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March 13, 2006

Wal-Mart and the Shanghai Pirates

Hollywood's newest business model?

The video pirates of Shanghai, China, have developed an amazingly successful business model for exploiting the home market. In the back rooms of video stores, shoppers fill their baskets while choosing from an almost endless inventory of DVDs that includes all of the new movies playing in America, Europe, and Japan, as well as a full complement of Oscar screeners. You can also buy current television series—even the latest episodes of Lost, 24, and Desperate Housewives. In addition, these stores stock a huge number of older movies and provide boxed sets of the complete works of noted directors. Finally, in a modified form of video on demand, if a title is not on the shelves, the store gets it from some other location in a matter of minutes.

With these pirated editions, there are no "windows" or artificial delays before a new movie is released on DVD and no zone restrictions that can prevent DVDs from being playable. Most are professionally burned from digital masters, with 5-channel sound, multi-language menus, and high picture quality. The DVDs cost about $1.25, which is less than a movie ticket in Shanghai. As a result of this aggressive pricing, people in China rarely go to movie theaters—ticket sales amounted to only 17 cents per capita in 2005. Instead, they buy shopping baskets full of DVDs.