The lucrative business of producing the illegal DVDs, which avoid royalty payments and taxes, is a strong incentive for the government-approved facilities that make legitimate DVDs to use the extra capacity to supply the black market.
Other pirated discs in China are made in illegal factories in the southern province of Guangdong or smuggled in from Hong Kong and Macao.
Censorship also fuels piracy. China blocks the import of many films, based on their content. That leaves the black market as the first opportunity for audiences to watch Jackie Chan's "Rush Hour 3" -- reportedly banned from theaters for its depiction of a Chinese organized gang family -- and the only way to see the uncut version of Taiwanese director Ang Lee's sexually explicit film, "Lust, Caution."
"The restrictions on the release of new foreign films in cinemas give pirates a temporary market monopoly," said Michael C. Ellis, director of the Asia-Pacific region for the Motion Picture Assn.
The association and other trade groups advocate more rigorous government enforcement against piracy and stiffer penalties. They cite government cooperation as playing a pivotal role in helping other piracy-friendly areas such as Hong Kong and Taiwan put a stop to it.
That strategy, however, ignores the significant differences between China's young economy, which has vast income gaps between urban and rural residents, and the economies of Hong Kong and Taiwan, where consumers have more discretionary income, noted Yin, the professor. Hong Kong and Taiwan also are smaller and more tightly regulated.
Executives for Warner Bros. and Sony Pictures Entertainment say there's nonetheless a business opportunity among the 550 million urban Chinese who, like their American counterparts, share a passion for big-screen TVs and home movies. These newly affluent consumers are willing to pay a slight premium for a decent quality DVD that doesn't abruptly quit in the final chapter of the film, like pirated discs sometimes do.
The challenge: First establish legitimate distribution channels, then teach consumers where they can buy the licensed DVDs.
"Let's start telling people, this emerging middle class, that real product is great, real product is the best quality," said Matt Brown, an executive vice president at Sony Pictures Home Entertainment.
