Importance of IP to Hong Kong Creative Industry

1. Importance of IP to Hong Kong Creative Industry Gino Yu mcgino@polyu.edu.hk

2. Talk Summary • Without IP protection, there is no creative industry • Without a creative industry, manufacturing will forever be OEM • Difficult to create and market brands, merchandising, etc. • Technology is changing the way in which media is created and distributed • Technology is empowering individuals • Individual freedom vs. businesses’ right to make money

3. Digital Technology • Exponential growth (double in performance every 18 months) • Auto industry comparison– cars faster than the speed of light and cost less than 1/100 of a cent • One of the rare technologies that can track population growth Performance Population Time Time

4. Implications of Digital Technology • Technology “sweeps” into new industries • Technology impacts the cost/capability/productivity for products and services • New industries must learn to “re-invent” itself with each new generation of technology • Connected to exponential growth of underlying IC technology • Near limits of perception for media Images Desktop publishing Audio Recording And Broadcast Video TV, Film Internet Commerce Education Entertainment

5. Digital Entertainment= Technology + Content Digital Entertainment • Traditional media • Digital production • Interactive media applications • Electronic toys • Video games • Consumer electronics • Location-based entertainment

6. Hong Kong Strengths • Industry • Entertainment capital of Asia • Largest toy exporter in the world • Financial services • Tourism • International • Network • Perspective • Culturally Chinese • Entrepreneurial • Fast reaction to market changes • “Close” - everyone knows everyone • Infrastructure • Broadband/wireless • Cyberport/Science Park • Logistics • Legal • Location, location, location • Geographic center of Asia • Pearl River Delta • Proximity to China

7. Film Television Books/comics Video games Toys Merchandising Clothes Specialty goods Cross promotional synergy 40% sold within the few weeks prior to release Extends lifetime of IP Sequels, video changing business of media Technology play Technology today driven by entertainment Intellectual Property Development

8. Strategy – Hong Kong Perspective • Hong Kong as a testbed • Tech savvy population • World-class infrastructure • Target Asia • Do what Hollywood does, but focus on Asia • Leverage Asia to spring-board into the International market • Improve quality • Shift emphasis to quality rather than cost • Understand the target market (research) • Listen, learn, experiment • Cooperate rather than compete • Can’t beat China on cost • Can’t beat Taiwan/Singapore/Korea on technology • Leverage strengths

9. Target Asia – Hong Kong Strategy • Asia marketing/promotion and distribution infrastructure • Different markets, different rates, different strategies (fragmented) • Reaching Asia is becoming cheaper (Satellite/Cable TV/Internet) • International companies trying to solve the same problem • Coordination/synchronization between different industries • Production, manufacturing, promotion • Transmedia forum • Better understand Asian consumers • Research, trends, analysis • Financing • Minimize risks • Hong Kong has burned Asian channels in the past (quality)

10. Goal of IP Protection • Provide an framework for IP owners to receive payment for their works • B2B / C2B – licensing • B2C – distribution • C2C – sharing

11. Global Issue • International broadband networks • Two years of continued decrease in music sales • Some claim that piracy isn’t the factor (poor music, competition from other media - Forrester) • Will impact other media forms with increased bandwidth • Distribution is changing • Disk-based today • Download in the future • What is the roadmap? • What is the new business model

12. Current Strategies for Combating Piracy • Technology • Protection • Can’t win with one-way dissemination • Watermark • Can’t win – digitization is too easy and cheap • Legal challenge • Go after businesses • Go after consumers • Can’t win • Technology and adoption changes faster than it takes to process legal cases • International • Too many loopholes • Consumer education • May be able to win, but harder the longer you wait • There are kids now that have never bought a record or CD… • Effective education?

13. Hong Kong is Ineffective Thusfar • Futile market for international companies • $2M USD / year by Sony in legal expenses • Eliminated local manufacturing of pirated goods, but allow parallel import • Without legal/healthy distribution channels, who will press charges against the pirates? • Games are entertainment, not business software • What is legal what is not? • Market confusion • Who is going after the organized pirate groups? • Star Wars example • Well financed • Cut the lawn, but where is the root? • The Porn loophole

14. Distribution – Challenge and Opportunity for Hong Kong • Distribution of digital content is changing • P2P (music to movies to software) • Hong Kong already plagued by piracy • What is the new form for distributing content in the age of networks and piracy? • Need to solve or there is no China/SE Asian market • Hong Kong is a good test market • Rule of law • Infrastructure • Content creators, electronics manufacturers, small (7M people)

15. Pirated Goods Off the Streets • “Broken Window” effect • Grassroots approach • Web-based reporting • Education in university and VTC • Sponsorship from industry • Flood market with counterfeits • Create market confusion (a form of consumer education) • Effective in P2P approach • Technology solutions? • 3G cameras? • Close the porn loophole

16. Strategy to Combat Piracy • Provide a way for law-abiding citizens to purchase legal goods • Get pirated goods out of public shops • Still make it difficult for “average joe” to break • Important to give legitimate products a “lead-time” • Effective education • Give consumers a choice • Get pirated goods off the streets (protect B2C, B2B) • Mong Kok, Sham Sui Po, 298 Hennesy Road • Protect B2B at all costs • New revenue models • Subscription, advertising • New pricing structures • New products and services • Motivate current pirate groups to become legal • Asia/international model, bigger money!

17. Factors that Motive Purchase • Timing • Pay to see it first • Quality • DVD vs. VCD • Features (e.g., value added) • DVD supplemental information • Social setting • View by self, at home, or in theater • Portability • View / play at home or on the road

18. Conclusion • Must protect IP for B2B • There is a way to prosper in a world of piracy • New business model • New products and services • Hong Kong is well positioned to lead the world • Solve the problem in local market first • Effective laws and enforcement • Will benefit creative and all other industries

19. Philosophical Questions • What is IP? • Representation? • Storage and delivery medium? • Performance? • “Spirit”? • What are my rights in the digital age? • If I have a file on my computer, am I liable for it? • Library book in the park analogy • Who is liable for software loopholes and hacks? • If I buy something, do I own it?