Bollywood, Hollywood and and IP: Law or technology?

By Wayne Rogers, Sonnenschein Nath & Rosenthal LLP
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The Indian film industry is the largest in the world, producing between 900 and 1200 films per year. This number is twice that of Hollywood, and given market demographics, still has not scratched the surface in potential.

Wayne Rogers, Sonnenschein Nath & Rosenthal LLP
Wayne Rogers
Partner
Sonnenschein Nath & Rosenthal LLP

According to the Federation of Indian Chambers of Commerce and Industry (FICCI) Bollywood revenue is US$1.3 billion currently, anticipated to move to $2.9 billion by 2009. Others peg revenues by 2010 at $3.5 billion. As more and more people in India move up the economic ladder and the demand by non-resident Indians for Indian cinema continues to grow, the industry faces a bright and exciting future.

The industry projects 20% per year growth rates throughout the near term.Despite being the largest film producer, Bollywood only represents 2% of global film entertainment revenues. With the vast majority of films shown in India still being made in India (estimated at over 95%), the opportunities for Hollywood also abound. There is one major stumbling block: Intellectual property piracy.

The subject of Intellectual Property piracy most often brings thoughts of China, not India, however, the Indian film and music industry is suffering mightily. It is estimated that 50% of Indian film revenues are lost to piracy. A study by the George Washington University Law School estimated that the profit margin on pirated videos is higher than the profit margins in drug trafficking, with much less risk. This has resulted in an unusually high percentage of revenues for Bollywood films coming from theater exposition rather than video distribution. Video distribution is being lost to the pirates.

This is an international problem and not an Indian problem alone. The UK has estimated that over 70% of the Bollywood films in the country are pirated. They recently conducted an anti-piracy operation in west London netting over 200,000 Bollywood CD’s and DVD’s worth over $2 billion. In simultaneous raids in Rotterdam the Dutch police found over 140,000 pirated CD’s and DVD’s. Gift stores in California, Chicago and Virginia have been raided. It is claimed that Pakistan exports more than 13 million pirated CD’s and DVD’s every month.

How can this be stopped?

The Law

India has laws in place to protect intellectual property. There is no lack of existing law to stop the piracy problem, the problem has been enforcement. Lawbreakers can face up to two years in jail, but most are fined only US$25 (Rs 1000). Given the backlog of court cases, many charges never see trial.

Enforcement has worked. A minister from Tamil Nadu, herself a film star, took aggressive action to crack down on video piracy, with enforcement imposing severe fines and prison terms. It worked, until she left office and focus shifted to other areas.

Outside India, enforcement has gotten tougher. In New Zealand five retailers were fined $185,000. In the UK, Jayanti Buhecha, a major Bollywood pirate, was sentenced to three years in prison. In the US fines have been as high as $50,000. Even Pakistan has started to crack down with more than 400,000 discs seized and six counterfeiting plants in Karachi shut down.

The US-India Business Council has created a committee to focus on this effort and a Bollywood Internet Anti-Piracy Board has been formed.

Notwithstanding the progress and need for greater enforcement, the prevalent view that intellectual piracy is a “soft crime” hinders enforcement alone as the solution. If Bollywood is to reach its global potential and Hollywood moves to serve a fast growing market, other solutions must be brought.

Technology

The future pragmatic solution to this problem appears to rest with improved technology.

Moving from celluloid to digital prints will reduce costs and allow for greater encryption security. While Hollywood has a “D-Standard” for worldwide viewing and production there are other technical standards available (the E-Standard). E-cinema reduces quality only 10% from the D-cinema standard but costs only 20% of the D-standard. Bollywood could move to this standard as a starting point up the chain. The return on investment would be significant through IP protection and lower distribution costs.

Opportunties abound for US and Indian companies to work together on technological solutions to piracy prevention, particularly when the film industry still gains most of its revenue from theater patrons. The number of screens per person in India is still only a fraction of the rest of the world, despite the low cost of the cinema.

Aggressive legal enforcement, international cooperation and technological advances will help bring Bollywood and Hollywood closer, with more opportunities and better returns for all.

Wayne Rogers is a partner in the international law firm of Sonnenschein Nath & Rosenthal LLP, where his practice spcializes in cross border transactions, particularly in energy and infrastructure. He may be reached at 202-408-6478 or wrogers@sonnenschein.com.

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