Although hopes were high atthe beginning of the year, the number of films produced in Hong Kong has fallento an all-time low of around 65 this year and many films performed belowexpectations over the summer. As a result, 20 film professionals have set up anemergency task force to find solutions to the industry's continuing decline.

The group includes suchhigh-profile filmmakers as Infernal Affairs producer Nansun Shi - who isacting as convenor - Hero producer Bill Kong, director-producers PeterHo-sun Chan and Gordon Chan, Media Asia's John Chong and Golden Harvestmanaging director CK Phoon.

Meetings have already beenheld with government departments including the Intellectual Property Department(IPD) and the Commerce, Industry and Technology Bureau (CITB). Piracy, inparticular the growing menace of illegal downloading, was high on the agenda.

And yet, despite theindustry's concerns, several star-studded, big-budget films are currently inproduction including US$20m Jackie Chan vehicle The Myth, Tsui Hark's US$18mwuxia epic Seven Swords, Andrew Lau and Alan Mak's US$13m car racing drama InitialD and Jeff Lau's US$8m-$10m action adventure A Journey West.

In a lower budget bracket,but also with international potential, are Johnnie To's two-part triad drama Election,two projects from the Pang Brothers -The Eye Infinity and Recycle- and Wilson Yip's kung-fu action drama SPL.

However, the number of smallto medium-sized films has fallen dramatically in the past year. "We needsmaller films to groom new talent but they're not being made because they relyon video revenues," explains Shi. "And video revenue is down for severalreasons that we've identified including the collapse of the sell-throughmarket, parallel imports and new forms of piracy."

Rental rights is an on-goingissue in Hong Kong where a loophole in the copyright law allows video stores torent out DVDs and VCDs without reimbursing the producer.

Downloading is also a threatdue to the territory's high level of broadband penetration and the popularityof high-speed file-sharing services such as BitTorrent. According to the MotionPicture Association (MPA), South Korea, Hong Kong andSingapore top the list of countries committing online piracy.

The Hong Kong government iscurrently drafting amendments to the Copyright Ordinance, but it's believedthat, so far, illegal downloading hasn't been addressed.

The industry has alsoacknowledged that the much-vaunted CEPA trade agreement between Hong Kong andChina has yet to yield results. "CEPA is a door-opener but won't take effectuntil a few years down the road," explains Shi. "The mainland market is too bigand not mature yet."

One problem is that mainlandvideo distributors are feeling the squeeze due to illegal downloading and newcompression formats which enable pirates to put 20 episodes of a TV series on asingle disc. Drama series are popular in mainland China, therefore videolicence fees for Hong Kong product have fallen by more than 50%. "This really hurts small-budget films that rely onHong Kong, China and a few TV deals from other territories to recoup," explainsMedia Asia distribution chief Jeffrey Chan.

The task force is discussingseveral solutions to the industry's malaise, including programmes to educateconsumers and legislative change. The group has also suggested setting up aspecial cultural region in Guangdong Province - over the border from Hong Kongin mainland China - where mature market conditions could be applied. However,as Shi points out, due to the explosion of online piracy, both the industry andgovernment need to move fast: "Even if the law is changed it wouldn't becomelegislation until 2006. By that time the industry could be dead."

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