China’s movie in­dus­try does boffo box of­fice

China’s movie in­dus­try is be­com­ing a dom­i­nant force “The tech­ni­cal ex­per­tise is get­ting far bet­ter than it was”

Bloomberg Businessweek (Asia) - - CONTENTS -

To cel­e­brate the Lu­nar New Year, Fei Li did what tens of mil­lions of other Chi­nese did: She went to the movies. The 29-year-old fi­nance pro­fes­sional and six fam­ily mem­bers, from her 91-year-old grand­mother to her 6-year-old niece, went to see The Mer­maid at the Cap­i­tal Cinema in Bei­jing’s Xicheng district. “We all love it,” says Li, who paid about 35 yuan ($5) to see the movie a se­cond time.

Buoyed by hol­i­day au­di­ences, The Mer­maid, a quirky com­edy from di­rec­tor Stephen Chow about a mer­maid who falls in love with a real es­tate ty­coon she’s sent to as­sas­si­nate, is the high­est-gross­ing film of all time in China. It’s rung up more than $440 mil­lion in ticket sales since open­ing on Feb. 8, ac­cord­ing to box-of­fice re­searcher Ent­Group, over­tak­ing lo­cal hit Mon­ster Hunt and Hol­ly­wood’s Fu­ri­ous 7.

“What we are find­ing is that the tech­ni­cal ex­per­tise is get­ting far bet­ter than it was, and the Chi­nese au­di­ence is re­spond­ing,” says Marc Ga­nis, co-founder of Ji­aflix En­ter­prises, which helps mar­ket and dis­trib­ute films in China. “The Hol­ly­wood block­busters were just so far su­pe­rior, many Chi­nese would go and watch those and live with sub­ti­tles and voice-overs,” he says. “Now they don’t have to.”

The lat­est box-of­fice suc­cess sig­nals a shift in the movie in­dus­try’s bal­ance of power. Fac­ing a quickly grow­ing and ma­tur­ing Chi­nese mar­ket—av­er­age growth in re­cent years has been 34 per­cent—Hol­ly­wood is look­ing to deepen its re­la­tion­ship with China in mu­tu­ally ben­e­fi­cial ways.

Chi­nese movie­go­ers “now have big­bud­get, ac­tion-packed do­mes­tic films that can com­pete with Hol­ly­wood in terms of both spe­cial ef­fects and far more in­ter­est­ing sto­ries for the lo­cal pop­u­lace,” says Jonathan Papish, an an­a­lyst with re­searcher Box­Of­

In Fe­bru­ary, China broke the global box-of­fice record for a sin­gle week— $557 mil­lion from Feb. 8-14, Ent­Group says, all for lo­cal pro­duc­tions, be­cause im­ports aren’t shown dur­ing the hol­i­day pe­riod. The coun­try sur­passed a $534.7 mil­lion record set in the U.S. in late De­cem­ber, af­ter the re­lease of Star Wars: The Force Awak­ens. At this rate, China could over­take the U.S. in an­nual ticket sales as early as 2017, in­dus­try watch­ers say.

China has been a fo­cus for Hol­ly­wood stu­dios in re­cent years as the U.S. film mar­ket has stag­nated. In 2015, China’s box of­fice to­taled $6.8 bil­lion, up 49 per­cent from the pre­vi­ous year, says con­sult­ing firm Ar­ti­san Gate­way. The North Amer­i­can (U.S. and Canada) box of­fice had its big­gest year ever in 2015 at $11.1 bil­lion, thanks to sev­eral fran­chise re­leases, in­clud­ing Star Wars. But it dropped al­most 2 per­cent from 2010 through 2014, to $10.4 bil­lion, ac­cord­ing to the Mo­tion Pic­ture As­so­ci­a­tion of Amer­ica. Since 2012, Hol­ly­wood’s share of the Chi­nese mar­ket has

fallen from 49 per­cent to 32 per­cent, says Ent­Group.

China lim­its U.S. movie im­ports to 34 an­nu­ally. The in­dus­try is closely man­aged by two govern­ment-con­trolled en­ti­ties, the State Ad­min­is­tra­tion of Press, Pub­li­ca­tion, Ra­dio, Film & Tele­vi­sion (SAPPRFT) and China Film Group, which se­lect the films that will en­ter the mar­ket, set open­ing dates, and de­ter­mine the num­ber of screens.

Hol­ly­wood is seek­ing to strengthen its foothold in China to take ad­van­tage of the fast pace of growth. Stu­dios in­clud

ing Uni­ver­sal

Pic­tures and Warner Bros.

have struck part­ner­ships with Chi­nese film and me­dia com­pa­nies to gain big­ger au­di­ences at more venues. (The coun­try has about 31,630 movie screens; it added 8,035 last year.) The deals “give U.S. pro­duc­ers some­one with re­la­tion­ships at the reg­u­la­tory level in China to call on” to in­crease ac­cess to the mar­ket, says Rance Pow, founder and pres­i­dent of Ar­ti­san Gate­way. And that China now boasts more ac­com­plished film­mak­ers only adds to the in­ter­est.

Since 2014, Paramount Pic­tures, work­ing with SAPPRFT, has in­vited sev­eral Chi­nese di­rec­tors to train­ing pro­grams in Los An­ge­les. The pro­ject ben­e­fits all par­ties, says Rob Moore, Paramount’s vice chair­man: “The real up­side for us is be­ing able to spend time and get to know a num­ber of th­ese top Chi­nese film­mak­ers and get their per­spec­tive on the Chi­nese mar­ket, which has been pay­ing div­i­dends for us in terms of the suc­cess of Mis­sion:

Im­pos­si­ble and The Ter­mi­na­tor.” Chi­nese com­pa­nies also have boosted their in­vest­ments in Hol­ly­wood. Chin­abased stu­dio Per­fect World Pic­tures said in mid-Fe­bru­ary it would spend more than $250 mil­lion on 50 movies pro­duced over the next five years by

Com­cast’s Uni­ver­sal Pic­tures, whose Fu­ri­ous 7 has brought in $390.9 mil­lion in China ticket sales since open­ing there last April. In Jan­uary, Wang Jian­lin, chair­man of con­glom­er­ate Dalian

Wanda Group, be­came the first Chi­nese per­son to con­trol a Hol­ly­wood film com­pany af­ter buy­ing Leg­endary En­ter­tain­ment, the co-pro­ducer of Juras­sic World, for $3.5 bil­lion. “The Leg­endary deal is a puz­zle piece” for Wanda, Pow says. “It’s a com­po­nent of a big­ger and grander strat­egy to be­come glob­ally in­te­grated in the film busi­ness.”

Hol­ly­wood and China are grow­ing more com­fort­able with each other. In the fu­ture, says Jonah Green­berg, head of the China op­er­a­tion for Cre­ative Artists Agency, Chi­nese di­rec­tors will make big-bud­get movies in English for a global au­di­ence. In Fe­bru­ary, Uni­ver­sal Pic­tures plans to re­lease di­rec­tor Zhang Yi­mou’s The Great Wall with Matt Da­mon in the largest pro­duc­tion ever shot en­tirely in China.

Many in Hol­ly­wood say China’s thriv­ing in­dus­try could ease the curbs on im­ported films. A U.S.-China mem­o­ran­dum of un­der­stand­ing set­ting the film quota ex­pires next year, and new terms will be needed.

“We be­lieve it is in the long-term best in­ter­ests of the U.S. stu­dios if there is a thriv­ing Chi­nese mar­ket­place that will both lead to the Chi­nese movie busi­ness con­tin­u­ing to ex­pand, as well as hope­fully more op­por­tu­nity for U.S. movies and U.S. stu­dios,” says Paramount’s Moore. —— Anousha Sak­oui, with Stephen Tan and Grace Huang

The bot­tom line Box-of­fice sales are grow­ing 34 per­cent a year in China, which could over­take North Amer­ica as the big­gest movie mar­ket in 2017.

Zhu Ba­jie, a half-man, half-pig char­ac­ter from the hit Chi­nese film The Mon­key King 2

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