China Media & Entertainment Law Report : China Media Lawyer & Attorney : Reed Smith Law Firm : Entertainment, Sports & Consumer Rights Law

Foreign companies and their Chinese partners have always been major players in the Chinese online gaming market. The partnership normally is has the foreign company licensing rights to a Chinese partner. The Chinese partner is then responsible for developing the local market. The Chinese partner is required to apply to the Ministry of Culture’s Content Censorship Commission (“CCC”) and the China’s General Administration of Press and Publication (“GAPP”) for pre-approvals to distribute the game. CCC censors game content and reviews the license agreement, which becomes effective upon CCC approval. GAPP examines the qualification of the Chinese partner to provide foreign online game services and decides whether to issue a License for Internet Publishing Service to the Chinese partner.

Chinese companies have accused foreign gaming companies of abusing their copyrights via unfair and arbitrary contractual terms. The Ministry of Culture and GAPP seem to be responding to these accusations by cracking down on foreign online gaming companies. On April 24, 2009, the Ministry of Culture issued the “Notice of Regulating the Censorship and Reporting Mechanism on the Content of Imported Online Games” (“MOC Notice”), and on July 20, 2009, GAPP issued the “Notification on Strengthening the Administration of Approval of Imported Internet Games” (“GAPP Notification”).

These two sets of regulations seek to tighten the control over the activities of foreign online gaming companies in China:

1. Each foreign online game must be distributed in China by a single Chinese partner with exclusive rights.
2. In the event that the Chinese partner is changed, the game is renamed or new game versions are released, the Chinese partner must re-apply with CCC and GAPP for approvals.
3. Foreign operators who are deemed to have included arbitrary contractual terms in their distribution agreements will be sanctioned and CCC may suspend its approval of the relevant foreign online game.
4. GAPP has expanded its authority to review the import of foreign online games for exhibition, demonstration, trade or promotional activities, all of which are now prohibited without GAPP pre-approval.

Kou Xiaowei, Deputy Chief of the Sci-tech and Digital Publishing Department at GAPP, stressed that GAPP would not discriminate between Chinese and foreign game service providers during the approval process. Still, Chinese produced online games only require filing with the GAPP before distribution, approval with GAPP or CCC is not a requirement.

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In an effort to address issues hindering development of the audio-visual industry in recent years, on July 20, 2009, the General Administration of Press and Publication (“GAPP”) promulgated “Several Opinions Concerning the Promotion of Healthy and Orderly Development for China’s Audio-Video Industry”. The Opinions included 26 articles outlining the industry’s development and focus, industry policy on mergers and reorganization, financing, and cross-industry cooperation.

 Key points noted in the Opinions include:

• The promotion of corporative reform: A/V publication houses affiliated with higher learning institutions and local governments, excepting non-profit organizations, are asked to execute reforms before the end of 2009. Institutions affiliated with central government departments are required to complete the transformation before the end of 2010.
• Encouraging the establishment of A/V groups: Audio and video institutions with similar business scope are encouraged to establish joint trans-industrial and trans-regional companies, ultimately establishing three to five large comprehensive A/V groups and 10 to 20 distinct and specialized companies within three years.
• Restructuring of some A/V institutions: Large state-owned newspapers and publication groups are encouraged to incorporate A/V enterprises into their operations via acquisition.
• Establishment of a creative industry base: Beijing, Shanghai, Guangdong and other regions with competitive audio and video enterprises are encouraged to set up music and creative industry bases or parks.
• Digital transformation: Companies are encouraged to diversify publication channels through cooperation with telecom and network operators.
• Expand sales channels: A/V companies are encouraged to establish sales chains in supermarkets, shopping malls, gas stations, airports, restaurants, tourist spots, kiosks etc.

The Opinions also provide comments on preferential tax policies, revisions concerning regulations for audio and video products, and a crackdown on pirated items, pornography, and illegal publications.

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In April 2009, the General Administration of Press and Publication (“GAPP”) released a set of opinions on publishing reform initiatives that establish timelines for increased privatization of the government-run industry. The “Guiding Opinions on Further Advancing the Reform of the Press and Publication System” (“Opinions”) provided the following key areas for reform work:

(1) Promoting the conversion of for-profit press and publishing agencies into enterprises and rebuilding them as market players

The Opinions require, before the end of 2009, the conversion to enterprises of for-profit press and publishing agencies of higher learning institutions and local governments that publish books, audio-visual products, and e-products. Conversion of central government publishing agencies is to be completed before the end of 2010. Non-profit press and publishing agencies are not subject to these requirements.

(2) After conversion, emphasis will be placed on promoting reorganization, while also accelerating the development of key media and publishing enterprises and strategic investors

The Opinions encourage the use of private investment to support the conversion process, especially by large State-owned enterprises. Publishers, in particular cross-regional businesses, that have satisfied all relevant requirements, are strongly encouraged to raise funds through public listings. The Opinions also set forth the goal of building, with government support, six or seven publishers in 3-5 years that have projected total assets and turnover exceeding ten billion yuan.

(3) Guiding the development of non-State-owned press and publishing studios and increasing publishing productivity

The Opinions recognize non-State-owned press and publishing studios as a boost to China’s cultural industries as a whole, and encourage their development in various forms in accordance with current regulations. The Opinions encourage non-State-owned publishing companies to cooperate with State-owned companies via capital investment and project cooperation.

(4) Deepening external exchanges and actively exploring the overseas market

The Opinions encourage domestic publishers to develop in overseas markets, including Hong Kong and Macao, by sole investment, joint venture, and/or cooperation.

Publishing Industry: History of Recent Reforms

In 2004, Chinese government authorities began initiating reform of the press and publication industries aimed at converting publishing agencies into for-profit enterprises and increasing private investment in the industry as a whole. Among the then existing 527 state-run publishing houses, only People’s Publishing House was to remain public while all other publishers were to be converted into for-profit enterprises.

In April 2005, the State Council issued “Several Decisions Regarding Non-publicly-owned Capital Investments in Cultural Industries”, which officially permitted non-publicly-owned capital investment in the cultural industries field, including investment into the publishing industry.

In October 2008, the State Council released guidelines related to the conversion of cultural for-profit institutions into enterprises and the support of cultural enterprises.

In 2008, GAPP, the Propaganda Department of the CPC Central Committee, and the Ministry of Finance released the “Notice on State-owned Asset Management in the Process of the Transformation and Restructuring of a Central Publisher,” aimed at preserving the value of State-owned assets invested in national-level publishers during the restructuring process.

In early 2009, the Chinese central government released its “Stimulation Plan for Cultural Industries,” indicating the government’s intent to develop cultural industries over a two to three year time span. As such, emphasis will be placed on fostering key cultural enterprises, planning public listings of cultural enterprises, and establishing bases for cultural industries. In July 2009, the Stimulation Plan was approved in principle by the State Council.

In March 2009, Liu Binjie, head of GAPP, revealed that a graded evaluation system would be applied to Chinese media agencies based on economic profitability, with less competitive media enterprises merging with larger groups. At present, more than 10 newspaper groups are preparing for public listings, with a total of 49 newspaper groups expected to gradually be listed.

Beijing Publishing House Group Restructured

Beijing Publishing Group Co., Ltd. (BPG), established on May 28, 2009, was formed by the restructuring of the Beijing Publishing House Group (BPHG) from an institutional organization into an enterprise. BPG was incorporated under the Company Law as a wholly state-owned company with the Beijing government as the sole shareholder. As part of the restructuring, BPHG was deregistered as a legal entity. A total of 28 publishing houses have now undergone reclassification from public institutions into for-profit corporations. Future plans call for only 4 public publishing institutions to remain under the ministry-level supervision, with the remaining 148 publishing entities all slated for enterprise reform.
 

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On July 27, 2009, the General Administration of Press and Publication (“GAPP”) issued a circular aimed at improving the investigation process surrounding the issuance of Press Cards for journalists. The circular requires journalists to submit declaration materials, carry out self-investigations promptly, and strictly abide by the “Measures on Administration of Press Cards for Journalists”, the “2009 Circular concerning Renewal of Press Cards for Journalists”, the “Circular concerning Application for Press Cards by Journalists of Periodicals Institutions”, and the “Circular concerning Application for Press Cards by Journalists of Broadcasting, Film and Television Institutions”. According to the self-investigation provisions, anyone with a criminal record, staff outside of news departments and/or involved in media departments such as administration, logistics, advertising or engineering, as well as staff in other organizations that provide information to media organizations, and guest writers are banned from receiving press cards. The self-investigation period will end on August 31, 2009. From this point on, GAPP will issue new press cards on the basis of evidentiary documents, as well as a Letter of Commitment of Press Card Management with each journalist’s signature.

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