Take That, You Pirates

China has long been a great place for movie buffs with no qualms about ripping off Hollywood. The sidewalks of Beijing, Shanghai, and other cities are thick with vendors hawking pirated copies of even the most recent studio releases for as little as $1. That makes it tough for Hollywood to earn money. The big studios say fakes cost them nearly $2 billion annually across Asia.

Warner Bros. (TWX ) has come up with a novel strategy to fight back. Until last year, the studio sold DVDs of its films in China for about $3, and typically released them three or four months after they started showing in American cinemas. In April, though, Warner slashed prices nearly in half, to about $1.88. Perhaps more important, they're now available within days of their release in theaters -- earlier than anywhere else in the world. Superman Returns, for instance, has been in Beijing stores for some time now, but still isn't available on DVD in the U.S. Although the studio won't provide details of its Chinese revenues, Mark Horak, who oversees Asian sales for Warner Home Video Inc., says: "We're seeing significant improvements in our sales performance" due to the change.

Even at $1.88, though, the real thing is nearly double the price of many knockoffs. So why are Chinese buyers starting to make the switch? The counterfeits -- especially of the newest releases -- are often filmed with a camcorder in a theater, which makes for lousy sound, a wobbly image, and sometimes even heads popping up in the foreground. Many fakes are higher-quality copies of DVD releases, but even these lack extras such as interviews with actors. "True movie fans buy the real ones," says 26-year-old Wang Yan as he browses the offerings at the Fab Endless Culture movie shop in Beijing. "The quality and the translations are much better, and the price has come down."

Despite Warner's success, other studios remain skeptical. Unless Beijing cracks down harder on fakes, there's little chance the strategy will make much of a difference. So, Hollywood isn't backing off more aggressive tactics. The Motion Picture Association of America on Sept. 14 filed suit in Beijing against two local retailers and has won settlements in 10 similar suits over the past three years. In the first half of this year, the MPAA says an operation it calls Red Card has resulted in 405 raids in China and seizures of 1.9 million pirated DVDs.

By Dexter Roberts and Ronald Grover

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE