Featured faculty: Tony Ke
Written by Sally Ho

Amid the dominance of streaming platforms, digital piracy, or the unauthorised and illegal downloading or streaming of movies, music, and other copyrighted content, has been a persistent headache for the entire creative industry. A data company, MUSO, reported that visits to digital piracy websites have surged from 130 billion in 2020 to 216 billion in 2024.

Piracy websites offer free illegal content to watch and download, while monetising the visitor traffic through sponsored ads to generate revenue. Most jurisdictions treat such commercial piracy as a criminal offence and punishable by fines, imprisonment, or both. However, shutting down piracy websites has been an uphill battle for law enforcement.

Authorities have been blocking many piracy websites to protect copyrighted content, but piracy firms frequently change their web domain since they can host their servers anywhere to evade detection. Therefore, regulators are now trying to curb piracy from the demand side by introducing penalties aimed at users.

“To understand anti-piracy policy, you have to model a strategic ‘cat-and-mouse’ game, where penalties change piracy firms’ technological advancements and consumer behaviour.”

Professor Tony Ke

A notable example is the US Prioritising Resources and Organisation for Intellectual Property (PRO-IP) Act, which imposes US$1,000 to US$200,000 civil penalties, and France’s Regulatory Authority for Audiovisual and Digital Communication (ARCOM) Law, with a €1,500 or around US$1,750 fine for downloading, copying and streaming illegal content.

“These demand-side regulations are unique to digital content, as digital consumption can be traced by regulators more easily than physical transactions, making it feasible for law enforcement to identify users who download or stream pirated content,” says Tony Ke, Professor of Marketing at the Chinese University of Hong Kong (CUHK) Business School.

However, piracy firms constantly assist their users in hiding their digital footprint through encryption, automated random IP addresses, virtual private network providers, and many more. Most users are aware of this support, as the piracy firms make anti-tracking methods apparent on their websites, providing a sense of security from law enforcement.

This dynamic can explain why, despite high penalties, users continue to flock to piracy websites in large numbers, as measured by Google Trends below. An important question then emerges: Do penalties for digital piracy consumption actually work?

In his new study, Regulating digital piracy consumption, Professor Ke, in collaboration with his PhD student Chen Jieteng and Gao Yuetao of Xiamen University, suggests that penalties may, in fact, increase piracy rather than curb it. In some cases, heavier penalties can even encourage more piracy.

A cat-and-mouse game in anti-piracy policy

“To understand anti-piracy policy, you have to model a strategic ‘cat-and-mouse’ game, where penalties change piracy firms’ technological advancements and consumer behaviour,” Professor Ke says. “In this model, consumers understand the penalties, but pirate platforms also respond by investing in anti-tracking tools that make enforcement less effective.”

Specifically, the researchers design a model consisting of copyright holders that offer high-quality content and set a price, piracy firms that host a free and low-quality pirated version, the regulator that sets a penalty on consumers who get caught accessing pirated content, and consumers whose preferences depend on product quality, price, and the expected penalty.

“Demand for piracy often arises when copyrighted content is unavailable elsewhere,” Professor Ke adds. “Consumers with medium incomes are prone to piracy and willing to risk penalties due to budget constraints, while still seeking access to diverse content. The piracy firm’s anti-tracking technologies significantly influence their behaviour.”

Through various analyses, the study suggests that regulators should carefully balance the level of penalties with the cost and availability of anti-tracking technology. “When investing in anti-tracking technology is relatively cheap and easy for piracy firms, the regulator should avoid harsh penalties since doing so can trigger even stronger anti-tracking investment,” says Professor Ke.

The model shows that when the anti-tracking technologies are affordable, piracy initially declines as penalties increase. However, sufficiently high penalties can induce piracy firms to invest in anti-tracking technologies that help users evade detection, ultimately leading to higher levels of piracy consumption. In this context, regulators should target a moderate penalty that is just good enough to deter piracy, and tolerating a small amount of piracy can actually lead to better overall outcomes.

“However, in a scenario where investing in anti-tracking technologies is costly for piracy firms, higher penalties can be effective and may even deter demand and supply altogether,” says Professor Ke. In this case, the risk of being caught is higher and steep penalties can reduce piracy significantly.

Implications for content platforms and regulators

For content platforms and the creative industry, counterproductive regulation can be discouraging, as they might face uncertain returns on investment that affect their decisions in producing new content. Therefore, policymakers need to design not just the level of penalties, but also the strategic responses of piracy firms carefully.

“A more effective approach is to balance demand and supply-side actions,” Professor Ke adds. “On the demand side, piracy can be reduced by making legitimate options more attractive, affordable, convenient, and widely accessible, rather than relying on penalising users. On the supply side, enforcement should focus on deterring piracy firms and the infrastructure that enables large-scale piracy.”

Technology plays a pivotal role in enabling piracy firms and consumers alike. In a digital world where anti-tracking tools are increasingly sophisticated, effective regulation may require moderation, creativity, and a deep understanding of the ecosystem, rather than pushing for heavy fines.

“Additionally, digital tracking is constrained by data privacy regulations, and tech companies offer opt-out choices for such tracking features, so policymakers also need to take into account these limitations when designing effective enforcement,” Professor Ke adds.

He also notes that some platforms may have realised the complexity of the cat-and-mouse game in digital piracy and now offer “freemium” structures that combine free access with advertising. This new strategy opens an avenue for further research to understand how these models affect consumers’ willingness to pirate.

The post How to keep digital pirates at bay? first appeared on China Business Knowledge.

Featured faculty: Zhu Kaijie
Written by Joanne Madrid

While innovation, craftsmanship and creativity have been praised as the force of modern industry, an intangible enemy is quietly lurking in the shadows. Counterfeits have aggressively spread across almost all industries, from luxury products, cosmetics, and drugs to electronics and even food and beverages, persistently traversing beyond borders.

The Organisation for Economic Co-operation and Development calculated that the value of counterfeit goods in 2021 was around US$467 billion, or 2.3 per cent of total global imports. The fake products increasingly mirror the look, feel and packaging of genuine brands, making them far more difficult for consumers to identify.

Companies have invested heavily in technologies such as microchips, machine-learning image checks, laser-etched micro-patterns, and many more to protect their brands. Governments have also ramped up their regulations and enforcement to protect consumers. Oddly, despite these efforts, fighting counterfeits has grown increasingly difficult.

“Advanced technologies empower companies, but also arm counterfeiters with the tools to create highly convincing fakes to mislead consumers,” says Zhu Kaijie, Professor in the Department of Decisions, Operations and Technology at the Chinese University of Hong Kong (CUHK) Business School. “Illicit manufacturers exploit technology through reverse-engineering techniques to mimic security features and undermine brand integrity.”

This battle of wits raises burning questions: How can brands optimise their anti-counterfeiting technologies, and how should authorities adjust their strategies? Professor Zhu’s latest study, Combating counterfeit products: Anti-counterfeiting technology and law enforcement, answers the above questions and explains why anti-counterfeiting defences often fail to stop the flood of fakes.

Understanding the rules of the game

In collaboration with Yao Shiqing of Monash University and Yang Ruina of Xi’an Jiaotong University, Professor Zhu developed a game-theoretic model that mirrors real-world dynamics among brands, counterfeiters, regulators, and customers. Game theory has been widely used in economics, business, and policymaking to analyse strategic choices, making it highly practical to address counterfeit issues.

In this model, counterfeiters always look for opportunities to make profits, real brands try to outsmart the counterfeiters, customers cannot tell real from fake, and authorities deploy measures to crack down on counterfeit products. The researchers then developed scenarios based on the existing literature on anti-counterfeit measures.

“Advanced technologies empower companies, but also arm counterfeiters with the tools to create highly convincing fakes to mislead consumers.”

Professor Zhu Kaijie

Brands usually fight counterfeits by leveraging technology, which counterfeiters can often replicate later, especially in places with active black markets where criminals sell not only fake goods but also counterfeit security labels. Authorities use law enforcement, but sometimes lack the resources and consistency to monitor the growing scale of fake markets.

Brands with no anti-counterfeiting technology will see their products easily imitated. When brands modestly increase anti-counterfeiting technology, counterfeiters will put more effort into getting around it and may even increase production to cover extra costs, as long as the profits outweigh the risks. In this case, brands can only win by making a significant technological leap that counterfeiters cannot catch up with.

Authorities can employ corrective and preventive approaches. Corrective enforcement is applied after counterfeit products have been sold, involving penalties and compensation to brand owners. Preventive enforcement involves factory inspections, warehouse checks, and pre-sale interventions to stop fake products before reaching the market. The researchers illustrate the model’s underlying assumptions and sequence below.

Why do anti-counterfeiting measures weaken over time?

Increasing penalties, such as legal actions and financial sanctions, can have two effects. First, higher penalties increase the risk associated with producing and selling fake products, making counterfeiting less attractive. Second, increased penalties signal a highly regulated market and motivate customers to purchase authentic products.

However, higher demand from customers will attract counterfeiters, who try harder to enter the market, increasing the likelihood of fakes despite high penalties. Although steep penalties theoretically can deter counterfeiters, in practice, law enforcement often lacks the resources needed to enforce them effectively. The brand eventually cannot rely solely on penalties and invests more in technology to tackle fake products.

In some markets, more substantial penalties may even diminish a company’s anti-counterfeiting efforts. Upon receiving financial compensation from the prosecuted counterfeiters, brands tend to rely on law enforcement to recover losses and cut back on anti-counterfeit measures, paradoxically weakening their counterfeit protection.

Lessons for consumers, companies, and investors

As there is no one-size-fits-all solution, Professor Zhu suggests that companies align with authorities closely. Such collaborations are essential, particularly because combatting counterfeiting is inherently complex and requires tailored strategies.

“The value of collaboration heavily depends on the coupling between the company’s anti-counterfeiting technology and law enforcement type,” he says. “As the companies and the government share the common goal of combating counterfeits, one might expect their actions substitute for each other. However, we find that the two function as complements, meaning that strengthening one measure can stimulate the other.”

For instance, Professor Zhu explains, companies with mid-range products like household appliances, toys, and consumer goods would benefit from reactive collaboration, where the authorities focus on corrective actions. This approach is more efficient and cost-effective, given that anti-counterfeiting technologies are less feasible for these products.

Firms offering high-end products, such as smartphones and computers, would gain more benefits from preventive enforcement, including authentication technologies, supply chain tracing, early detection systems, and close collaboration with regulators to block fakes before entering the market, rather than reacting after the fakes are sold. This approach will boost confidence in the market and enhance customer trust.

Brands should also keep investing in anti-counterfeiting technologies to help customers distinguish genuine products. This investment needs careful evaluation and regular updates, as these technologies often become accessible to counterfeiters within months.

The advancement of counterfeiting technology has led to the adoption of blockchain verification systems to ensure product authenticity. The Aura Blockchain Consortium, for instance, issues digital certificates for luxury goods, making it harder for counterfeiters to tamper with ownership records or forge product histories.

“The recent advancement in applying artificial intelligence or AI to intellectual property rights protection further strengthens the potential of preventive enforcement,” says Professor Zhu. “AI-based intellectual property analytics can uncover relationships, trends and patterns of intellectual property infringement, enhancing early detection and targeted intervention.”

The post As counterfeits persist, can brands win the game? first appeared on China Business Knowledge.

By Jaymee Ng, Principal Writer, China Business Knowledge@CUHK

The protection of intellectual property rights (IPR) has long been a sticking point in China’s dealings with the West. Despite making gradual strides in its regime in recent decades, the country remains plagued by concerns over copyright infringement in the physical as well as digital realms. Online, Chinese authorities continue to wage their battle against piracy, which is costing billions in lost revenues in everything from movies to TV shows, as well as music and books.

For the country’s booming digital publishing industry, these efforts to combat online piracy are critical, as a recent research study shows that suppressing the threat of digital privacy can lead to an improved level of creative output by writers, although this did not come without unintended cost.

The new study, Digital Piracy, Creative Productivity, and Customer Care Effort: Evidence from the Digital Publishing Industry, was co-conducted by Liao Chenxi , Assistant Professor of Marketing at The Chinese University of Hong Kong (CUHK) Business School, Prof. Li Xiaolin at the London School of Economics and Political Science and Prof. Xie Ying at the University of Texas at Dallas. The study is among the first to provide empirical evidence of how reduced intellectual property piracy can increase creative output.

“Intellectual property needs to be protected because the lack of it will kill creativity.”

Prof. Liao Chenxi

To get an idea of the stakes involved in the digital publishing industry in China, consider that Tencent-backed China Literature, a major player in the online publishing industry in China, raised US$1.1 billion in its 2017 record-setting IPO. The industry is estimated to have netted revenues of 20.6 billion Chinese yuan in 2020, with around 509 million readers nationwide. While the roots of the booming Chinese internet publishing sector, which sprouted in early 2000, mainly consisted of fantasy novels that often contains elements from ancient mythology and martial arts, it has grown into a mature ecosystem in diverse genres.

Like other countries, in China free cloud storage plays an important role in facilitating piracy of digital content. That is why the researchers choose to look at the termination of a free service by Chinese cloud storage provider V-Disk in 2016, which incidentally increased the cost of digital piracy and as a result led to a reduction in copyright piracy of the creative works of internet writers. Consequently, writers put in more effort in writing. However, not all writers put in as much extra effort after the free storage service was stopped.

Making Money Writing Digital Books

In China as in any other part of the world, anyone can start writing and distributing their material on the internet, but not everybody can make money from writing. To start off, aspiring internet writers typically sign up for an account with a digital publishing platform to benefit off the latter’s reach. Doing so allows writers to freely offer their material to the platform’s readers, but at this point aspiring scribes are not permitted to monetise their writings.

It is only when their work gains a measure of popularity from readers would the digital publishing platform then offer the writer a contract deal. This allows them to sell their material to readers on the platform and earn a proportion of the revenue from sales of chapters in their books, as well as any appreciatory “tips” paid by readers on top of this. The actual profit split between the two parties usually varies from contract to contract.

Both types of writers usually post their novels in series and are encouraged by the publishing platforms to update their work almost every day to attract and retain readers. Writers who are not on contracts can publish on as many competing platforms as they desire, but are unable to make any money off their efforts. Contracted writers meanwhile may only publish on platforms that they signed with and only the first few chapters of their books can be read for free. Readers who want to continue reading the book would have to purchase the remaining chapters, with the price of each chapter usually determined by length.

Successful Chinese internet writers who garner a loyal following are typically able to reap strong financial rewards. For example, one of the most successful is Tang Jia San Shao, a contract writer for online publisher Qidian, who reportedly made 122 million yuan from royalties in 2017, according to a ranking released by mainland Chinese media. In addition to the royalties generated from publishing digital books, many writers are also asked to turn their books into TV shows, movies or even cartoon series, opening new avenues to monetise their creative output. For example, Tang’s famous novel Douluo Continent was first adapted into a cartoon and then into a TV drama series recently.

Boost in Creative Output

The researchers went through close to 1,000 books written by both types of writers and examined their output by their creative quantity and quality, as measured by the length of each book and reader feedback, respectively.

The results show that money-making writers improved their productivity in terms of quantity without sacrificing the quality of the work after V-Disk ended its service. On the other hand, writers who are writing for free did not show any significant improvement in their creative productivity. On the contrary, the quality of their creative work went down after the free storage service ended.

“It’s quite clear that digital piracy poses an enormous threat for contracted writers because it affects how much money they bring home,” Prof. Liao comments. “That’s why we see increased effort in writing more and better books from contracted writers after V-Disk shut down.”

Prof. Liao explains that as readers could no longer easily access pirated books from the V-Disk service, these readers returned to the original publishing platforms and purchased the digital books there. As a result, writers who made money were not only more properly compensated by sales revenue, they no longer had to compete with the pirated copies and therefore could direct their full attention on writing their best work possible to compete with other writers on the same publishing platform. This resulted in an improvement in the creative efforts of these writers.

However, this is not the case for writers that are displaying their books for free. According to Prof. Liao, since their books are free to readers on the publishing platforms anyway, the livelihoods of these writers were unlikely to be affected by digital piracy because they do not make any money from their digital works in the first place. Also, Prof. Liao speculates that the decrease in their creative quality could be a result of increased competition from profit-making writers who had more time and effort to devote to writing.

Side Effects

However, the researchers found that while lower levels of digital piracy encouraged money-making writers to improve their creative output, it also led to a decline in their efforts to communicate with readers.

Readers can encourage writers who are signed by the publishing platforms through three channels: purchasing their book chapters, rewarding them with tips, or leaving comments. The study finds that both sales and tips would drive this type of writers to publish more work but they have no effect on motivating them to interact more with the readers, which typically involves replying to reader comments and acknowledging reader support. On the other hand, reader feedback led to both an increase in writer output and writer interactions with the readers.

The study notes that before the V-Disk termination event, profit-earning writers displayed more passion in engaging with their fans, perhaps in the hope of generating extra income through reader tips and to discourage their fans from reading pirated copies of their works.

“When the threat of ‘losing to’ pirated copies is gone, contracted writers became less motivated to interact with their readers and less bothered to elevate the reading experience of their fans. This could be bad news for publishing platforms because if reader experience falls, it’s going to drive traffic elsewhere,” Prof. Liao warns.

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Designing Policy

Prof. Liao and her co-authors urge publishing platforms to be aware that when the threat of digital intellectual property piracy goes down, an improvement in the creative output of signed writers can come at the expense of reader experience. Therefore, platforms may consider designing a compensation plan that provides incentives for writers to maintain lively interactions with their fans.

For policymakers in emerging markets that lack IPR protection, this study provides evidence for the benefits of having strong IPR protection. The researchers urge policymakers in these markets to use economic incentives (for example, to make piracy more costly) to strengthen IPR protection.

“Many emerging economies are in the process of moving away from ‘imitation’ to ‘innovation’. Any kind of piracy would be a blow to innovation,” Prof. Liao comments. “Intellectual property needs to be protected because the lack of it will kill creativity.”

The post Combating Digital Piracy in China and its Unintended Side Effects first appeared on China Business Knowledge.