Digital Media in Asia Blog

The following is an exclusive interview I had on 12/06/05 and 12/07/05 via e-mail with Mr. Jun Wu, President and CEO of R2G. R2G is a relatively new Chinese company that is in the forefront of piracy prevention in China. Most recently, R2G has through legal action successfully compelled major websites Baidu.com, the9.com, and 21cn.com to remove their links to unauthorized music content.

CHEN: How does R2G plan to reduce the impact of rogue BT
websites, rogue P2P file sharing software, and FTP servers that do not
distinguish between legal and illegal copies of songs?

WU: We will track each individual BT or P2P site down to
make sure that they do not distribute content that had registered with us.
According to the new Internet copyright bill that was introduced by the Chinese
government earlier this year, once we have notified these sites with the list
of illegal content, they will have to delist these content immediately. Our
tracking software is developed in house, and specific to each individual site.
It will be difficult for me to go into details one by one in an email.

CHEN: When a typical user is presented with a legit and
illegal venue, what will R2G offer to persuade him to pay more money for the
same song/movie? We’ve seen from the US that suing individuals for copyright
infringement alone isn’t an effective deterrent. Of course, offering a legal
venue will attract some users, but as long as a cheaper venue is available, how
does R2G plan to drastically convert users to legit methods?

WU: Our strategy is to focus on the service provider, be it
a search engine or a P2P service provider， making sure that it will be
increasingly difficult for an average consumer to be able to find illegal
venues to download pirated content. We believe that if we are able to cut the
current piracy rate from 95% to 50% (a ten fold improvement), it is more than
significant enough to make a big impact on the overall market.

CHEN: I understand that R2G has experienced success in
convincing large websites to de-list links to illegally distributed music. How
successful has R2G been in convincing smaller websites to become legitimate
distributors? What are the differences in strategy when dealing with smaller
websites, as opposed to larger sites?
 
WU: Even though we had not been focusing on the smaller sites very much,
generally we feel they are relatively easy to handle. Our experience so far had
been that the medium sized websites are the most difficult ones to deal with.
The logic is quite simple. In converting ones website from pirating to legit,
there is always this issue of timing. So these medium sized sites are always
afraid that they will loose traffic during the process of turning legit,
therefore loosing the possibility of ever competing against the big ones.

CHEN: Regarding P2P file-sharing, how does R2G plan to track and curb P2P
file-sharing? Are there any estimated percentage breakdowns of where a typical
Chinese person gets his music, movies, and other digital entertainment? (Legal
physical copies, legal online downloads, illegal websites, illegal P2P, illegal
physical sales, etc) Does R2G have any plans to turn P2P into a profitable mode
of file distribution?

WU: Yes, we are indeed working on the P2Ps as well. We hope to bring some good
news to the market around the Chinese New Year. The plan is to install a layer
of filtering function with our P2P partners so that R2G registered content may
not be pirated in amongst these P2P site/communities. The first batch of these
P2P sites all has a centralized server. We are working on ways to offer similar
functions for the Freenet like P2P community.  We believe that once one
can control what can be distributed amongst a P2P network, then there are many
ways to turn this into a profitable business. However, I don’t have any info
regarding the distribution at hand. My estimate will be, most of the younger
generation download their music from the Internet either through a search
engine or a P2P site.

CHEN: What demographics do the Chinese entertainment industry view as its
greatest asset and liability? What actions are entertainment companies taking
to maximize revenues from these assets and limit losses from the liabilities?

WU: The young generation (15-35) is clearly the main market for entertainment
content (especially in the case of digital distribution). In a way, they are
both asset and liability.  If the collective service offering is
acceptable to this segment, then there is enormous potential, otherwise it is
going to be an uphill battle.

CHEN: How does R2G and the entertainment industry plan to
scale their business model to serve college students, who typically have less
expendable income?

WU: Currently it is not on the top of our to-do list. Once
the overall piracy rate in the public network is reduced to a certain level we
will start addressing these niche market too.

According to the Korea Times, South Korea still remains the world leader in high speed Internet penetration:

Korea became an Internet powerhouse in the late 1990s thanks to its fast investment in the asymmetric digital subscriber lines (ADSL), which pump data at an average speed of 2.5 megabits per second, about 50 times faster than conventional dial-up modems.  Korea crossed the 20-subscribers-per-100-residents threshold as early as in the third quarter of 2002 at 20.6 and has remained over the coveted mark during the following nine quarters.  Currently, approximately 12 million of the country’s 16 million households are hooked up to the high-speed Internet and more than half of them are subscribed to ADSL.

In accordance with the high internet penetration, South Korea is known to have one of the highest rates of online piracy with respect to digital media such as movies, music, and digital books.  Clearly the actions taken by the Korean government have not been very useful as online piracy is continually growing. How will South Korea be able to control online piracy in the future?

An interesting news article about China’s digital media situation.

Some interesting snippets from the article:

“I would like to plant this challenge: by 2008, to have more
legal than illegal DVDs sold in China, to have more American
movies in Chinese theaters and to have more Chinese movies in
American theaters,” says Dan Glickman, CEO of the MPAA.

“It is virtually impossible to find counterfeit Olympics
goods in China. Why? As one of the Chinese officials said, it
is because fakes dilute the value of the logo, the intellectual
property upon which the Chinese have invested to finance the
games,” he continues.

A decrease in piracy from 90% to 50% is a four fold change. This may be difficult to achieve considering the evolving technologies that make filesharing easier, and pervasive broadband access that makes it faster.

What are Chinese companies doing to protect their intellectual property online?

To supplement governmental enforcement efforts, private companies, like R2G, have formed to help protect their clients’ intellectual property. According to Jun Wu, CEO and founder of R2G, via an e-mail interview, their strategy is to “track each individual BT or P2P site down to make sure that they do not distribute [their clients’ copyrighted] content.”  R2G will try to persuade these service providers to adopt a business model that compensates the copyright holders or else face lawsuits. The reason websites offer links to free media, Wu says, is mainly to attract traffic. Therefore, the hardest sites to convert are the medium sized ones because they are “always afraid that they will loose traffic during the process of turning legit, therefore loosing the possibility of ever competing against the big ones.”

Wu’s philosophy is that as R2G converts rogue websites to legitimate distributors: “It will be increasingly difficult for an average consumer to be able to find illegal venues to download pirated content,” and thus, users will switch over to legal sources. Of course, R2G is hoping that they can convert existing websites faster than new ones appear. R2G plans to focus on tracking public sites first, leaving potent niches like university networks and private FTP servers unexamined for the moment.

R2G has generally received favorable court opinions when suing websites for copyright infringement. They successfully forced China’s most popular MP3 search engine, Baidu.com, to remove thousands of links after filing an infringement lawsuit against the website. Shortly following the Baidu case, R2G sued similar websites, the9.com and 21cn.com, both of whom soon removed their links to pirated content.

The South Korean government has announced plans to pour US$90 million into the failing Korean music industry, which it claims is slumping due to the “rapid growth of digital music market and emergence of diverse high-tech music-listening devices.”

As part of the initiative, the government will expand its definition of the “music industry” to include not only record labels and live musical performances, but also “virtually every area regarding music, such as music education, production of musical instruments, performances by underground music bands, music management, online and offline circulation of music and ‘noraebang,’ rooms hired for karaoke singing.”

At least one blogger and a group of English football fans seem to think that the answer is China. A Chinese company called PPLive (English site) appears to have beat AOL and BBC, both of whom are still trial-testing their Kontiki-powered
P2P TV Streaming software, to the commercial release of a service that
provides Web users with live streaming TV through P2P technology.

P2P streaming is a breakthrough because it allows content providers to
broadcast video to a potentially limitless audience without the need to
pay for server space or bandwidth. As I understand it, PPLive’s
technology is similar to Bittorrent
in that it allows a single source to quickly spread data to a large
number of recipients by turning downloaders into sources for other
downloaders.

The developers of Sopcast, another
P2P streaming software, claim that their product allows any individual
to broadcast his own video. Though I have not tried this myself, the
implication is that a generous soul could broadcast his paid cable
connection, his DVD collection, or his collection of digital video
files to the world at no charge to himself or his audience.

I would appreciate comments on the following questions:

How will media companies respond? Is this new threat to copyright
holders easily defeated by technological measures or international IP
treaties?

How do PPLive and Sopcast technology compare to Kontiki’s commercial product in terms of video quality and network efficiency?

If copyright holders successfully attack PPLive, will PPLive still have
a viable business model? Are PPLive and Kontiki competitors, or are
their software packages capable of completely different applications?

In a sophisticated look at the complex interplay between law, piracy, and the Internet in developing countries like Russia and China, Russia Priofile.org asks what is the role of copyright law in Russia’s future.

One can see numerous similarities between Russia and China (as well as many other Asian countries) with regard to the causes and complexities surrounding the piracy phenomenon. Like China, Russia has up-to-date laws in place, but there is a huge disparity between the laws on the books and the realities on the ground. The scale of the problem and domestic political complexities mean that any amount of browbeating by the US will yield little in the way of effective piracy enforcement. These countries need innovative solutions that compensate creators (thereby incentivizing and enabling creation) and simultaneously ensure that the public is able to enjoy widespread access to the creations.

Alexander Sergeyev, a commentator on science and technology for Radio Liberty, is one of the most vocal anti-copyright advocates in Russia. The starting point for his assessment is the sheer volume of copyright infringement in Russia, which cannot be simply reversed by decrees from above; instead, the international legal doctrine needs to be revised and coordinated better with the rise of challenging new technologies. He also argues that widespread piracy is what inadvertently spawned a home-grown computer and software industry throughout the 1990s.

Sergeyev likens the internet to samizdat, or self-publishing, which thrived in the Soviet Union. It is a decentralized system which treats outside regulatory mechanisms as near-totalitarian infringement on intellectual freedom and creativity. “The copyright lobby is mostly concerned with the bottom line for corporations which have a huge stake in the system,” Sergeyev said. “The government needs to introduce better financing mechanisms to make creative pursuits commercially viable and compensate for the shortcomings of market mechanisms. The idea is to stimulate private initiative while serving the public interest and fostering cultural diversity.”

One interesting statistic from the article: in Moscow’s 812 outlets where pirated software is sold, profits have been cut in half in 2005 due to file sharing and other online transactions involving pirated goods. This is not surprising, and provides more statistical support for what logic and experience suggests: online file sharing decreases the market for physical piracy. Clearly, the future of the “piracy” phenomenon–for better or worse–is online. Such statistics provide support for the contention that instituting a governmentally administered alternative compensation system in countries like China or Russia–and thus facilitating even more file sharing online–would very likely lead to a significant reduction in the manufacture and sales of physical pirate goods, decreasing piracy overall. An alternative compensation system would be one type of innovative solution for these countries, along the lines I discussed above.

In the first-ever bittorrent file sharing criminal prosecution, a Hong Kong man, Chan Nai-Ming, was sentenced to three months in jail November 7 for making available online copies of the movies “Miss Congeniality”, “Daredevil” and “Red Planet” without the owners’ authorization.

In the ruling, the judge acknowledged the man did not gain financially from making the files available, but said that fact and the high prices of legitimate DVDs are no justification for infringing copyright and do not allow him to escape liability. The judge also indicated that future convictions could lead to even stiffer penalties.

Customs officials claim that bittorrent use in Hong Kong has dropped by 80 percent since Chan’s arrest.

The ruling did not extend liability to downloading files, only uploading them–a fact that upset the entertainment industry, which wanted liability for both.

But that distinction does not seem applicable to bittorrent. From the South China Morning Post:

“Kevin Pun Kwok-hung, associate professor of computer science and law at the University of Hong Kong, pointed out that BT technology works with the downloaders also automatically becoming uploaders, and questioned the wisdom of launching criminal prosecutions against users of such technology instead of leaving it to businesses to take civil action. ‘If you say by placing something on the internet, you are committing a crime, you are saying all BT downloaders are criminals because their computers are downloading and uploading,’ he said.”

“‘The key issue is whether placing something on the internet amounts to distribution, but I personally don’t find the legal argument convincing — it amounts to authorisation but not distribution.’”

Japan has proposed a Treaty on Non-Proliferation of Counterfeits and Pirated Goods, which would focus on the import, export and transshipment of illegal goods. One significant way the new treaty would differ from TRIPS (the Agreement on Trade-Related Aspects of Intellectual Property, regulated by the WTO) is that Japan’s proposed treaty would focus on stopping exports of infringing goods, while TRIPS primarily addresses the importation of infringing goods. The treaty is meant to supplement, rather than supplant, TRIPS. The treaty would also “aim to deter counterfeits and pirated goods on the Internet.” According to the posting, it is unclear which international body would regulate the proposed treaty, but Japan is hoping it would be regulated by an international law enforcement organization such as Interpol or the World Customs Organization.

The article notes that the US (which, incidentally, originally sought an anti-counterfeiting treaty as early as the 1970s) is cool to Japan’s proposal. It quotes a US official as saying, ‘”We applaud the energy that Japan brings to this issue’…. However, the United States is more focused on implementation of anti-counterfeiting measures ‘right now,’ targeting ‘action and results.’”

According to a study by market researcher TNS, almost 20% of mobile phone users polled in a 15-country study now listen to music on their cell phones, compared with 15% listening on home stereos and 10% on dedicated digital music players like an iPod. The US trailed others in adopting music phone technology, with a mere 4% listening to music on their phones. More daunting for proponents of music phones in the US is that a separate study suggested only 10% of US mobile users are highly likely to purchase a music phone. In Hong Kong, 23% of mobile users listen to music on their phones, while 19% do so in the UK.

South Korea was #1 in the study with 26% listening to music on cell phones and a whopping 60% choosing mobile music as one of the five applications they would like to start using, or use more of in the future. “This puts mobile music in top place as the application with highest potential. This figure is highest amongst mobile users in South Korea (60 percent) and Sweden (46 percent). Once again, the U.S. ranked last in the study, with only 19 percent of respondents stating that they want to start listening to music on their cell phones.”

The difference might be due partly to a bit more of a Luddite culture in the US (Rebecca MacKinnon has recently blogged about how the cell phones in China are higher tech and more multimedia focused than those in the US), and the fact that digital music phones have (amazingly) only been available in the US for a few months. But I think this might also suggest a difference in US and Asian consumption habits. One thing that has made iPods popular in the US is that people can use them to manage and transport their entire music collection; they can be mixed and matched with all kinds of equipment–home stereo and car stereo–in ways that it seems cell phones are unlikely to be able to, at least for some time. The US’s car culture, if nothing else, is reason to imagine that iPods will continue to dominate the digital music scene here, while that obviously would be much less of a factor in Asia, where most people do not commute by car.