Fox inks distribution deal in China

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LONDON -- 20th Century Fox Home Entertainment has inked a distribution deal in China with local video distributor Zoke Culture Group.

The Fox unit previously distributed its DVD and VCD titles via a local licensee but has agreed to a deal with the privately owned Zoke as part of a long-term commitment to the Chinese market, according to TCFHE president Mike Dunn.

Zoke is China's largest home entertainment distributor and has access to around 100,000 outlets around the country.

"If you are going to make the commitment to the marketplace, you need a partner like Zoke, which has that kind of platform to build from," Dunn said.

The move is in part an attempt to legitimize China's home entertainment market and follows similar developments by Warner Home Video and Universal Pictures International to begin distribution of legal product in the territory.

Dunn believed that China was making strides to combat piracy, noting that it has just finished an unprecedented "100 Day Campaign Against Piracy," convened by 10 Chinese ministries and national departments to foster a viable, legitimate home entertainment business in China.

"I actually think China has a respect for Intellectual Property rights and they are emphasizing it," he said. "Our strategy is to be a really good partner with them and figure it out together."

The agreement between Fox and Zoke also drew comment from U.S. Commerce Secretary Carlos Gutierrez, in China on a business development mission.

"It is an important symbol of the stake both China and the US have in seeing intellectual property rights vigorously enforced in China," he said. "This partnership is a great example of the growing market for legitimate films in China and why American and Chinese products deserve IPR protection. The Chinese government has moved forward in a number of areas on protecting intellectual property rights, and we look forward to continuing to work together in making further progress on these challenges."

Dunn said the initial phase of the deal would develop into a joint venture if all goes according to plan. "Currently we have a representative office and they are a licensee but we'll take it one step further in phase two when it will be a joint venture in which we'll have a minority share," he said.

Kicking off its new business on DVD and VCD, TCFHE will release its summer theatrical hits "Garfield: A Tale of Two Kitties," "Ice Age: The Meltdown" and "X-Men: The Last Stand."

"We're starting with our big guns," Dunn said. "We believe we will get our first wave of catalog out in December and we'll follow that up with some television shows as well."

Next up in terms of new releases may well be "The Devil Wears Prada," Dunn said, provided it gets past China's censors for theatrical release first.

He conceded that the censors could prove problematic but was not unduly worried by the prospect of releases being blocked.

"Censorship is different for theatrical as opposed to home entertainment," he said. "I'm sure we will run across a release that won't be right and quite honestly that's OK. We have respect for the marketplace at this time and we will honor those issues."

Pricing will be competitive with the local pirates, Dunn continued. "We'll be slightly above their price point but we're going to treat piracy like you would if you were a branded good in a grocery store fighting private label," he said. "We have to convince the consumer that legitimate product has a value and you can't do that if your price is three times higher than what they can get currently.

"The first step is to offer a choice and to get that choice into the number of stores where the consumer can find it and then work over time on providing the consumer with some more value. We will improve our content with better subtitles, better mastering and added value. We are going to clearly have a point of difference."

However, he conceded that he was unlikely to beat the pirates on their top-notch production team. "Our packaging probably won't be as good because everything here is produced by either Stephen Spielberg or George Lucas, which is a problem," he laughed. "When you look at the credit block on every pirated release, it is produced by one of those two guys. It is kind of funny because I never knew Stephen Spielberg did 'Revenge of the Nerds'."

In line with other companies like WHV, which recently released "Superman Returns" on DVD in China two months ahead of the rest of the world, TCFHE will also introduce shorter windows to narrow the pirates' competitive advantage, he said.

"We're going to experiment with it. If you had to make a policy it would be impossible," Dunn said. "The key issue is to be flexible and to do what's right for the individual title because China isn't a silo. The whole world is inter-dependent right now and it depends on how the movie is released theatrically in other countries and what the timing is there. We are going to be very creative with our windowing."

As to how much business there is in China on home entertainment, Dunn said it was hard to tell. "There's two ways to enter our marketplace. One is through a lot of research and building a great big team of 60 people and try to figure it out first," he said.

"Our way is to commit to it with a representative office -- we'll have five of our own employees working with Zoke -- and we'll have to experiment. I think you are going to see an evolution in the marketplace over the next five years that's going to be hard to predict. You are going to have to be in it, be active in it and be part of it in order to shape it."
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