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Warners steps up China bid

WB takes on piracy one market at a time

Warner Bros. will today become the first U.S. studio to launch a home video distribution and marketing arm in China, as it continues to lay the groundwork for an entertainment empire there that will bolster the territory’s film industry and, it hopes, encourage Beijing to stamp out piracy.

It’s also planning a world preem of “Casablanca — the Dance,” a staged interpretation of the classic pic, in Beijing in April. It will be the first show conceived in the West to world preem in China.

The news follows ground-breaking joint ventures with local players in exhibition, film production and distribution, WB studio stores and online services.

Warners’ objective is clear: To provide greater access for its vast range of products in a market of 1.3 billion people where rampant piracy has stymied the film and video industries.

The potential rewards are colossal: China generates $2 billion in video revenues and $300 million in B.O. grosses each year, according to industry studies cited by the studio.

But of that, only around $400 million is spent on legal product. There are more than 100 million video players (60% VCD/40% DVD) in Chinese homes, and some brands go for less than $40.

“China has been an important market for years, but too often Chinese consumers have had to choose inferior products on the illegitimate market that were available sooner but with poor quality,” said Warner Home Video prexy Jim Cardwell.

CAV Warner Home Entertainment Co., the Shanghai-based marketing and distribution co-venture with state-owned China Audio Video, aims to tackle the pirates head on.

After testing the market since November, it’s launching this week with 125 titles. They’re priced at $2.65 for library titles and films released soon after their U.S. theatrical bows, and $3.38 for those that go out around the same time as the U.S. DVD release. Pirated copies sell for as little as 85 cents, but the studio says its research shows consumers are willing to pay a slight premium for high-quality originals. And it’s way cheaper than the $25-$40 price tags for Warner videos that one of its former licensees was charging a couple of years ago.

WB hopes other majors, which release product in China via licensees, will enter direct distribution in China, either on their own or via the CAV WHE banner.

So far none has declared it’s willing to do so.

The new banner, 49% owned by Warner, will put out 300-350 titles in the first year, a big step-up from the 50 or so pics that previously went into the market each year.

It started last November, releasing “Troy” and “The Last Samurai” and three NBA titles in key cities through outlets including Wal-Mart, Sam’s Club, Xinhua Book Store, Carrefour and Maya. Its nationwide market rollout is due to be completed by the end of the third quarter.

John Quinn, WHV’s exec VP, worldwide supply chain management, said sales had been encouraging but he acknowledged, “You can’t turn around overnight a market with 95% piracy. We expect to do well in the short term but our strategy is long term.”

Quinn said the studio’s two-pronged approach is to encourage the government to be more active in prosecuting pirates and to stimulate the business by releasing more DVDs more quickly, at competitive prices.

Meanwhile, “Casablanca — the Dance” is the first legit co-production between a Hollywood studio and a Chinese firm. It will have five perfs at Beijing’s Great Hall starting April 8, followed by a seven-week season as the inaugural attraction at Shanghai’s new Oriental Arts Theater.

Budget is under wraps but is sure to be in the millions of dollars.

The show was created by L.A.-based choreographer John Clifford, who, along with his ICM agents, pitched the concept to WB Theater Ventures exec VP Greg Maday two years ago. Maday initially said no, but the idea stuck in his head.

Encouraged by Warner toppers Barry Meyer and Alan Horn, Maday asked Clifford to stage a half-hour workshop at a UCLA theater last August, and got the go ahead to mount a production.

Maday came up with the idea of launching the show in China, and with the help of fellow exec producer Patrick Condon, found a partner in the Shanghai-based Wenhui-Xinmin United Press Group.

“Casablanca — the Dance” will feature 57 dancers, drawn from the U.S., Europe, China and Australia.

Maday is inviting presenters from around Asia to the preem, hoping that will result in tours of the region, encompassing Japan, South Korea, Hong Kong and Australia.

“After that, we would look to go to Europe, and then, if it still looks like it’s working, bring it to the U.S. for a major cities tour,” he says.

On other fronts, WB is making steady progress in its film production, exhibition and on-line ventures.

Unveiled last October, Warner China Film, the Chinese-lingo production, distribution and marketing partnership with China Film Group and conglom the Hengdian Group, is expected to announce its maiden pic next month.

Hailed as the first Sino-foreign filmed entertainment co-venture, WCF aims to turn out two or three films and a package of 10 telepics this year, according to Warner China Pictures managing director Ellen Eliasoph.

“It will be an exciting opportunity to market films to the public, via the Internet and the press, to get the buzz going; that’s not done much in China,” she said.

The telepics will be shot back-to-back with common sets, locations and actors, using the same cost-efficiencies which Warners used to produce 10 made-fors that aired on syndicated channels in China and were released on video in 2003-04.

Although the volume of Chinese film production has slumped in recent years, three local hits last year each grossed more than $20 million: Sony’s action-comedy “Kung Fu Hustle,” “House of Flying Daggers” and “A World Without Thieves.”

Those pics were a godsend to the company’s exhib arm, which operates seven multiplexes with 60 screens. It’s expanding its circuit to 127 screens at 16 sites by thee end of this year. Warner wa the first Western company to win approval to own a majority stake in a Chinese cinema in Jan. 2004.

Pending government approval, it will take 51% equity in a joint venture with Shenzhen Intl. Trust & Investment Co., which plans to build five cinemas in Wal-Mart malls; two are due to open later this year.

Via a management and licensing deal with developer Dalian Wanda Group, Warner operates four cinemas in Wanda’s malls and aims to grow that to 15 in the next few years.

Despite the unofficial import quota of 20 titles per year, Warners’ theaters in China are “cash flow positive,” according to WB Intl. Cinemas prez Millard Ochs.

Warner’s online division has a deal with TOM Online, China’s largest wireless content aggregator, to provide ring tones, wallpapers, screen savers and games based on studio properties to millions of wireless subscribers. WBOL receives a share of the profits from TOM.

The major is working with TOM to expand the customer base and exploring new digital content opportunities including mobile gaming, PC and online casual and multiplayer gaming.

In January 2004, its consumer products unit signed an agreement with Hutchison Harbor, one of Asia’s leading toy manufacturers, to open and operate Warner Bros. Studio Stores and Warner Bros. Studio Presents retail formats. Hutchison Harbor also got the rights to make merchandise to sell in those venues.

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