Movie business

Setting the scene

With China’s movie industry expanding rapidly, the time may be right for domestic filmmakers to turn out productions for a global audience

P1 movie

January 29-February 4, 2018
in Hong Kong
For China Daily Asia Weekly

A former Chinese special forces member beat a bunch of street racers from Hollywood hands-down in the battle for the China box office last year.

Homegrown production Wolf Warrior 2 brought in 5.7 billion yuan ($890 million) — more than twice the second-biggest taker, The Fate of the Furious, the most recent installment of The Fast and the Furious franchise, which earned 2.7 billion yuan.

With the country’s box-office receipts on the upward trajectory in recent years, and Chinese moviegoers embracing domestic films with gusto, local moviemakers are now aiming for greater heights: Making a Chinese movie that can appeal to a global audience.

The Chinese government is also lending the arts its support.

Speaking at the 19th National Congress of the Communist Party of China in October, top leader Xi Jinping said the government would foster democracy in artistic pursuit, and encourage originality and experimentation with new approaches in the creation of literature and art.

A poster for The Fate of the Furious is displayed at a cinema in Yichang, Central China’s Hubei province, on April 16. The most recent installment of The Fast and the Furious franchise was the second highest grossing film in China last year. (IMAGINECHINA)

Back in November 2016, at the opening ceremony of the 10th Congress of the China Federation of Literary and Art Circles and the ninth Congress of the Chinese Writers Association, President Xi said: “To create outstanding works with vivid national characteristics and unique personal style, one must have profound understanding of Chinese culture and a high level of cultural confidence.”

“Promoting socialist core values should be fundamental to artists and writers, who should firmly resort to Chinese people’s thoughts, emotions and aesthetics to create works catering to the times, featuring notable Chinese elements,” he added.

Even as the country’s movie industry seeks to produce films with strong Chinese elements, it also needs to figure out how to make waves at the international box office in an era of glossy blockbuster productions from Hollywood.

“When you think of Chinese films, what comes to mind for most people are wuxia (martial hero) or kungfu movies that began with Bruce Lee,” said Po Hou, a media and entertainment managing partner at Deloitte China.

Now could be the time to embark on a revamp of what is considered a Chinese production. Though it is still early days, some signs have been promising.

Born in China, a nature documentary film by Chinese director Lu Chuan, became a modest success in the United States, landing in sixth place at the box office on its debut last year.

Chinese companies have been looking to cash in on Hollywood magic by bankrolling film companies. But trying to appeal to both Hollywood and China can be a tricky balancing act.

A Chinese animated feature, Little Door Gods, took $9.5 million on its US debut in 2016, having roped in award-winning talent like Meryl Streep, Nicole Kidman and Edward Norton for voiceover duties.

Hou said that animation is a good place for China to start exploring projects to export internationally. Animated features have a track record of pulling in huge numbers, globally and in China. The Jungle Book, Zootopia and Finding Dory were 2016’s second, third and fifth most-profitable films worldwide, corresponding with their box-office showing in China.

“Animations have universal appeal. They also reduce the need for studios to rely on big-name celebrities, whose box-office draw is vulnerable to bad publicity or even human things like age, health conditions or language barriers. Animations are reliable media and also more flexible in merchandising considerations,” Hou said.

China Media Capital helped DreamWorks with the wildly successful Kung Fu Panda 3, released in early 2016.

The animated film marked the first project for Oriental DreamWorks, a joint venture between DreamWorks Animation and its Chinese partners including China Media Capital.

Chinese companies have been looking to cash in on Hollywood magic by bankrolling film companies. But trying to appeal to both Hollywood and China can be a tricky balancing act.

The Great Wall, a 2016 project under an ongoing partnership between Universal Pictures and Legendary Entertainment, did not live up to commercial or critical expectations. This was despite having acclaimed Chinese director Zhang Yimou and Hollywood A-list actor Matt Damon involved.

Legendary recently became a subsidiary of Chinese conglomerate Dalian Wanda Group. Dalian purchased the film company for $3.5 billion in a highly publicized deal in 2016.

Another collaboration, Kong: Skull Island, also met with tepid response at the box office last year. The King Kong franchise reboot grossed just $566.7 million worldwide against a $185 million production budget and $136 million in marketing costs.

Homegrown productions, making serious waves in the Middle Kingdom, remain a viable investment.

Recently, two minority stakeholders exited their investments in Legendary, which were made through Dalian Wanda Group. Oceanwide Holdings and Zhejiang Huace Film & TV were expecting a 15 percent return on their $236 million investment because Wanda had planned to take Legendary public on the stock market. But its failure to do so, which observers speculate may be due to the recent projects, caused the investors to get cold feet and pull out.

In other stumbling blocks for the industry, phone maker Xiaomi downsized its movie division Xiaomi Pictures, and copper processor Anhui Xinke New Materials pulled out of a deal to acquire Hollywood production studio Voltage Pictures for $345 million.

But despite these setbacks, Chinese companies remain eager to get involved in making films.

China Media Capital, an investment fund backed by the Chinese government, had previously announced a joint venture with Warner Bros called Flagship Entertainment.

Hong Kong-based Flagship will also operate from offices in Beijing and Los Angeles. The company already has 12 Chinese-language projects lined up, including a Chinese remake of the Sandra Bullock hit Miss Congeniality from 2000.

“Chinese tech giants Baidu, Alibaba and Tencent have all made investments in this area. Tencent has Tencent Pictures (behind last year’s Wonder Woman) and Alibaba has Alibaba Pictures (in projects like Mission: Impossible — Rogue Nation from 2015),” said Jonathan Chiu, a business analyst at consultancy A&A.

Chiu believes that these investments help the tech giants expand into the film industry and also grow their other ventures in creative ways.

“Some have been rather creative with their approach, like Baidu’s iQiyi streaming service which has ambitions to become the Netflix of China. There are also mobile payment services from Alibaba’s AliPay and Tencent’s WeChat that have achieved a 70 percent penetration rate with movie ticket sales,” he added.

Chiu said that data on moviegoers gathered by these tech companies’ services will create valuable marketing databases, which they can also use to inform their filmmaking decisions.

But it is not just Hollywood movies that Chinese companies are getting involved with. Homegrown productions, making serious waves in the Middle Kingdom, remain a viable investment.

As China’s movie companies grow creatively, they can apply their upgraded skills to their own productions.

The movie that made the biggest splash in China in 2016 was a Chinese-language film called The Mermaid. The fantasy film helmed by Stephen Chow (of Kung Fu Hustle and Shaolin Soccer fame) raked in $526 million in China, and its success was a key contributor to growth in box-office revenues of more than 50 percent in the first quarter of 2016.

Last year the trend continued, thanks to Wolf Warrior 2, whose box-office receipts broke The Mermaid’s record as highest grossing movie in China.

“Though they enjoy Hollywood flicks, Chinese audiences love seeing familiar sights and their culture on the big screen. That’s why domestic films have made such a strong impact at the box office. There are lots of nuances and a sense of humor that’s specific to that audience,” said Hou at Deloitte China.

While the advantage of being a cultural insider has helped Chinese films succeed at home, it may not necessarily translate to overseas success.

“Chinese consumer tastes are fundamentally different from (those of) other audiences. What sells well in China, usually only works there,” Hou pointed out.

Bankrolling bigger, international films may lend the domestic industry some experience to produce more movies with global appeal.

“The maturity level of the industry is still behind (that of) players like the US, India and (South) Korea. Partnerships like the one between Wanda and Legendary can help accelerate the growth,” Hou said.

He noted that the industry has already made great strides in the area of post-production.

“Traditionally, it was the US, then Australia and Canada, that film studios went to for their post-production needs. With one-third of the budget usually going toward that, it’s an important part of filmmaking.

“China has been winning contracts from the big six Hollywood studios through its growing expertise and connections through those partnerships,” Hou said.

As China’s movie companies grow creatively, they can apply their upgraded skills to their own productions. But post-production is only part of the process.

“A strong script and better storytelling methodology is what Chinese producers need to gain international appeal. A story with Oriental elements, Western production values and storytelling, combined with global production and distribution machines, could make for a Chinese movie that can win global hearts. That can only be done now through coproduction,” Hou explained.

“But in the end, it’s really about creating content that could pack a punch emotionally and visually.”

Hollywood looks East Giving the rapidly growing China market what it wants is the constant challenge for film production studios

January 29-February 4, 2018
in Hong Kong
For China Daily Asia Weekly

After experiencing slower growth in 2016, China’s movie industry received a remarkable boost last year.

Box-office revenue reached 55.9 billion yuan ($8.7 billion) in 2017, up 13.45 percent year-on-year and handily surpassing the 3.7 percent growth in 2016.

The latter rate would be considered healthy growth in mature markets like the United States, but it was a dramatic slowdown for China, where the market had expanded by an astounding 48.7 percent in 2015.

Chinese moviegoers have been pushing the industry to achieve average growth of 35 percent per year for more than a decade.

Data from the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT) show visits to urban theaters rose 18 percent to 1.62 billion visits last year, up from 1.37 billion in 2016.

A big reason for the rapid growth might be the sheer number of screens across the country. Last year alone, some 1,612 new cinemas were built and 9,597 new screens installed.

Now with 50,776 screens, China has more than any other country in the world. The US comes in second with 40,759 screens but still remains the world’s largest film market.

With plenty of movie theaters and eager audiences, China is poised to overtake the US for this title. But what exactly are Chinese audiences flocking to see?

Last year, domestic productions earned 30.1 billion yuan, accounting for 53.84 percent of the annual total revenue.

Wolf Warrior 2, a domestic action flick, became China’s highest-grossing film ever and a great contributor to the 2017 box office. It raked in 5.7 billion yuan, more than twice the 2.7 billion yuan earned by The Fate of the Furious, the year’s top-ranked foreign film and second highest grossing picture overall.

Tourists visit a shooting site of Chinese action film Wolf Warrior 2 in Zhangjiakou, North China’s Hebei province, on Aug 17. The movie became China’s highest grossing film ever, raking in 5.7 billion yuan ($890 million) in 2017. (IMAGINECHINA)

With Chinese moviegoers supporting the domestic industry, their enthusiasm shows no sign of abating.

“The rapid development of the film industry has been a big bright spot for China’s culture industry,” Zhang Hongsen, vice-minister of SAPPRFT, said in October on the sidelines of the 19th National Congress of the Communist Party of China in Beijing.

“We have been sticking to a direction that centers on people in creating (films),” Zhang said.

Foreign films made up 41.7 percent of total ticket revenue in China in 2016, up from 38.4 percent in 2015. The impressive revenues have made Chinese audiences a saving grace for Hollywood films.

When Transformers: The Last Knight pulled in just $69 million in the US during its opening weekend in June, it hit a low for the franchise. But it made up for the dismal showing with a $123.4 million opening at the Chinese box office — a hefty portion of the action film’s $265.3 million global debut.

The first three installments of the Transformers franchise experienced massive success in the Chinese mainland. The 2007 original grossed $45 million, the 2009 sequel raked in $72 million, and the third film in 2011 took in $172 million. The fourth release in 2014 became the highest-grossing movie in China at the time (now sixth) by hauling in $297 million.

Warcraft is another franchise that can boast a “big in China” claim. The 2016 movie adaptation of the titular series of video games and novels made $156 million in its first five days in China alone, despite dismal numbers elsewhere. Not bad for a film made on a budget of $160 million.

Movies like Pacific Rim ($114.3 million in China, $101.8 million in North America), Kung Fu Panda 3 ($154.3 million in China, $143.5 million in North America), Now You See Me 2 ($97 million in China, $65 million in North America), The Expendables 3 ($72.8 million in China, $39.3 million in North America) also have Chinese moviegoers to thank for good profits.

“That’s the beauty of a global network, there is a chance that an audience elsewhere could breathe new life into stale intellectual property,” said Po Hou, a media and entertainment managing partner with consultancy Deloitte China.

“Studios and filmmakers have already recognized that, and they also realize that they need to throw in elements or versions that will suit Chinese audiences.”

It makes sense for Hollywood to do that, especially if its slice of the Chinese moviegoer pie continues to increase.

Product placement in American films aimed at Chinese consumers has opened up an important revenue stream for Hollywood.

In 2016, China’s regulators padded out the release schedule with extra Hollywood films, bringing the total that year up to 39 imported titles from the usual 34.

Since 2012, China has accepted 34 foreign films each year, with a caveat that 14 of those are 3-D or large-format movies.

Observers are predicting an expansion of China’s foreign film quota and a bigger share of profits for Hollywood distributors. That number may increase by a dozen or so.

The share of box-office revenue that US distributors are entitled to is also expected to increase from the current 25 percent and inch closer toward the international average of 40 percent.

“Certainly, the trend has been to slowly increase the number of the film quota year by year,” said Hou. “Besides pressure from the World Trade Organization, there is also growing domestic demand for content.

“But first, they need to appease the Chinese censorship board. Then, they also need to make these special cuts that will endear them to Chinese viewers who love seeing something familiar appear on screen,” Hou added.

A special China cut of Iron Man 3 (2013) featured bonus footage and scenes of Chinese actress Fan Bingbing. Disney’s Zootopia (2016) adopted a similar strategy by adding a panda newscaster in the Chinese version of its movie.

Product placement in American films aimed at Chinese consumers has opened up an important revenue stream for Hollywood.

“There is also a growing trend of Chinese companies promoting products in Hollywood movies, not with the aim of attracting American consumers but instead to resonate with Chinese viewers,” said Eda Erbeyli, a project manager for research firm Daxue Consulting.

Erbeyli believes this marketing tactic allows Chinese companies to “increase the appeal of their products through celebrity association, becoming aspirational products — which means that a premium price can be charged”.

She foresees this trend to continue growing exponentially.

“Many Chinese companies and brands have helped to fund these movies through product placement and hope to enjoy the rewards of increased cinema viewers.”

To keep revenues from China growing, Hollywood may have to find new ways to keep both audiences and sponsors happy.

Sometimes these deals can go sour. Wulong Karst Tourism, a State-backed travel company, sued Paramount Pictures in 2016 over an omission of its logo in scenes filmed in Chongqing, in Southwest China, in Transformers 4: Age of Extinction (2014), for which it paid $750,000. Paramount and its Chinese production partner were eventually ordered by the courts to pay $300,000 in compensation and legal costs to Wulong.

The US company’s countersuit to claim the remaining 20 percent of the sponsorship fee, which had been withheld by Wulong, was also rejected.

To keep revenues from China growing, Hollywood may have to find new ways to keep both audiences and sponsors happy.

“To purely depend on scene and on special effects will probably not work forever. Now that Chinese audiences are smarter, they are not made happy so easily,” said Wang Jianlin, chairman of Dalian Wanda Group, when he unveiled plans in October 2016 for an $8 billion filmmaking complex in Qingdao, East China’s Shandong province, to an audience in Los Angeles.

Harry Oram, cofounder of the Third Culture Film Festival, believes it would also be helpful for Hollywood and China to develop a stable of Asian stars.

“Hollywood has yet to invest in an Asian star seriously. But now that they want to make a serious bid for a slice of the Chinese box-office pie, they should find and hone talent in the region that could carry films in China, if not both sides of the Atlantic, with their star power,” he said.

“It would afford them better control and create a joint brand for both sides and both markets at the box office and beyond.”

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