China Law Blog

In a previous post, entitled, "Software Piracy In China Has Staying Power," I blogged on how software piracy is so rampant in China and why it will not be going away anytime soon.  That post referred to an article, entitled, "Why Piracy Isn't Going Away in China," whose thesis is that software piracy in China will exist in large numbers until the ratio of software prices in China to average income in China comes closer to the ratio of software prices to average income in the western world:

Piracy is exceptionally simple: it's cheaper to reproduce and sell software in which you didn't invest, market, or frankly do anything else except slap a disc into a replication machine. That's one part of the equation.

However, piracy as an issue is far more complex than, say, the Business Software Association (BSA) makes it out to be. Certainly companies that invest in and develop new software deserve a fair return on investment. But that must take into account local market conditions.

There is a false impression that China is now a rich country. Certain sectors of the society have done very well for themselves. They've made real money. But the average monthly salary in the nation's major cities -- the wealthiest areas -- remains around US$250 to $400 per month.

Compare that to average salaries in the U.S. If someone makes $2,000 to $2,500 per month, then a $250 operating system upgrade doesn't seem too terrible. But when that price is approximately the same in dollar terms in a lower-income country, as it is in China, then suddenly a potentially buggy, definitely pirated edition of the same software for about $5 to $10 sounds much more attractive.

If software companies want better results out of China, then pricing needs to be commensurate with local market conditions. Software developers and their policy representatives have attempted, futilely, to make piracy a moral issue. It isn't. It's an economic issue. Piracy doesn't flourish in developed countries where the cost of legitimate software doesn't outweigh its benefits. But it flourishes in developing countries, where the cost-benefit ratio is different. Authentic software will never be as an inexpensive as pirated goods. But when its value helps to close the gap between price and usability, more people will pay the appropriate price.

I noted my complete agreement with this analysis and referred to one of my earlier posts, entitled, "Faked in China, Protection is Possible," where I discussed how economics drives counterfeiting:

The article notes that "security experts don't buy into the belief that copying is somehow inherent in Chinese culture. The simple fact is that counterfeit goods are cheaper than the genuine ones, and in developing nations like China, wages are low."  I completely agree.  Like everywhere else, those in China who can afford the real thing, prefer to buy the real thing.  As Chinese wealth increases,  and as more and more Chinese companies seek to protect their own brands, counterfeiting will decrease.  This is what happened in both Japan and Korea, both of which were at one time, notorious for counterfeiting. 

The hugely popular One Man Bandwidth Blog (h/t to IP Dragon Blog), just noted in a post, entitled, "Outdueling the Pirates in China" that Warner Home Video lowered the price of The Aviator DVD to only $1.50 in China an apparent effort to compete directly with the China's legions of DVD counterfeiters.  One Man Bandwidth heartily approves:

Finally an intelligent answer to fighting piracy: Warner has decided to compete with the DVD pirates in order to try to stop bootleggers. I really do think they are on to something.

Warner Home Video has started to sell a DVD priced at $1.50 USD! This is still more expensive than the bootleg version ( bootlegs are .50-1.50 depending on quality) , but many of my friends have indicated they would support the effort because it is legal and the quality would be assured. That means no more 'PROPERTY OF'' or 'FOR ACADEMY VIEWING PURPOSES ONLY' scrolling across the screen in the middle of a great shot.

To get its product down to an acceptable price level Warner has put the cheaper DVD into a cardboard envelope and I hear that extras will be left out. That is fine with me because I rarely watch the 500 hours of leftover footage anyway.

Warner is definitely on to something here and it will be interesting to see how far they expand this new pricing.  I am convinced that if legitimate DVDs all start selling for $1.50 in China, the DVD counterfeiters there will pack up and move on to something else. I do have one question, though.  Is there anything to stop a Westerner from buying a whole slew of the legal DVDs for $1.50, bringing them back to their home country, paying any minimal customs duty, and then re-selling them for substantially more?  Seems to be quite a good arbitrage opportunity and I just wonder how Warner would prevent that.