Investment

Internet cafe business suffers slowdown

By Shen Jingting (China Daily)
Updated: 2010-10-18 08:26

Customers using computers at an Internet caf in Beijing. According to a regulation released last week by the Film Copyright Society of China, Internet cafs should be charged for movie royalties as early as Jan 1, 2010 - first in eight provinces and municipalities such as Beijing and Jiangsu and then across other parts of the country. Stefen Chow / Bloomberg

BEIJING - Liu Qing is worried about the movie copyright fee that is about to be imposed on his Internet caf.

He operates two cyber cafs with 260 desktop computers in total in Yueyang, a lakeside city in central Hunan province.

Although less developed than many provinces, Hunan is listed as one of the top five in China for cyber caf numbers. They offer online games, movies and free music for low-income young workers - all at a very cheap price in the region of 2 yuan ($0.30) an hour for each terminal.

Running an Internet caf business is not the easy business it once was. As people's personal wealth rises, they tend to surf at home, Liu said.

The young man married three years ago. His wife prepares their daughter, aged 1, for bed every evening, without her husband. He is either working or dozing on a red sofa in one of his cafs.

"The business shrank nearly 20 percent compared with last year. Only during the holidays did my Internet cafs experience an attendance of 90 percent of capacity. Several years ago a full house was common," said Liu.

If the Chinese government does levy a copyright fee on his cafs' consumers watching online domestic movies, for example 0.24 yuan a day for each terminal, Liu said he would suffer a loss of at least tens of thousands of yuan in net profit a year, a big sum for his family.

According to a regulation released last week by the Film Copyright Society of China (FCSC), Internet cafs should be charged for movie royalties as early as Jan 1 - first in eight provinces and municipalities such as Jiangsu and Beijing and then across other parts of the country.

The FCSC is a national organization that is officially authorized to oversee all domestic movies and tries to protect them from copyright infringement. In addition to Internet cafs, long-distance buses, airplanes and trains are also included in the list of those who may have to pay fees to the organization.

Zhu Yongde, director-general of the organization, said Chinese film copyright owners did not get any benefit from playing movies through Internet cafs, a situation that was not fair.

"Box office returns account for a mere 20 percent to 25 percent of the total revenue of films made in the United States. The rest is from copyright fees collected through the Internet, hotels or buses," he said.

However, Zhu said movie makers in China rely heavily on box office revenue, something that has inhibited the quick development of the Chinese film industry.

The copyright fee will be calculated based on the number of terminals in every Internet caf and their hourly charges.

According to a survey conducted by the FCSC, the average occupancy rate of Internet cafs in the Chinese mainland was 56 percent. Businesses open on average for 16 hours, and movie audiences in Internet cafs account for 20 percent of the total customers.

Based on an occupancy rate of 50 percent and the usage fee of two yuan an hour, every terminal can make a movie screening profit of 3.2 yuan a day, Zhu worked out.

He explained his organization only charges 7.5 percent of total revenue as the copyright fee, which means 0.24 yuan a day for each terminal.

"The copyright fee would take less than 5 percent of the profit from every Internet caf. How can it have a big effect on the business of cyber bars?" Zhu asked.

Ma Zengyue, a lawyer from Tianjin Yuede Law Office, argued the royalty collection may cause charges on Internet cafs to double because a large number of their proprietors had already paid copyright fees to online movie agents to acquire movies.

Movie agents, such as Guangzhou-based Zoke Culture Group, signed a copyright agreement with movie producers. When Internet cafs get films from Zoke, they have already been asked to pay a copyright fee, Ma said.

Wang Lei, an Internet caf manager in Beijing, said his cyber caf pays thousands of yuan in copyright fees to a Shanghai-based movie agent.

"The Shanghai movie agent says it paid money to movie makers. If FCSC asks for royalties, isn't it a double charge?" Wang asked.

Wang has 200 terminals in his Internet caf. He said he might be paying as much as 1,500 yuan per month to the FCSC if the policy came into effect by the end of this year.

"At present, we charge our customers 4 yuan an hour in our Internet caf. I suspect the price will rise to 6 or 7 yuan an hour after royalties are collected," Wang said.

According to the latest report issued by the Ministry of Culture, the total number of Internet cafs in China was 138,000 in 2009. There were 135 million Internet cafe customers, an increase of 8.43 million over the previous year.

However, the growth rate of Internet caf customers dropped substantially in 2009 as more people got access to the Internet through mobile phones and household desktop computers and wi-fi became more widespread.

Most Internet caf customers are low-income earners. They include migrant workers and college students. The total worth of the Internet cafs business in China was 8.86 billion yuan in 2009, according to the ministry.

More than two-thirds of customers are used to watching movies or listening to music in Internet cafs, according to a survey made by Data Consultancy. It added at least 80 percent of films broadcasting in Internet cafs have been pirated.

China Daily