‘Oz’ Blahs, or Why China is NOT Going to Save Hollywood (But Might Buy It)


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By Robert Cain for China Film Biz

March 31, 2013

Oz the Great and Powerful debuted to a distressingly low $9 million in China this weekend, becoming the tenth straight U.S.-made film this year to falter in PRC theaters. Every major studio has now had at least one disappointing release in China in the past three months, and none has had a breakout success.

The huge box office bonanza that Hollywood movies enjoyed a year ago in China is now looking more and more like a cruel head fake.  For 23 straight weeks in 2012 Hollywood films reigned at the top of China’s box office. But their longest streak this year is 2 weeks on top, and they’ve placed first in only 3 of the past 16 weeks.

Meanwhile, Chinese language films are hot. Scorching hot. In those same 16 weeks two Chinese films have broken $200 million at the box office, another went over $135 million, and a fourth—the low-budget Finding Mr. Right—will soon become the highest grossing Chinese romantic comedy of all time.

I’ve written many times in this space that Hollywood’s movies will eventually be marginalized in China. I thought this would take at least several more years, but it’s happening before our eyes.  In the first quarter of 2013, U.S. films’ cumulative grosses in China are down by 22 percent, while Chinese language films are up by 128 percent. China’s tastes have shifted decisively toward local product, with the result that American films are now performing at about the same level they did back in 2010, when China’s market was half the size that it is now.Chinese B.O. 1Q12 v 1Q13

This turn of events comes at an unfortunate time for Hollywood. With box office revenue down by 13 percent in North America, the studios have been looking to China to help fill the gap.  But that’s not going to happen, at least not with any consistency. Sure, the next Avatar or Transformers or Iron Man movie will do fine in China. But the days of $50 million grosses for movies like Battleship and John Carter are fading. Oz won’t likely get past $35 million, and Jack the Giant Slayer will be lucky to break $15 million. Chinese audiences would rather spend their money to see local stories with Chinese faces.

With North America flat at best, and limited prospects in the industry’s biggest international growth territory, one wonders how much patience the major media conglomerates have left for their film divisions. According to a recent Economist article, pre-tax profits at Hollywood movie studios fell by around 40% over the past five years, and they now account for less than 10% of their parent companies’ profits. According to Benjamin Swinburne of Morgan Stanley, by 2020 the studios will contribute just 5% of the media conglomerates’ profits. The day will soon come when at least one of these conglomerates decides to unload its studio operations.

And who better to buy that studio than a Chinese distributor? China will soon be the world’s biggest movie territory, with a more profitable business model than Hollywood’s. And it has major international ambitions, but completely lacks the ability to serve the global market. The right strategy for a globally minded Chinese movie mogul will be to acquire a major U.S. studio at a bargain basement price. The only thing they need now is a willing seller.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.

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31 thoughts on “‘Oz’ Blahs, or Why China is NOT Going to Save Hollywood (But Might Buy It)

  1. Rob, I think you predictions are dead on, however, local product vs. imports does not quite describe the option for local audiences. First, the foreign movies shown here are largely sub-titled pictures which is the kiss of death anywhere else in the world. Second, Hollywood’s love of remakes and TV brands of the past as source material for movies doesn’t help them one iota in China. Oz is completely unknown, as is the Hobbit. No one in China connects the Hobbit to the Lord of the Rings. Did anyone actually think local audiences would have enough understanding of Scotland to enjoy or understand Pixar’s Brave? Super hero characters may have performed better here because the narrow twenty-something demographic in China are big internet users and aware of some comic book brands if martial arts and combat are part of the formula. I think the long term prospects for continued Hollywood global domination are bleak, but in the interim there is some possibility that some Hollywood producers will be able to create co-productions with sino-western appeal. In China the game is rigged, so Hollywood will have to be able to adopt uncharacteristic humility, but there is at least limited opportunity for Hollywood to do more business over here.

    • Steve,

      You make excellent points, and I think we’re very much in agreement. Whatever the reasons, Hollywood’s movies have been in a steady decline in China for the better part of the past year. The studios should have started investing heavily in China years ago, but in fact they’ve done too little to prevent the fate that now confronts them.

      Rob

  2. The Chinese are really lucky and smart in the recent 7-10 years with general global business compared to the rest. Sure, they have some domestic problems swept underneath the carpet but the soft power pushes on. I think they will acquire a major American studio this decade, even just for the name and maybe paying for that only.

    Downsizing is underway globally and many just can’t find the market profit, online viewing is taking it’s toll and indie films are starting to shine a little brighter.
    Last year a cinema chain in the US sold out to a Chinese company, that real alone will be worth in the long run but selected cinemas will still run if profitable.

    Everything is in correction mode and a higher risk gamble so we should keep our powder dry and keep our heads above water which means pulling in the belt again.
    Finding Mr Right has had great reviews here, a Chinese friend of mine watched it last week, it’s a knock off of “Sleepless in Seattle” but the Chinese don’t care, he said he loves Tom Hanks and thought it was great to see Chinese actors in the same scenario, if it’s not nailed down, it’s gone.

    I’m noticing more small budget Chinese movies with foreigners popping up on TV made in the past few years, most have some type of Gong Fu element, so no matter what the cost the Chinese will continue the soft power push on all levels through film culture and large smiles after the tears are gone onscreen.

  3. Very interesting, indeed. The relative fortunes of Hollywood and PRC have more drama than the combined films of both countries.

  4. Great post!! Once China buys a Hollywood studio I wonder if they’ll let them continue business as usual or start to have more say so over content? It also seems the business to be in is genre pieces with Chinese actors and put together with elements of American or western know how like the soon to be released rom com,
    MY LUCKY STAR with Zhiang Ziyi and Leehom Wang directed by American Dennie Gordon

  5. Hi Rob – The limit on US studio & other non-Chinese films is still in place, isn’t it? So how many US films have achieved significant box office grosses out of how many US films shown there? And what are the deal terms – how much money will a US studio take out of China at US$ 50 MM in China box office results? Or on an “Avatar”? Have any US film companies attempted to audit the books of the Chinese exhibitors or of China Film Group, etc. As you know, I haven’t been active in the film biz for a few years now, but I am curious. [I disappeared deep enough that I don't even know any details on "The Forbidden Kingdom", the 2nd co-production with a Chinese film group I was involved with until the gallows trap door opened under my feet.] Before that I was always skeptical that China was a territory that Hollywood could look to for anything significant other than a few special films every year or two. So adding a film’s box office in China to pump up grosses is fairly ridiculous; I hope you and I are wrong, but can’t get too excited about China’s contribution to most US films.

    • Hi Lynwood,

      Great questions. Yes, the limits on foreign imports are still in place, at 34 revenue sharing films and 30 buyout films.

      If we define a ‘significant’ box office gross at $50 million, 11 of the 34 rev-share imports reached that level last year, but only 1 of the 9 rev-share releases so far this year have reached it (2 if we count ‘Hobbit’ which by my count fell just short of $50 million).

      According to the U.S.-China agreement of 2012, 25 percent of the box office gross is to be remitted to the foreign distributor. I’m told that the actual remittance is typically in the 18-22 percent range after deductions, and that the U.S. recipients usually have to wait 90 days or more. Under the 2012 agreement, the studios have the right to audit, but they haven’t yet exercised this right for fear of upsetting the apple cart.

      Although one ought not get too excited about the prospects for China’s contribution to US films’ grosses, that doesn’t mean that US production companies and distributors shouldn’t operate in the PRC. There are good reasons, both financial and strategic, to maintain a presence there.

      Rob

      • I didn’t mean to imply that US film/TV co’s shouldn’t operate in the PRC, just that adding $100 MM in PRC gross box office on a US film isn’t as impressive or meaningful as adding $100 MM in Japan or the UK (remembering some of the good old days).

        Also, coupla’ thoughts: In 1979 on my 1st trip to China and Hong Kong,, I saw several Chinese (back then, HK & Taiwan) martial arts films that had to have Chinese subtitles because so many people could, of course, read the subtitles but couldn’t understand the dialect, usually Cantonese at the time. (Please forgive my ignorance in using no longer correct terms….) Dang, I’m grown old (& fat, as Rooster Cogburn said) – 5 years earlier, in Switzerland, German films had French and Italian subtitles and often German, given the pervasiveness of Alemannic German dialects.

        2nd thought, adapted from my pseudonymous Macon Chance over in io9.com [WHICH EVERYONE SHOULD BE READING RELIGIOUSLY EVERY DAY - I mean io9.com, not Macon Chance - how long before we're all walking around in Google Glasses evolved into Ch. Stross's head-set, then into Wm Gibson's sim-stims [Wow - I just typed "sim-stilms" twice before I got it right] plugged into our heads, maybe even going to darkened auditoriums to be immersed in AV entertainments in a group experience even though we’re all watching / listening IN OUR OWN sim-stim environments, dubbed or subbed into… whatever language/s we want. I guess I could have just said – how long before Google Glasses evolve into Gibson’s plug-in sim-stims? I am conflating (i.e., plagiarizing) Gibson’s Neuromancer, Stephenson’s Snow Crash and The Diamond Age with – especially with – Ch. Stross’s Accelerando and probably a few others who are capable of independent thought – seared into my brain. Oh, I’m forgetting – Richard K Morgan’s Altered Carbon for the ultimate in immersive – and, unlike Diamond Age’s “Drummers”, sanitary – shared entertainment, the “eggs” into which 2 [or more, I suppose, as long as 1 egg per person] individuals, well, immerse themselves with fittings for individual body cavities and appendages while enjoying said body components in a shared hallucination that can induce the most intense and numerous orgasms ever – much better than the lower rent but still hygienic small-enough-for-a-studio-apartment joint sex simulator in a mediocre Stallone – Bullock sci fi [not worthy of the correct SF appellation] flic [not film or even movie].

        Umm, I forgot my point, except that it related to video’d entertainment in China & the US, but it IS 3 AM here and I am seriously sleep-deprived for 2 -3 days now, seriously nuts for far longer. The intellectual / consumerist vortex in China in this 21st Century is the place to be.& here are 2 predictions for free – (1) China will solve its / the world’s energy and pollution problems in the next 10 years with ubiquitous and conjoined LFTR’s and waste-to-energy converters, and (2) China will have every incentive to share the technologies with the rest of the world [but not for free, oh ye right-wing capitalism-uber-alles ranters] because China sinks or swims [literally] with the rest of us.

        Gesundheit and good night.

      • ” in Switzerland, German films had French and Italian subtitles and often German, given the pervasiveness of Alemannic German dialects.”
        You’re English and references in this post are too hard for me to understand the topic/point, but just to tell : In Switzerland there’s 3 official languages (3 well delimited language zones with 21 % French-speaking and the remaining German-speaking, Italian-speaking is microscopic), I’ve never been in Switzerland but it seems weird to have 3 subtitles in every territory as the language zones are well delimited… in was in 1979? Maybe with numeric screens that’s no longer the case.

  6. Hi Rob,

    I’m a screenwriter of little to no fame (more the latter) but I also taught English and Western Culture for 2 years at Universities in China while writing up my comedy/romantic feature based on us Westerners looking at the East while they observed us weird Westerners. This is no big deal nor is it that unique, but while teaching and interacting with Uni students I did learn enough about which stories made them laugh & cry; what mostly got their interest.

    I discovered that my students loved romance, tragedy and comedy – they couldn’t get enough of these genres – not only in Chinese movies but also in Western productions alike.

    For example, romance and tragedy is most beloved in Pride & Prejudice, Waterloo Bridge and a particular favorite is Gone With the Wind – the classics. This would be called ‘catching up’ with the West. And a male student told me he cries every time he watches Titanic – “Teacher, I saw it 12 times and I always cry.” ‘Mean Girls’ they liked but more from curiosity, “did the girls really dress like the Plastic Girls in the West?” Another: “Is there really red hair people in the West?” Of course, in ‘Mean Girls’ my students were age related and therefore, they mostly wanted to compare. Curiosity.

    Make what you like from this but it does bring me to an area I call navel gazing of which the Chinese are going through as did Australians in the 60s and 70s. So this I can relate with what Rob writes, “Chinese audiences would rather spend their money to see local stories with Chinese faces.” This navel gazing is – to want to see themselves on the screen, ‘yes, that’s what we act like’ and wonder ‘what do other people think of us and our Chinese society?’

    I cannot help but relate these two identities, China and Australia the same, though at different periods, as now for example, the movie ‘Australia’ flopped at their local Box Office whereas in 60s/70s Aussies went to see themselves on screen BECAUSE it was an Australian production. Now they don’t care as they have grown up and lost their cultural cringe. Maybe this is what’s happening now in China and they are going through their emotional navel gazing stacked with curiosity and romance between people and comedy and wonder what Westerners really think of them. That’s why they want to see themselves, their faces up on the screen I theorize here.

    Maybe the Western Action movies are not taking off in China (I could be wrong about that) they way Westerners go buy a tix for, possibly because the love, romances, comedy missing from it? I’d suggest that the Chinese are not yet into the same all Action movies, like Europeans which are more character driven..

    These are the things I observed in my students, what made them cry, laugh and hit their emotions. From what Rob said, they want to see themselves up on the screen and that is navel gazing, their self and society while they also wonder what the West may be thinking of them. Or maybe they don’t care and just want to experience the emotions a film brings to them and what they take from that story although genre is still a picky area for me.

    I know you’ve been in China a heck of a long time and I know you have the finger on the pulse. But It was one little thing that triggered me off to write this probably too long piece on my thoughts about movies in China… and as I said, from a screenwriter’s perspective. I apologize for the long winded words. :)

    Kaz Drysdale :)

    Thanks Rob for your blogs!

  7. Very interesting comment Steve ! I was wondering if US movies were dubbed or subbed, now I’m just amazed that US movies were so successful in China while being only subbed ! Avatar was also only subbed ?! Why don’t they dub movies, China’s marketing is huge, that doesn’t make any sense. No professional dubbing industry there ? I’ve heard that dubbed versus subbing is cultural, americans don’t dub (only cartoons are dubbed), but here in France we can’t stand English voices (sorry but that’s a fact) and our market being big enough we dub every movies we can and personnaly I highly prefer French dubbing than the original English voices because professional dubbers choose the best and most charismatic voices they can find, and no way I would watch a Rambo in English, our French voice is one of the best it can be. Maybe americans should heavily try to dub movies to be successful. On a other way, IMHO, today American movies of bad and are a succession of Special FX and bim bam boums. Just bring back the magic of the 80′s !

    • Interesting analysis. As a young scholar, I’ve been studying Chinese cinema and its production-distribution chain for some time, and I still find it hard to read through all the cultural variables and context-dependent factors which influence China’s movie market. The most difficult thing is cracking the (somewhat obscure) logic behind Chinese media groups and producers’ business model and practice.

      As we all know, the game is rigged indeed, as Chinese protectionism really hurts foreign movies and often hits below the belt of transparency and official regulations. Hollywood did little to actually cater to Chinese tastes, while Chinese producers get a lot of love from SARFT, investors and State subsides.

      Still, I’m not sure what you mean when you say that China ” is a more profitable business model than Hollywood’s”. Cinema is a risky business in China, as it is anywhere. And home video revenues are volatile at best, since piracy is as strong as ever. So, I guess the real profit lies elsewhere. Could it be TV and the streaming content market?

      And again, couldn’t China’s movie market face the same problems Hollywood is facing right now (TV and other media becoming more and more profitable as people find out cinema is ridicously expensive and not worth the effort when you can afford a decent TV screen/PC/tablet) in a few years? China’s middle class will eventually be able to see movies outside theatres and actually enjoy them, and that could mark a steep decline in the rate of growth of what is now the second biggest movie market in the world.

      • Kongming – I think the difference in China is that cinema is in it’s infant stage compared to the US and the amount of people being able to fit into a limited number of theaters which keeps the price high. Little or no access in smaller cities means that one day they might have a cinema screen there which will be like in America in the mid 1900′s, it will be a very special thing to do.

        Peter Shiao – Western faces in western movies is the same as eastern faces in eastern movies, you play to your local market for local sales. If your film is good enough or lucky enough to be picked up by a foreign distributor then it can fly internationally. The problem is for both sides is to get the local action first. 400 films did not get a screening last year in China, where will they go, nowhere. Thousands of western films made every year and a small fraction get screened but their is the VOD outlet. Both east and west don’t generally watch each other films but more western films are watched by eastern people than the other way around. A combination of quality and taste hinders the eastern films in the west, sounds like the cold war [LOL] but that’s the way it is, for the few great Chinese films made there are a higher ratio of films nobody even inside China let’s say want to see on mass because it’s crap, sorry to say but that could be the governments fault, for every smart Chinese film maker there are 5 naive kids with no clue about life which stems from being cocooned as a child b parents and government restrictions to what they can see, learn and ultimately experience. Hence the dumbing down of films to suit the audience. I’ve lived in China for six years and watch Chinese TV/movies everyday, it sucks.
        Then I go to youku and watch some US content and it’s so well done and smart with it’s delivery etc. No great change happening soon until the Chinese government is less stubborn and gives the youth a chance to grow up, there are some great performers who can then shine brightly which could then be transferred to a western audience.
        I’m currently developing an english language action film set in Hong Kong with a foreign element and a chick flick set in Beijing etc again with a foreigner in the main cast, western people need to be introduced to this softly and start to recognize Chinese actors in these cross cultured films so they can begin to like them first, then they can be staring in their own right in western films not not really eastern stories per se.
        Lot’s of variables and a gamble for all involved, that’s why producers stick to a known popular set up, so it will be slow going.
        At the end of the day, Chinese like US/western films for a reason.

  8. And then there’s the French…

    In other news: Why should the Chinese consume an endless stream of CG driven, story lacking tent-pole nonsense? They shouldn’t, especially when they’ve produced such incredible films as, Raise The Red Lantern, Red Firecracker – Green Firecracker, Infernal Affairs, Farewell My Concubine and the list goes on and on and on.

    For me as an Indie filmmaker working in the low budget range, with US box office now but a fleeting memory, other theatrical outlets are vital. Given that China has a quota system and that it’s dominated by the majors, what chance does an Inide action/thriller with some Chinese stars have?

  9. OK, I’ve got a simple observation. In my view, the fundamental problem with Hollywood product is that it is ultimately about Western faces and culture. I would venture to say that almost all of these types of films don’t even have Asian faces in them, let alone Chinese faces. This is not hard science here. People want to see reflections of themselves in the stories they consume, and they want to see their struggles and experiences be validated by mass culture. Thus, I don’t perceive this to be an inevitable slide for Hollywood films per se — just a challenge for story tellers here to actively engage and involve the Chinese people in their stories in entertaining and engaging ways. This shall be true soon regardless of the production status of large movies that are meant to travel the world. The reverse challenge is now true for Chinese filmmakers — now that they’ve proven their prowess inside China — stepping outside of it will require new creative chops. And having me too product that are essentially the local language versions of an international original will not bring forth new fans outside their shores.

    • Hum… I thought of this to, but I don’t know, most of American actors are “wasp” (I mean Irish or don’t know what else) and French people, for example, can’t totally feel close to the actors, even if Chinese are far more different looking and far more culturally different… maybe a question of both look and culture… but why would American movies be so successful 6 months ago and now perform low… My little finger tells me Chinese gov is cheating on numbers since their national movie share dropped below 50 %, I also can see that on the French numbers that weaken a lot this year !

      • @Loop, The Chinese play with the numbers everyday, it’s a game and they have giant numbers to play with. Somebodies making money even if they cry poor.

      • In France it took 10 years (the whole 80′s) to see American movies share go from 36% to 66% and swap positions with French movies market share, even if we live in a faster world today I doubt such a rapid change (6 months) in people’s tastes can happen.

      • The figures are rigged that’s for sure, and the foreign producer/distributor is being robbed.
        Rent a crowd is common in China, what kid would not enjoy a free or subsidized movie ticket.
        I’ve heard they do this for the crap chinese films that no people go to see, just to make it look good and to influence the young and impressionable, soft power at home.

    • @Russell Buchanan : In France we have fidelity cards : for the price of 3 movies you can watch 10 or something like that (I can’t remember precisely), that’s why we bounced back over 200m admissions a year after the all time low of 116m in 1992. But that’s for all movies, not just French ones. The only quota we have is “40% of showings must be French movies” but we’re free to choose as much foreign movies as we want. China is far more anti-free-trade (they never should have been granted membership to the WTO). The same was true with South Korea a few years ago (I’ve heard they’ve (partially?) abolished the quotas). I’m still wondering how is it in Japan as they’ve recently reached a 67% market share with their national movies, which is impressive and the best ratio in the world after US, India and Egypt (but Egypt has big quotas).

  10. hello,I am a student from China.I want to translate your article into chinese and reprint on my blog.And I will attach the original link and credit you,is it ok? I want to discuss with people who really love vfx and film. Thx

  11. Rob, this fits in with what I was telling you yesterday about how I am hearing that the government is pulling out all the stops to make sure that Chinese films beat foreign films at the box office. I keep hearing of how school kids are getting free or subsidized tickets to see Chinese films, which if true, no doubt has the effect of reducing foreign film box office.

    • Dan,
      Yes, if there’s a statistic in China worth paying attention to, it has almost certainly been manipulated. Unfortunately we have to either rely on what’s published, or completely dismiss it. I choose to rely on the numbers I receive with the understanding that they have undoubtedly been massaged, revised, or completely falsified.
      Rob

  12. Subbing in Chinese films probably did have its root in overcoming the multiple major dialects. Even today, dubbing a Cantonese film in mandarin is not always a good solution. I recall a number of films leveraging the distinct dialects into its plot. Local law man identifying an out of towner, for example. Once subbing is accepted culturally, I personally experienced no loss in artistic appreciation. I am bilingual now, but wasn’t so in childhood.

    Does any one have knowledge of how co-production films do in China? it would be by nature bi-cultural or multi-cultural, and would most probably escape the quota constraints (is that so?). Would that be a creative artistic direction which would breathe new life into Hollywood, and give Chinese films a tool for testing the international palette?

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