China’s box office is back
Piracy crackdown is good news for Hollywood studios but Star Wars flop reveals challenges ahead.
After coming to a screeching halt in 2016, the Chinese box office is back. Annual ticket sales returned to double-digit growth in 2017, helped by new rules that purge pirated movies from the internet, leaving no other option but to go to the movies for new releases.
“I was able to watch any movie for free online just a short while ago,” said a 24-year-old company employee who works in Beijing. When she was in school, pirated Hollywood titles could be viewed after a simple search.
But now, all that remain are fee-based streaming sites on which the newest films are unavailable until a month after their cinema release date. The woman said she had little choice but to pay to see the latest releases on the big screen.
Cinemas have become a popular recreational destination for China’s expanding middle class. Until 2016, box-office receipts had been climbing by 20-50% annually, according to data from EntGroup, a Chinese research firm. The rapid growth had put the country’s movie market on track to outstrip that of North America.
But the boom then evaporated, with ticket sales growing only 3.7% in 2016 and sales actually shrinking 7% in the first quarter of 2017, the first such decline on record. The reversal was blamed on a lack of good domestic films, cheaper tickets, diversified entertainment options — and rampant internet piracy.
The recovery in ticket sales is good news for Hollywood. China has become a major source of revenue and a safety net for US studios that can recover their production costs even if an expensive film flopped in their home market.
Transformers: Age of Extinction (2014), for instance, was largely considered an underperformer in the US, selling US$245 million in tickets. Yet, it became what was then the highest-grossing movie of all time in China, raking in $320 million. Globally, it earned $1.1 billion, easily making up for its production budget of $210 million.
Hollywood’s growing reliance on the foreign box office, however, brings a new set of challenges. Western movies can struggle if Chinese audiences fail to relate to the storyline. The Star Wars franchise found that out the hard way when the much-touted The Last Jedi was pulled from most Chinese screens after just two weekends. Following a relatively weak opening weekend of $28.7 million, ticket sales tumbled 92% to $2.4 million in its second week.
The nostalgic references to the original series were lost among the young Chinese cinema-goers. Luke Skywalker standing on an island? China was just one year out of the Cultural Revolution in 1977, when the first Star Wars film was released.
Chinese authorities took action against piracy in March last year by passing the Film Industry Promotion Law. As well as punishing individuals and companies that leak movies onto the internet, it empowers government censors to actively remove pirated films from the Chinese web.
Cinemas have also been working to shore up sales. Dalian Wanda Group, China’s largest theatre operator, built two modern cinemas in Beijing last year that employ the latest in sound and image technology aimed at providing an experience that cannot be gained from watching online videos.
Chains such as CGV, a South Korean multiplex giant that operates in China, offer free food and phone charging for people who sign up for memberships. Others also draw moviegoers with deep discounts.
After the 2016 hiccup, Chinese theatres managed to attract 1.62 billion viewers in 2017, a jump of 11% from the previous year, and box office receipts bounced 15% to 52.3 billion yuan ($8.12 billion).
Although China’s movie industry is picking up, there are some indications that the one-party state will not fully open up its market any time soon. For one, the stated aim of the film promotion law is to maintain the unity and dignity of the state, and to protect Chinese history from “distortion”. The language justifies tighter censorship.
China also imposes a quota of 34 films per year from foreign distributors. Nonetheless, non-Chinese films accounted for nine of the 15 hits that earned more than 1 billion yuan last year. Homegrown features generated 52% of the revenue, down from 48% in 2016.
With the North American movie market flat, Hollywood studios are pouring resources into jointly producing movies with Chinese companies — The Great Wall starring Matt Damon, for example — to skirt the import quota. Foreign films whose distribution rights are picked up by Chinese distributors are also exempt.
And following the recent Star Wars flop in China — despite The Last Jedi being the number one film in the US last year — studios are expected to move to movies with more action and less dialogue to cater to the Chinese and other international audiences.
China has become a major source of revenue and a safety net for US studios that can recover their production costs even if an expensive film flopped in their home market