getting fake stuff.
Personally I couldn't care less how many companies and dreams I shatter by buying a 5 RMB DVD in China instead of a 300 RMB back home.
Lack of financial resources fosters innovation in China?
Perhaps. But I doubt that lack of financial resources actually provides the carrot to motivate thinkers, innovators and inventors to push their own new products, but rather ways to adopt proven technologies to new means, or to lower costs of manufacturing.
Inventing a new concept takes time & money, and the rewards isn't guarranteed. That's the old story around the world, but there's a sharper edge here in China due to a fostered piracy environment nourished by lax enforcement of IP laws.
IP protection will only mean something when it is the Chinese consumer/inventor/corporation that is missing out. Then you'll start to see increased and significant R&D budgets in Chinese businesses and MNCs based in China.
Time and money is another interesting facet to keep in consideration here. I don't see any businesses involved in R&D only here, but rather those that have a major manufacturing bent. The money assigned to the R&D pool here from such companies is far far less per effective spending power. R&D isn't taken seriously here at all due to the overwhelming bait of cheap manufacturing. Generally, an R&D center is tacked onto a major investment in manufacturing. Current levels of R&D are often fuelled at a 'face value' so companies can make the various government planning sectors look progressive and also gain subsidised access to Chinese high-tech zones for future times when R&D is finally supported with gusto here.
Hmmmm.
The purpose of this article was not to point the accusatory finger or spawn defensiveness amongst the KaDe Club faithful. Spending Rmb5 on a western DVD is not hurting anyone's margins--Western films are still operating on huge budgets, enjoying long runs at the box office and increasing sales through a variety of legitimate channels (DVD sales, rentals, online downloads, etc).
The point is that the practice of piracy is not protecting the domestic market. Software, as DiligenceChina has pointed out, is almost a non-issue with the market share that Microsoft enjoys thanks to rampant piracy of its OS over the last 15 years.
The film industry is another story. Chinese films do not have the same resources, nor can they be guaranteed the same sales and distribution channels, that their Western counterparts enjoy. So while Western filmmaking thrives despite Chinese piracy, Chinese filmmakers have had to change their model--more lower budget films hitting the market at a faster pace in order to compensate for lack of box office revenue and a virtual vacuum of post-release sales channels (neither DVD and download pirates are known to pay royalties). So you don't have the same amount of time, money and energy being put into films as you do in the West.
Tim, I certainly see your point that technological R&D in China is only going to become relevant when Chinese companies/consumers are on the short end of the stick. Take the recent IPR case brought by a Chinese company in the States over copyright infringement on the production of flash memory.
Anyway, the point being.... food for thought, right?
Rampant piracy also reveals the ugly truth that the Chambers of Commerce refuse to acknowledge, the wages of the "middle class" are more hype than hope and that if it weren't for knock-off DVDs, name brand clothes, watches and other items the middle class wouldn't spend much at all, because on 4000 RMB a month, after rent, utilities and food, few can afford to buy anything legitimate at the prices that foreign merchandisers are asking.
The price of a legit DVD is 25 RMB, that is dinner for a family of 3 at a street side vendor or one extra value meal at McDs. Food or DVD?
Oh, yeah, then the middle class has to save since few if any have health insurance and you need to have some cash for taking bosses and friends to face-building dinners.
You are mixing things up.
Middle class Chinese earn more than 4000 RMB a month each.
The middle class also all have health insurance with Ping An.
Middle class Chinese eat out often at places that are more than 25 RMB per person.
This is Shanghainese middle class of course. Many more people in other places don't have education or healthcare at all, but that's another story.
You said: "So the next time you sit down to watch your pirated copy of MI:3 [...]latest releases of Adobe Premier and Microsoft Office [..]think about the software designers and independent filmmakers you are marginalising with your actions."
?????
If I pirate MI:3, Adobe Premier, Microsoft Office, I do not give money to already very rich company (Microsoft makes around 60-70% profit on MS Office). So by not giving money to them, I help the competitors... So, I help the progress...
Do not mix big profitable company and independent filmmakers, It is totally different! For the first one buying fake goods just make their abnormal profit (because quasi-monopoly) a little lower.... buying fake goods of Independent filmmakers harm their independent production.
I have no problem to pirate the big companies, but I have for the small independent companies.
88
The issue isn't really pirate dvd's, but what the original article was talking about - industrial innovations. Those already get passed around easily by blatant theft, reverse engineering, and luring employees to your company, and the profits from innovation are gone quickly.
The same thing happens with brands - look what happened to the 土家饼 craze earlier this year - the sucessful franchise got copied by lots of small operators with low quality product and the entire thing collapsed . . .
Look at countries with even more blatant IP theft like Nigeria and you see businessmen just compete by stealing ideas instead of investing things. And look at Nigeria to see what the result of that is for the country as a whole . . .
There are a lot of problems about copy rights' issues. such as ideas, really can not be properly protected. only things such are labels, patents, etc.
the word 'stealing' is a relative term, after all, Bill Gates did Borrow Steve Jobs' idea for... we should know what it's for.
Why would many people do IP theft like Nigerians and Why would people in China ignore the issue of copy right protections. And is there a reason in perticular that we do not hear issues like these going on in Europe or North America?
It goes far beyond a habitual culture movement, it is directly related to their understandings of value in the society.
"Why would many people do IP theft like Nigerians and Why would people in China ignore the issue of copy right protections. And is there a reason in perticular that we do not hear issues like these going on in Europe or North America?"
Because the IP theft victim can sue the pirates and make them pay back tons of money.