Article on DVD marketing in today's WSJ.
March 16, 1999
Asian Technology
Techies in Asia Frustrate Plans
By DVD Makers to Divide World
By STAN SESSER
Staff Reporter of THE WALL STREET JOURNAL
LIKE ANY INDUSTRY, Hollywood is always looking to make a
buck. But when the American film industry tries to profit at the expense of
Asian film buffs, it had better watch its step.
That's the lesson of the Great DVD Saga. The plot is labyrinthine enough
for a movie: A Hollywood mogul, perhaps played by a cigar-chomping
Robert Duvall, wreaks havoc on Asians with a scheme to fill his own
coffers. But in the end, thanks to the never-say-die attitude of Asian
techies, his ambitions wind up on the cutting-room floor.
First, some background. While Americans are still scratching their heads
over how to program their 10-year-old videocassette recorders, Asians
have abandoned videotape in droves for video compact disks and digital
videodisks. VCDs are cheap but not high-quality. DVDs, on the other
hand, offer a high-resolution picture and digital multichannel sound that
leave videotape and even laser disks in a trail of dust.
The DVD concept sat around for several years while electronics
manufacturers and Hollywood studios squabbled over such things as
format, copyrights and piracy protection. When DVDs finally came to
market in 1996, DVD players didn't have the ability to record, so you
couldn't duplicate movies for your friends. But that didn't go far enough for
Hollywood. What emerged was a compact between manufacturers and
studios that can only be described as bizarre.
THE STUDIOS DECIDED to carve the world into six regions, and
encode the movies on DVDs differently for each area. The manufacturers
of DVD players -- realizing that their superb new gadget wouldn't get on
store shelves without Hollywood's cooperation -- agreed to make different
models for each region that would read the codes and reject disks not
coded for that region. In other words, if you're in Thailand (region three),
and your uncle in the U.S. (region one) sends you a DVD, your
Thai-bought DVD player will spit it out in contempt.
Why carve up the world? Hollywood's explanation was that because many
American movies take their good time getting into overseas cinemas, it
wanted to make sure people would shell out at the box office first before
being able to buy the DVD in local stores. If there were no special codes,
then DVDs from the U.S. would get to Asia and elsewhere before the
movies would.
But there was also a hidden motive: By dividing the world and introducing
codes, piracy might become more difficult. So China got a code all its own
(region six), while the rest of the world shared codes in a truly goofy
fashion (Australia is in region two with Europe and Japan, while New
Zealand is in four with Latin America.)
While New Zealanders may have passively accepted their fate, that
certainly wasn't the case in Asia. As Woody Tsung, who heads a trade
group of Hong Kong movie producers, elegantly puts it, "Anything that can
be encoded can also be decoded." No sooner had DVD players hit the
shelves in Hong Kong than retailers were offering customers the choice of
having the code readers removed, for about US$40 to US$60, so that
DVDs from anywhere could be played. Now the practice is so ubiquitous
that many retailers simply strip the DVD player of its code readers
automatically, with no extra charge. A spokesman for Philips Hong Kong,
a division of Philips Electronics NV, a major DVD-player manufacturer,
says flatly that "every player in Hong Kong that's available in retail markets
has been modified."
The modifications differ by manufacturer. For Philips products, the DVD
player is hooked up to a computer and reprogrammed from purloined
software. For Sony, the retailer must go into the innards and disable the
code-reading device. (A spokesman for Sony says such an alteration will
void the warranty.) Mr. Tsung says there's even a Web site with
instructions on how to disable various machines.
SO WHY DO the manufacturers go to all this trouble, only to have their
DVD players immediately eviscerated? "From the hardware
manufacturer's standpoint, we have to take into consideration the position
of the software companies," says a Sony spokesman. That means, of
course, that no one wants to alienate Hollywood.
Video stores in Hong Kong have joined the electronics retailers in ignoring
Hollywood's zoning system. When a movie comes out on DVD, they
stock it, no matter what the region -- as evidenced by bins filled with
movies sporting subtitles in French, Spanish and other languages not
exactly spoken on every Hong Kong street corner.
Now Hollywood is taking it on the chin a second way, as DVD piracy
becomes rampant. In a Hong Kong DVD store, I saw "Titanic" selling for
148 Hong Kong dollars (US$19.10) and "The X-Files" for HK$108. By
contrast, a big music and video chain that's not into piracy charges
HK$240 or HK$280 for most Hollywood movies. When I asked for
"Titanic" and "The X-Files," they said neither had been released on DVD
yet.
An electronics-industry official, who asks not to be identified, says "I hear
there are already 20 production lines in China producing pirated DVDs,
with all the features already in, including subtitles and six-channel digital
sound. The procedure is only a little more difficult than for VCDs, which
can be produced for 30 U.S. cents a disk, so they're making a fortune on
it." Tear out what's left of your hair, Robert Duvall.
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