CUHK Business School Research Shows Reducing Online Piracy Can Lead to Increased Creative Output, But Comes with Unintended Side Effects

HONG KONG SAR – Media
OutReach – 5 July 2021 – The
protection of intellectual property rights (IPR) has long been a sticking point
in China’s dealings with the West. Despite making gradual strides in its regime
in recent decades, the country remains plagued by concerns over copyright
infringement in the physical as well as digital realms. Online, Chinese
authorities continue to wage their battle against piracy, which is costing
billions in lost revenues in everything from movies to TV shows, as well as
music and books.

 

China’s digital publishing industry is estimated to have
netted revenues of 20.6 billion Chinese yuan in 2020, with around 509 million
readers nationwide. (Source: iStock)

For the country’s booming digital publishing industry, these
efforts to combat online piracy are critical, as a recent research study shows
that suppressing the threat of digital privacy can lead to an improved level of
creative output by writers, although this did not come without unintended cost.

 

The new study, Digital
Piracy, Creative Productivity, and Customer Care Effort: Evidence from the
Digital Publishing Industry, was co-conducted by Chenxi
Liao, Assistant Professor of Department of Marketing
at The Chinese University of Hong Kong (CUHK) Business School, Prof. Xiaolin Li
at the London School of Economics and Political Science and Prof. Ying Xie at
the University of Texas at Dallas. The study is among the first to provide
empirical evidence of how reduced intellectual property piracy can increase
creative output.

 

To get an idea of the stakes involved in the digital
publishing industry in China, consider that Tencent-backed China Literature,
a major player in the online publishing industry in China, raised US$1.1 billion
in its 2017 record-setting
IPO. The industry is estimated to have netted revenues of 20.6
billion Chinese yuan in 2020, with around 509
million readers nationwide. While the roots of the
booming Chinese internet publishing sector, which sprouted in early 2000,
mainly consisted of fantasy novels that often contains elements from ancient
mythology and martial arts, it has grown into a mature ecosystem in diverse
genres.

 

Like other countries, in China free cloud storage plays an important
role in facilitating piracy of digital content. That is why the researchers
choose to look at the termination of a free service by Chinese cloud storage
provider V-Disk in 2016, which incidentally increased the cost of digital
piracy and as a result led to a reduction in copyright piracy of the creative
works of internet writers. Consequently, writers put in more effort in writing.
However, not all writers put in as much extra effort after the free storage
service was stopped.

 

Making
Money Writing Digital Books

In China as in any other part of the world, anyone can start
writing and distributing their material on the internet, but not everybody can
make money from writing. To start off, aspiring internet writers typically sign
up for an account with a digital publishing platform to benefit off the latter’s
reach. Doing so allows writers to freely offer their material to the platform’s
readers, but at this point aspiring scribes are not permitted to monetise their
writings.

 

It is only when their work gains a measure of popularity
from readers would the digital publishing platform then offer the writer a
contract deal. This allows them to sell their material to readers on the
platform and earn a proportion of the revenue from sales of chapters in their
books, as well as any appreciatory “tips” paid by readers on top of
this. The actual profit split between the two parties usually varies from
contract to contract.

Both types of writers usually post their novels in series
and are encouraged by the publishing platforms to update their work almost
every day to attract and retain readers. Writers who are not on contracts can
publish on as many competing platforms as they desire, but are unable to make
any money off their efforts. Contracted writers meanwhile may only publish on
platforms that they signed with and only the first few chapters of their books
can be read for free. Readers who want to continue reading the book would have
to purchase the remaining chapters, with the price of each chapter usually
determined by length.

 

Successful Chinese internet writers who garner a loyal
following are typically able to reap strong financial rewards. For example, one
of the most successful is Tang
Jia San Shao, a contract writer for online publisher Qidian,
who reportedly made 122 million yuan from royalties in 2017, according to a
ranking released by mainland
Chinese media. In addition to the royalties generated from publishing
digital books, many writers are also asked to turn their books into TV shows,
movies or even cartoon series, opening new avenues to monetise their creative
output. For example, Tang’s famous novel Douluo Continent
was first adapted into a cartoon and then into a TV drama series recently.

 

Boost
in Creative Output

 

The researchers went through close to 1,000 books written by
both types of writers and examined their output by their creative quantity and
quality, as measured by the length of each book and reader feedback,
respectively.

 

The results show that money-making writers improved their
productivity in terms of quantity without sacrificing the quality of the work
after V-Disk ended its service. On the other hand, writers who are writing for
free did not show any significant improvement in their creative productivity.
On the contrary, the quality of their creative work went down after the free
storage service ended.

 

“It’s quite clear that digital piracy poses an enormous
threat for contracted writers because it affects how much money they bring
home,” Prof. Liao comments. “That’s why we see increased effort in
writing more and better books from contracted writers after V-Disk shut
down.”

 

Prof. Liao explains that as readers could no longer easily
access pirated books from the V-Disk service, these readers returned to the
original publishing platforms and purchased the digital books there. As a
result, writers who made money were not only more properly compensated by sales
revenue, they no longer had to compete with the pirated copies and therefore
could direct their full attention on writing their best work possible to
compete with other writers on the same publishing platform. This resulted in an
improvement in the creative efforts of these writers.

 

However, this is not the case for writers that are
displaying their books for free. According to Prof. Liao, since their books are
free to readers on the publishing platforms anyway, the livelihoods of these
writers were unlikely to be affected by digital piracy because they do not make
any money from their digital works in the first place. Also, Prof. Liao
speculates that the decrease in their creative quality could be a result of
increased competition from profit-making writers who had more time and effort
to devote to writing.

Side
Effects

However, the researchers found that while lower levels of
digital piracy encouraged money-making writers to improve their creative
output, it also led to a decline in their efforts to communicate with readers.

 

Readers can encourage writers who are signed by the
publishing platforms through three channels: purchasing their book chapters,
rewarding them with tips, or leaving comments. The study finds that both sales
and tips would drive this type of writers to publish more work but they have no
effect on motivating them to interact more with the readers, which typically
involves replying to reader comments and acknowledging reader support. On the
other hand, reader feedback led to both an increase in writer output and writer
interactions with the readers.

 

The study notes that before the V-Disk termination event,
profit-earning writers displayed more passion in engaging with their fans,
perhaps in the hope of generating extra income through reader tips and to
discourage their fans from reading pirated copies of their works.

 

“When the threat of ‘losing to’ pirated copies is gone,
contracted writers became less motivated to interact with their readers and
less bothered to elevate the reading experience of their fans. This could be
bad news for publishing platforms because if reader experience falls, it’s
going to drive traffic elsewhere,” Prof. Liao warns.

 

Designing
Policy

Prof. Liao and her co-authors urge publishing platforms to
be aware that when the threat of digital intellectual property piracy goes
down, an improvement in the creative output of signed writers can come at the
expense of reader experience. Therefore, platforms may consider designing a
compensation plan that provides incentives for writers to maintain lively
interactions with their fans.

 

For policymakers in emerging markets that lack IPR
protection, this study provides evidence for the benefits of having strong IPR
protection. The researchers urge policymakers in these markets to use economic
incentives (for example, to make piracy more costly) to strengthen IPR
protection.

 

“Many emerging economies are in the process of moving
away from ‘imitation’ to ‘innovation’. Any kind of piracy would be a blow to
innovation,” Prof. Liao comments. “Intellectual property needs to be
protected because the lack of it will kill creativity.”

 

Reference:

Xiaolin
Li, Chenxi Liao, Ying Xie. Digital Piracy, Creative Productivity, and Customer
Care Effort: Evidence from the Digital Publishing Industry. Marketing Science.
0 (0).  https://doi.org/10.1287/mksc.2020.1275

 

This
article was first published in the China Business Knowledge (CBK) website by
CUHK Business School: https://bit.ly/3w8pOwO.