Film in­dus­try needs long tail to grow

China Daily (Hong Kong) - - COMMENT - ZHU JIN The author is a writer with China Daily. zhu­jin@chi­

The do­mes­tic film mar­ket reg­is­tered record half-yearly box of­fice re­turns of 10.9 bil­lion yuan ($1.77 bil­lion) in the first six months of this year, up 35 per­cent year-on-year, and there have been ex­cited voices say­ing that the Chi­nese film in­dus­try is about to boom in the in­ter­na­tional mar­ket. How­ever, box of­fice suc­cess is just part of the in­dus­try’s chain, and with­out the fur­ther de­vel­op­ment of li­censed movie mer­chan­dis­ing, the Chi­nese film in­dus­try is still in the early stage of de­vel­op­ment com­pared to de­vel­oped coun­tries.

Movie mer­chan­dis­ing refers to the spin-off prod­ucts from a film, such as toys, au­dio­vi­sual prod­ucts, books, video games, sou­venirs, clothes and even theme parks. Such mer­chan­dise is an in­dis­pens­able part of the in­dus­try’s value chain and man­i­fests the long-tail re­tail­ing strat­egy of sell­ing a large num­ber of unique items in rel­a­tively small quan­ti­ties.

The im­por­tance of such long­tail spin-off re­tail­ing for movies has been proven in de­vel­oped film mar­kets, such as the United States, where the box of­fice usu­ally ac­counts for only 22 per­cent of the to­tal rev­enue gen­er­ated by a film. The rest comes from non-the­atri­cal re­leases and film-re­lated prod­ucts.

The most suc­cess­ful movie mer­chan­diser is Walt Dis­ney Stu­dios. For in­stance, in 1994, the com­pany in­vested $45 mil­lion to pro­duce The Lion King, which took $780 mil­lion at the box of­fice, while the rev­enue from spin-off prod­ucts was more than $2 bil­lion. The ef­fec­tive­ness of movie mer­chan­dise as a mon­eyspin­ner was demon­strated by the orig­i­nal Star Wars tril­ogy in the late 1970s and 1980s. The films re­al­ized $1.8 bil­lion at the box of­fice, while the rev­enue from spin-off prod­ucts ex­ceeded $4.5 bil­lion.

Movie mer­chan­dis­ing has al­ready be­come a ma­ture and prof­itable chan­nel in the film mar­kets of de­vel­oped coun­tries. Usu­ally, a pop­u­lar Hol­ly­wood movie will au­tho­rize around 50 to 100 dif­fer­ent prod­ucts as li­censed mer­chan­dise. The to­tal sales rev­enues from such prod­ucts reached $147 bil­lion in 2010 world­wide, ac­cord­ing to data from Li­cens­ing Let­ter. There­fore, the ma­jor film stu­dios con­sider spin-off prod­ucts as a cru­cial el­e­ment in the pre-pro­duc­tion stage.

How­ever, this is still a rel­a­tively new con­cept in China, where box of­fice re­turns ac­count for more than 80 per­cent of a film’s to­tal rev­enues.

“The cur­rent Chi­nese film in­dus­try is ex­pe­ri­enc­ing a trans­for­ma­tion pe­riod just like Hol­ly­wood did in 1950s and 1960s, break­ing the film sys­tem into dif­fer­ent spe­cial­ized parts, like film pro­duc­tion, dis­tri­bu­tion, mar­ket­ing, re­search or­ga­ni­za­tions and so on. So it is an op­por­tu­nity to de­velop movie mer­chan­dis­ing now,” said Peng Kan, re­search and de­vel­op­ment di­rec­tor of Bei­jing-based con­sul­ta­tion com­pany Le­gend Me­dia.

Al­though there is huge space for de­vel­op­ing li­censed movie mer­chan­dise, a few is­sues re­main to be solved first.

At the mo­ment even the most suc­cess­ful Chi­nese films fail to cashin with spin-off prod­ucts. Lost in Thai­land, which took nearly 1.2 tril­lion yuan at the box of­fice in 2012, pro­moted Chi­ang Mai as ad­ver­tise­ments in the movie, how­ever, be­sides those prod­uct place­ments in the film, there were no spin-off prod­ucts to gen­er­ate more rev­enue for the film.

More­over, most do­mes­tic film com­pa­nies lack the nec­es­sary tal­ent to de­velop li­censed mer­chan­dis­ing strate­gies. There was a mask pro­duced for Let the Bul­lets Fly, but the prod­uct was not well planned and sales of the mask did not con­trib­ute much to the films rev­enue. In Hol­ly­wood, film com­pa­nies have spe­cial­ized de­part­ments to man­age li­censed mer­chan­dise.

The pi­rat­ing of prod­ucts in the do­mes­tic mar­ket is also a rea­son for the slow de­vel­op­ment in movie spin-offs. In 2008, li­censed mer­chan­dise was pro­duced to ac­com­pany Stephen Chow’s an­i­mated ver­sion of CJ7, how­ever, the rapid growth of pi­rated CJ7 prod­ucts squeezed the prof­its of the le­gal goods and ef­fec­tively stunted the growth of movie mer­chan­dis­ing in China. Tan Xiao­fang, a mar­ket­ing ex­pert, says be­fore movie mer­chan­dis­ing can take off in the main­land, govern­ment poli­cies and strength­ened copy­right prac­tice are needed to fight pi­rated prod­ucts.

The film in­dus­try in China should trans­form to a com­plete in­dus­trial chain and de­velop a bet­ter long­tail strat­egy for films to en­sure the in­dus­try’s fu­ture de­vel­op­ment.

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