Warner Bros. Movies to Be Available in China Via Video On Demand

SHANGHAI – This summer, for the first time, Chinese subscribers to state broadcaster CCTV’s pay TV arm will be able to pay for Warner Bros. movies delivered direct to their television sets, the Hollywood studio said in Beijing on Wednesday, the second day of MPAA Chairman Christopher Dodd’s first visit to the Chinese capital.

The deal appears to signal progress in a long-running battle by the Hollywood studios for access to greater participation in the distribution of film and television in China’s historically closed media marketplace, where imported films allowed to share in gross revenues are limited to 20 per year.

China was supposed to show progress of opening up distribution channels for copyrighted cultural content by a March 19 deadline set by the World Trade Organization.

In a statement issued from Beijing, Warner Bros. Entertainment announced China’s “first national Pay-Per-View and Video On Demand platform” in partnership with YOU On Demand Media, the exclusive 20-year joint venture partner of the pay-TV arm of state-run broadcaster China Central Television’s dedicated movie channel, CCTV-6.

Warner Bros. said CCTV-6’s pay TV arm, China Home Cinema and YOU On Demand’s platform will provide films such as the Harry Potter series to three million cable TV homes in China by the end of this summer, a number comparable to the subscriber base of top cable operators in the United States.  

“China is developing methods for consumers to view movies outside the cinema in a legitimate fashion,” Jim Wuthrich, Warner Brothers president for international home video and digital distribution said. “Through YOU On Demand’s platform,” millions of potential consumers will be able to view our films.  They will make it easy for consumers to see the latest films including Harry Potter and the Deathly Hallows, Part 1.”

YOU On Demand’s Chairman and CEO Shane McMahon, a former professional wrestler and executive at World Wrestling Entertainment, called the agreement “a historic milestone,” adding “I’m excited for the millions of Chinese consumers that will be able to experience and enjoy the very best content that Hollywood has to offer.”

The question is, will they pay for it, and is it legal under current Chinese law?

Home entertainment products, while not subject to the annual 20 film cap, still may not be distributed directly into China by a foreign company, observed Steve Dickinson, a China-based media industry trade expert with Seattle law firm Harris Moure.

Sources claiming to be familiar with the Warner-YOD-CCTV-6 deal’s structure say that YOD’s contract is actually with a private Beijing-based VOD solutions company called Zhonghai, which, in turn, has a non-exclusive contract to source video content for the VOD unit of CCTV-6’s pay TV platform.

In China’s tightly controlled media landscape, it could be only a matter of time before media regulators in the ruling one-party government in Beijing crack down on any foreign entity trying to sell content directly into China, even through a series of middlemen.

“All the middlemen do not make things more or less legal in the eyes of the regulators. It just makes for a complicated scheme by which investors can be manipulated,” Dickinson said.

In a market where movie theater ticket sales soared 64 percent last year to $1.5 billion, there’s still very little revenue to be made from the Chinese home entertainment, undercut by pirated discs of Hollywood films costing less than $1 and free illegal Internet download.

Thus, it is not yet clear what revenue Warner will be able to recoup from China’s nascent cable marketplace – which must compete with discs and downloads – Dickinson said.

“One wonders why anyone would pay to see a movie for a single viewing on a home TV,” Dickinson told The Hollywood Reporter in an email.  “At any rate, it does show some interest in opening up the China market for audio visual products, which is a good thing.”

Nor was it yet clear where the CCTV-6 pay arm’s VOD service for Warner’s content will be made available, although sources close to the deal say that there are plans to roll out the service in seven Chinese cities in 2011 and eight more in 2012.
Currently, it’s very tough to get imported filmed entertainment onto Chinese television and what is allowed often is only broadcast into luxury hotels and diplomatic residence compounds.

If CCTV-6, Warner and YOD managed to develop a wide subscriber base, Rance Pow, president of Shanghai based industry consultancy said that the deal would “probably mark an important step in developing the ancillary markets in China,” where a film’s theatrical release historically has represented about 90% of its total revenues in the market.

But Dickinson points out it’s unclear if it would generate much money in the early stages.

“The real money in China is from a release in theaters, not the sale of DVDs and not television broadcast,” Dickinson said.
Some analysts are more skeptical still. One, who asked not to be referred to by name for fear it would jeopardize business, referred to the Warner-YOD-CTV-6 structure as a “shell game.”

According to the source, who has consulted for multiple media entities both Western and Chinese over the years, YOD’s McMahon approached the Los Angeles-based executives of all the Hollywood studios several months ago, saying he’d secured a platform to distribute content in China, “bypassing their China people, who know how things work here,” the analyst said.

“This is an over the counter stock looking for a boost to its price by making an announcement,” the analyst said.

Shares of YOD, whose market capitalization is about $72.7 million, according to financial filings, have traded at less than 15 cents for the last year.

Requests to speak with Warner Brothers and YOD were not met by deadline.