“Hopefully, ‘Pleasant Goat’ May Help Solve Common Problems in Derivative Products in the Animation Industry”

Issue 32,By Zhou Yi, China IP,[Trademark]

This article was difficult to write because of the time restraints of Ms. Li Lisi of the Creative Power Entertaining Co., Ltd. (“Creative Power”) in Guangzhou. Our journalist finally caught up with her at 22:00 P.M. after three visits to Guangdong. Though she was very busy, she gave a warm welcome to our journalist and agreed to an interview after two days. On the third day, the scheduled interview was postponed for about one hour due to unexpected visits. Finally, after spending an hour in the interview emotions were running high because of the company’s tight schedule and vitality. “Now we have too much to do,” said Li Lisi.

Also, I found it difficult to choose a title for this article, because I had received many insightful quotes from Ms. Li Lisi remarks, for example, “the greatest harm of piracy was not a seizure of market share, but the destruction of the brand image of “Pleasant Goat””. In addition, her level of tolerance over piracy really surprised me. However, I ultimately selected a title that better embodied her ideas and character, because I felt that she, cherished the wish that the animation industry would grow and develop as a whole, rather than one single big name.

China IP: When did Creative Power begin to develop derivative products of Pleasant Goat and Big Big Wolf?

Li Lisi: We started in 2006 to develop derivative products. In 2004, we began to make pre-production preparations and broadcasted on TV in 2005. The two-year delay was attributable to the fact that the development of derivatives would be workable only after the formation of an animation brand per se. When the animation was initially launched, “Pleasant Goat” was not yet a brand. After the initial airing, the animation attracted a large audience who had more time to know, understand and accept “Pleasant Goat”. Only when certain level of reputation, loyalty and awareness necessary for a brand has been acquired, can derivatives begin to be developed.

At the end of 2006, with a certain degree of brand reputation, we had to ensure a good cycle for our operations. Initially a hefty capital injection had to be recovered through operations. The first round of recovery came from television media and advertising revenues. The second round came from books, audio-visuals, toys and other derivatives products. At the end of 2006, we began exploratory negotiations over derivative products.

China IP: Do you mean that derivative products are aimed at recovering the investment, and TV shows cannot guarantee recovery of investment in animation? In particular, currently Pleasant Goat animations have been broadcasted by many stations.

Li Lisi: Right. Animation demands a large amount of upfront capital, particularly from the beginning; the cost may amount to 10,000 Yuan per minute. Later, the cost might be reduced to a few thousand Yuan per minute. However, China’s TV stations can pay very little and differ greatly. Some small TV stations may only pay 10 Yuan per minute, and the fee may increase to 80-100 Yuan per minute for larger stations. The largest China Central TV may pay a few hundred Yuan per minute.

Obscure TV stations have even asked you to pay the cost. Therefore, it can be said that you “lose a penny as you put a penny” in developing original animation. Then you may do sums, on average, we would be able to recover the investment, in theory, only when the animation was broadcasted on dozens of TV stations. In general, we are able to recover 40% of our investment through TV media.

Of course, we are basically able to recover upfront investment costs through TV media, since we have tried our utmost in releases: several rounds of releases, from local TV stations to China Central TV, covering all networks.

I think the reason is that animation cannot increase television ratings to TV stations; therefore, they are not attaching much importance to animation. Another major reason is that some foreign animation has entered the Chinese market aiming not at profits, but at expansion of markets and reputation. Therefore, they are willing to accept much lower prices. Besides, foreign animation is generally better than their Chinese counterparts in quality. As a result, the low price quotes for Chinese animation is justified.

China IP: In theory, where does the importance of income from derivative products lie in an animation company?

Li Lisi: In short, relative to the huge upfront investment in animation, television broadcasts do not make a profit. The profit comes only from derivative product, which is the largest source of income for the animation industry. As far as our company is concerned, the broadcast fee and that of licensed development of derivative products account for 30% and 70% respectively. Besides, as the company grows, the first part shall be fixed. As a result, the value arising from the development of derivative products shall increase continuously, which has much to do with the company’s profits and subsequent development. For example, the well-known cartoon image Mickey Mouse of the United States, has been able to bring continuous and stable income for Disney for dozens of years. On the contrary, animation per se would lag far behind. As far as we know, the box office revenue of Transformers hit 400-500 million, while income from its derivatives amounted to 4-5 billion.

China IP: Is this just the case in China alone? Can profits be made only through TV abroad?

Li Lisi: Any animation industry follows the same rule. However, less importance has been attached to derivative products abroad, because many fees paid by state-run television allowed them to make a certain profit, and development of derivatives has become one of voluntary approaches to build a brand of animation.

China IP: Has Creative Power focused on the development of derivative products from the very outset?

Li Lisi: It should be said that we knew from the outset that we must develop derivatives in order to develop. However, our initial focus was on contents. Without contents, there would be no foundation, to say nothing of recovery through derivative products.

China IP: Would you please introduce Creative Power’s brand licensing division? Why not try distributorship licensing to see if it will lead to a faster growth?

Li Lisi: The brand licensing division began operations in 2006, and was established out of necessity. In my view, a separate company will be set up if we grow bigger. In fact, establishment of the licensing division was a bold attempt for us at that time. Because there was not any experience for our reference. The previous successful licensing of the “Blue Cat” series was also done through distributorship. However, we still believe that we shall have full control of licensing procedures and contents, map out an overall operation strategy and select good partners focusing from the very beginning on the first-tier manufacturers in China. Certainly, there are also some distributors as our business grows.

China IP: When did you start to notice unlicensed products, or the appearance of “pirated” products? Were you furious with the “pirated” products?

Li Lisi: As a matter of fact, from the beginning we were quite concerned about piracy of Pleasant Goat products (laughing), and this is a very interesting process.
Every time as the New Year came, cartoon images are printed on red envelopes. From the cartoon images, you can find which animation is popular. Foreign big-name brands, such as Hellokitty and Doraemon appeared most frequently on red envelopes; however, domestic brands were seldom seen. At that time we were expecting “Pleasant Goat” would be published on the red envelopes some day. In fact, that was what we thought and we were very happy over piracy and felt that we had a certain degree of fame. However, later we began to have mixed feelings and now we feel disgusted with and even revolt against piracy.

I think every brand will have such a stage in its development. It is hard to say now if “Pleasant Goat” is a brand or not. But during the transition from the unknown to the well-known, there will be such a change in mentality. Today we are thinking about how to curb piracy.

China IP: What do you think is the greatest harm of “piracy” to Creative Power?
Li Lisi: Actually, I think the biggest harm is not the erosion of our market share, but that we have to bear risks and consequences of brand damage. For instance, we have found the most heartbreaking thing is that some people exploited the brand image of “Pleasant Goat” to promote medicines and medical items, and many consumers in the market did not know that the use of the Pleasant Goat image should be authorized. So if there was a problem, consumers would, naturally, put the onus on us. Pirated products are now relatively low in grade without any guarantee in quality. Once a consumer is hurt, our brand image will be undermined to a certain degree, which is not acceptable to us.

China IP: What do you think of the damage to the animation industry?

Li Lisi: The harm does exist, but I do not want to talk about harm. I hope that some common problems may be solved through Pleasant Goat. At present, the value of Pleasant Goat’s image cannot be evaluated and everyone is concerned about this image. Personally I think, with the sudden emergence of such a popular image, people need to talk about how to ensure development of derivative products in a sustainable way. Because what Pleasant Goat encounters today will surely be encountered by future animation. I hope we shall have a clear idea and give attention as soon as the problems arise.

China IP: What are current measures for Creative Power to curb piracy? Any difficulties?

Li Lisi: Currently, we should still focus on content development and invest less on protection of our rights, because the former is the principal conflict. Now we mainly hire law firms through our legal division to help safeguard our rights, from the mid-year, we began to discuss relevant issues with them.

Up till now, we haven’t filed any lawsuits but we have sent a lot of Cease and Desist Letters instead. There is not a qualified copyright value evaluation agency in the protection of our rights. Without value evaluation, it would be impossible to determine the amount of indemnities. Without the amount of indemnities, protection of our rights would be more difficult. Therefore, lawsuits only determine whether there is an infringement, and cannot assess the market value. For this reason, we have never resorted to lawsuits, which is burdensome and unworthy.
Furthermore, in administrative law enforcement, governmental law enforcement agencies require pirated products, invoices and products from businesses. Even if evidence from businesses is available, we find that there are wholesalers. If we pursue the wholesalers, we find it very difficult to gather evidence. With the evidence in hand, we cannot find the manufacturing plant. The best approach is to find the plant and then have it shut down through law enforcement. However, the infringement would start all over again in a new place.

I think the most important thing to curb piracy is to maintain a market order.

China IP: Are there any pirates who have become authorized dealers later?
Li Lisi: Sure. Some pirates listened to reason. They had no confidence at the beginning, so they did not get authorized. But later when they found Pleasant Goat was gradually becoming popular, they would then be willing to seek cooperation with you. After all, the market will turn from chaos to normality, and this order will change accordingly.

China IP: What is your attitude toward piracy now?

Li Lisi: It is a pity piracy brings about losses. But we have to recognize the reality that the most important thing for us is to create better contents, build brands and develop derivatives products, so that they are different from pirated ones on the market.

(Translated by Wang Hongjun)

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