Warner Bros. expects as many as 3 million Chinese households to have access to its recently released films and older titles as early as this summer through pay-per-view and on-demand services. Ultimately, the studio, a division of Time Warner Inc., is hoping to reach 200 million homes in a country where access to Hollywood entertainment has been undermined by government control and censorship.
The studio's joint venture in China, CAV Warner Home Entertainment, struck the deal to distribute its movies with technology provider You On Demand Media. You On Demand has an exclusive, 20-year joint venture partnership with China Home Cinema, the pay-television arm of that country's CCTV-6 network. You On Demand now has to sign up cable operators to carry the new service.
China is in the midst of replacing largely antiquated and fragmented cable systems with more sophisticated digital technology.
In addition to films from the Warner Bros. library, which include the "Batman" and "Harry Potter" series, the service would include recently released movies that would appear on Chinese pay-per-view services about the same time they are released on DVD.
The deal is part of an escalating offensive by the movie industry into China, with its population of more than 1.3 billion. Last week Legendary Pictures, a Burbank company that helped finance and produce such movies as "The Hangover" and "The Dark Knight," announced a joint venture with a Chinese entertainment conglomerate to make big-budget English-language movies in China for export around the world.
Imax Corp., the Canadian big-screen theater chain, also recently signed a joint venture with China's largest cinema operator, Wanda Cinema Line Corp., to open 75 new Imax theaters in 25 locations by 2014.
The movie industry also is pressuring China through the World Trade Organization to further open its market. The Chinese government limits the number of foreign films released in the country to about 20 per year. The Motion Picture Assn. of America, the industry's lobbying arm, is working with U.S. trade officials to try to broker a deal to increase that total to as much as 40.
MPAA Chairman Christopher J. Dodd urged China to open its doors during at an appearance at the Shanghai International Film Festival this week. Rupert Murdoch, chairman of News Corp., parent company of 20th Century Fox, and Fox Filmed Entertainment Chairman Jim Gianopulos made similar appeals at the festival.
Despite all the restrictions, half of the 10 highest-grossing movies of all time in China came out of Hollywood, including James Cameron's blockbuster "Avatar." China's box-office receipts grew 61% to $1.5 billion in 2010, according to Screen Digest.
The international market is increasingly important to the movie industry, as theater attendance in North America has flattened. Overseas ticket buyers account for nearly 70% of total box-office receipts.
Warner Bros. has been one of the most aggressive Hollywood studios in China, pioneering multiplex cinema development, selling DVDs at prices competitive with pirated versions' and partnering with streaming video sites to show recently released movies. The studio closed its Chinese cinema operations in 2006 when the central government banned majority ownership of movie houses by foreign operators.
Its efforts, like those of other studios, have been undermined by widespread piracy. Bootleg copies of movies that are showing in theaters can be purchased for as little as $1.50 on DVD from Chinese street vendors and in stores, or obtained on the Internet.
The You On Demand service, however, would provide a way to compete with piracy with movie rentals priced from $2 to $5, executives said. Unlike theatrical releases, there are no quotas on titles released through television. The films would be subject to Chinese government censorship, however.
"The opportunity of China is just too irresistible to most companies and particularly Warner Bros.," said Jim Wuthrich, president of international home video for Warner Bros.' home entertainment unit. "We've been trying to crack this nut for a while."
The service will release such movies as the 2010 hit film "Harry Potter and the Deathly Hallows: Part 1" and the recent Russell Brand comedy "Arthur." Most of the 600 movies that Warner Bros. has sold for DVD in China would be offered through the service, Wuthrich said.
New York-based You On Demand is run by Shane McMahon, son of Vince McMahon, who heads the sports juggernaut WWE, a powerhouse on American pay-per-view channels. Shane McMahon left the family business in 2010 to launch the company. He expects that the video-on-demand service will sign up additional studios. "We're talking to everyone," he said.
Most televisions in China still receive analog broadcasts, but there are about 4,000 cable operators with about 187 million households. Of that, only 50 million currently belong to a two-way digital network that enables them to order programs.
The success of the Warner Bros. deal hinges largely on how quickly China can upgrade the network to two-way digital, said Tony Brown, a senior analyst for Informa Telecoms & Media.
"This market represents a huge opportunity, but foreigners have been largely shut out from investing in it," Brown said.
Authorities allow foreign content providers only to sell blocks of programming to Chinese broadcasters. Walt Disney Co., which has long wanted a dedicated channel in China, has no choice but to settle for providing selected programming on Chinese TV.
Brown said another challenge to the Warner Bros. venture is the inclination of Chinese, especially younger ones, to entertain themselves on the Internet rather than TV because it's cheaper and often offers a more compelling array of content.
"China is crazy for online video," Brown said. "Online video is spoiling the well for cable."