China Piracy Problem Is Solved, Sohu CEO Says: Mipcom

The chairman of the board and CEO of Chinese online giant Sohu has declared piracy dead in China. Not only that, but Internet companies are going to start buying Hollywood movies that they can charge the public for. Charles Zhang, speaking at Mipcom today, also encouraged the industry-heavy audience to bring their content to China.

“Although there are policies and regulations that make a lot of headline news, if you look at the numbers and what’s really going on, the overall situation is very positive,” Zhang said. “Now with the explosion of paid content, the future is bright. For the Chinese younger generation, the world is really flat, and they really enjoy quality international content. So the 700 million Internet users are really eager to see great content worldwide. We are waiting for you guys to come to China to give us the good content.”

SohuSohu hosts about 500M video views per day. “We’re experiencing a revolution in the last five years,” Zhang said. “We solved the video piracy problem” by waging two wars, in 2009 and 2013. Zhang said they beat Internet piracy by suing companies and making the lawsuits a “major event.” The company then used its media reach to create awareness and stir debate. Zhang says that put pressure on the government, which started a crackdown in 2009. That, he said, helped to get content online — domestic and foreign. “I think Hollywood really felt the impact because we started buying,” he said.

In 2013, two P2P sites were mostly consuming American movies, so Sohu and other Internet giants created a coalition to launch a public campaign and got the providers to “surrender and retreat.” With the “sophistocated” piracy wiped out, it’s “suddenly resolved, and we have a blue sky.” (It’s true that Chinese buyers have been out in stronger force at international markets during the past several years, but one skeptic I spoke with this afternoon on the piracy issue proposed taking a walk down any merchant street in Beijing and finding that DVD piracy, for its part, is still rampant.)

The issue of micropayments had been a stumbling block to getting users to buy access. The model for online viewing has been ad-based, but now that a system has been worked out, the payments issue also is resolved, Zhang said. “So, you will see also another explosion of online movies in China.” Zhang did allow that piracy is only about 95% resolved, but “the mass audience will happily come to our site.” If users “bear with us for 15 seconds of commercials … you will see very clear, fast and subtitled (movies). And also (users) will feel morally correct because (they’re) not contributing to piracy.”

But Chinese consumers also are used to getting a lot of content for free, given the traditional ad-based model. Because there is no credit card use and “banks are really state-owned and not really customer-friendly,” Zhang said it became a problem for Chinese people to pay. “It’s not that they don’t want to pay, it was just so inconvenient. … But now it’s so easy.”

Historically, that ad-based model, which clicked in over drama series that ran for 50-plus episodes, meant it wasn’t economically sound to buy two-hour movies that would only get a blip of advertising. Zhang said now that the piracy and micropayments issues have been resolved, “We are going to buy Hollywood movies. People will pay. So you will see a new business model that will really start to survive — and will explode.”

Chinese consumers are watching a lot of local and Korean dramas, but Zhang presented an impressive slide that showed what the most popular views were on Tuesday. Syfy series Z Nation was tops with 1.4M views, followed by The Strain with 1.2M. The list also included The Amazing Race, Homeland, Prison Break, Arrow and Saturday Night Live.

Despite a new 30% cap on foreign-made programming due to hit in April, Zhang said online continues to be less regulated. “It’s a looser territory. … The Internet sector is more progressive than television.” The government, he said, “sees TV as a place that reaches 1.3 billion people, so the content there has to be really politically correct. But they see the Internet as ‘OK, these guys are really educated,’ so they just let it (go). The current tight control is really about TV, but consumers will give it up.”

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