This August The New York Times featured a profile of WeChat[1]. The profile described how WeChat has changed people’s everyday life in China, and set out a new profit model envied by its foreign precursors, such as Facebook and Line. The story came to quite a balanced conclusion, warning that this form of convenience comes at a cost to the privacy of individual users.
The story did not go into a phenomenon that may be of interest to IP professionals, however, namely how social media in China has been become a potential platform for monetizing intellectual property rights.
The Legend of the Money King
This phenomenon is best illustrated by the 2015 blockbuster Monkey King - Hero is Back [2].
The movie is based on a popular classic Chinese novel, Monkey King. The movie production itself is aimed at exploiting the value of the script, and copyright protection is of course, the main way in which the value of the intellectual property inherent in the script is protected. As such, the movie production itself can be viewed as a form of IP monetization.
The movie producer raised funds for the production of the film through the Moments feature on WeChat, which is similar in conception to the Facebook timeline. Individuals and enterprises were offered the chance to contribute to the project through a mobile payment function on WeChat. Each participant in the fundraising drive contributed, some just giving a few hundred renminbi, while others gave as much as ten thousand renminbi.
In total the producer raised RMB1 million (US$148,000) towards initial promotion aimed at attracting major investors which would allow for the completion of the entire animated film.
As with Kickstarter and other business models centered around the “fan economy,” the fundraisers were able to cash in on those passionate about seeing the Chinese classic become an animated film. This led to their good will towards the film translating to voluntary use of their time and resources to promote the movie. Some spread the news in their own Moments timeline, for example, while some went to the extent of providing free outdoor advertising space.
Although this may be nothing particularly new in the West, it was the first time this approach had been used in China. And it paid off, generating a record-breaking RMB600 million (US$88.5 million) in box office revenue in just 15 days! The initial 89 investors were also promised a share of box office takings and of future royalties derived from the film.
In this success story the movie producer made good use of two powerful IP monetization tools which are largely a product of the Internet era, crowdfunding and social media. Crowdfunding in China works in a similar way to the West. The contribution of social media, however, adds another dimension to the process.
What are the unique environmental factors in China that make social media so helpful in this kind of IP monetization?
Unique Opportunities for IP Monetization in China
A closer look into this story reveals that Chinese Internet users’ habit and the regulatory regime play a large role behind the scenes.
Transactions involving small amounts are now often hosted through social media apps as third party payment providers. As mentioned in the New Your Times’ feature, the leading social media operators (including WeChat) in China have spent a significant amount of resources building up an advanced FinTech infrastructure, with the launch of various programs aimed at encouraging the use of Internet payments.
The results are impressive. A large portion of Chinese users are now comfortable with paying through WeChat Pay or Alipay.
The traditional custom of giving money in red envelopes to relatives and friends on special occasions like weddings and festivals has also shifted online, with the new “red package” functions incorporated into apps as third-party payment platforms. They allow app users to donate a nominal amount to ideas or projects they support. Although individual donations may be small, they go a long way when taken collectively, as illustrated above with the Monkey King.
WeChat’s integrated functions, such as rapid completion of third-party payments with just a few clicks are especially effective for fundraising purposes, as investor interest in a project often fades if more obstacles are in the way of making payments.
Secondly the regulatory regime surrounding mobile payments through social media applications helps to reduce the legal risk of IP monetization.
The line between equity fundraising and “IP monetization” can be quite fuzzy at times. The former is strictly regulated in China as it is in other countries. “IP monetization” runs the risk of crossing this line if these kinds of activities are not carefully managed.
The fact that the payments are made through social media apps helps to mitigate these risks, however.
The securities regulatory authority is focused on funding activities targeting the general public at large, due to the potential risks to social stability if they go wrong. Funding projects or activities through people who already have a relationship with the fundraiser is less likely to attract regulatory scrutiny.
The Moments timeline in WeChat and similar functions provided by other social media platforms provide just this kind of venue. This helps these projects in sidestepping regulatory concerns.
This suggests that social media will continue to play a driving role in IP monetization in China.
What’s Next for IP Monetization?
How far can this kind of platform go? Will it expand to cover other kind of IP’s monetization? It is one thing to use crowdfunding to capitalize on the desire of the people in one’s Moments timeline to see a Chinese classic on the silver screen; it is quite another to securitize the patent portfolio of rocket science technology to institutional investors on capital markets.
No crystal ball can give us an accurate prediction on this given the rapid pace with which China’s IP environment is changing. Those advocating the expansion of IP monetization in China can still follow certain approaches to seize opportunities, however.
The best approach may be to stay focused on the development of limited but meaningful aspects of this changing environment. For example, IP monetization deals may differ in volume, complexity, and the issues they touch upon, but always take three legal relationships as their cornerstones - IP’s creation and transfer, pledging of funds and management of IP defects.
Focusing on these when observing the development of China’s IP regime (rather than focusing on trends which may turn out to be just fads), advocates must take a macroview to enable them to seize worthwhile opportunities when they come along. Although The New York Times’ story on WeChat and the success story of The Monkey King may suggest progress, fundamental changes in the regulatory regime are what will actually realize sustainable models for IP monetization in China.
About the Author
Dr. Jili Chung is a cross-cultural, interdisciplinary legal professional. He has worked in Washington D.C., Hong Kong, Beijing, Shanghai, and Taipei for global law firms and multinationals, including as a senior lawyer at Clifford Chance and as executive director of Goldman Sachs.
He obtained his J.D. from UCLA, a Ph.D. in Law from Peking University, and an MBA and BS from National Taiwan University, and is qualified as an attorney-at-law in California and China, and a patent agent in China.
Dr. Chung is enthusiastic about exploring the values of ancient Chinese culture through IP mining and technological innovation. He is the author of IP Financing for Creative and High-Tech Industries (in Chinese by Peking University Press) and Monetizing IP in China (in English by Amazon).
- “How China is Changing your Internet”, see http://www.nytimes.com/video/technology/100000004574648/china-internet-wechat.html
- 《大聖歸來》(Monkey King: Hero is Back, i.e., Xi You Ji Zhi Da Sheng Gui Lai), see http://goo.gl/G4VJeA
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