Tag Archives: China Film Group

Big Trouble in Movie China

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By Robert Cain for China Film Biz

November 26, 2012

Crisis in China’s movie business was narrowly averted on Friday when the country’s film authorities announced that they will award performance-based box office bonuses to domestic film distributors and to theaters, ending a weeks-long dispute that had each side threatening to boycott the other over revenue splits. Thanks to the feds’ intervention, the eagerly awaited release of Feng Xiaogang’s Back to 1942 will proceed as planned on Thursday, and Chinese moviegoers will enjoy a normal December movie season,

Tensions were high in mid-November when five of China’s biggest film distributors banded together to demand an increase in their shares of box office revenues from 43 percent to 45 percent. The five companies—China Film Group, Huayi Brothers Media Group, Bona Film Group, Stellar Mega Films, and Enlight Pictures—told theaters that if they didn’t get their way they would immediately start withholding the releases of their blockbuster movies, including Back to 1942 and Jackie Chan’s China Zodiac, both of which are expected to be major holiday season hits.

In a notice issued to theater chains, the five film distributors said that China’s domestically-made blockbusters have contributed significantly to the nation’s film market. Yet, they complained, as they continue to produce films using state-of-the-art technology, production costs will continue to rise. “Therefore,” the distributors asserted, “In order to boost the creation and production of domestic movies, improve their quality and gradually smooth over the economic relationships between the stages of producing, distributing and screening, we five companies have reached the consensus that the profit share proportion for distributors should not be lower than 45 percent.”

Theater operators responded by holding an emergency meeting of their industry organization, the China Film Circulation and Projection Association, on November 17th in Guangzhou. They published a combative response (copied below) to the distributors’ demands and offered some choice words to reporters, with veteran Wanda Cinema salesman Liang Liang telling a reporter, “I have only three words [for the distributors]: Go to hell!”

In their declaration, the theater operators deemed the distributors’ demands unacceptable, for the following reasons:

  1. The five film distribution companies failed to follow the rules; without any attempt at consultation, they simply went ahead and gave the theaters an ultiimatum.
  2. The five film companies failed to consider that the industry’s current revenue split has been formed over an extensive period of trial and error and therefore any change in pattern would require adequate preparation.
  3. The five film distribution companies only took into consideration their own interests, without considering the challenges faced by theater operators. Most theaters are unprofitable due to the exorbitant rents they must pay their landlords.
  4. The distributors failed to use the correct method to address their grievance. They could have easily taken their request for a raise in revenue shares to China’s Movie Special Funds and apply for the increase in rates there.
  5. The distributors exchanged friendship for profit. China’s movie industry has always supported these five major players in film distribution. However, their actions showed how they have seemingly left behind their integrity when the temptation of personal gain showed its face.

Note that most of these objections are moral and ethical ones, not legal arguments. It’s an interesting example of how business operates in a country like China, where contractual obligations are usually less important than relational ones.

Civil war was ultimately prevented when the National Film Development Funds Management Committee (NFDFMC) stepped in and offered a solution in the form of bonus compensation to both sides, as follows:

For distributors of domestically made 3D and IMAX films 

If a film grosses RMB 50mm to 100mm , a RMB 1mm bonus

If a film grosses RMB 100mm to 300mm, a RMB 2mm bonus

If a film grosses RMB 300mm to 500mm, a RMB 5mm bonus

If a film’s box office gross surpasses 500mm, a RMB 10mm bonus

For theater operators

If at least 50 percent of a theater chain’s total annual box office gross is earned from domestic films, 100 percent of fees paid during the year by the theater chain to the NFDFMC (a straight 5 percent of every RMB of ticket sales) will be reimbursed to the theater chain.

If the percentage of box office earned from domestic films is between 45 percent and 50 percent, the NFDFMC will reimburse 80 percent of the fees a theater has paid to it.

If the percentage is below 45 percent, but the domestic film revenue is still more than last year’s, the NFDFMC will reimbursed 50 percent of the fees.

Both sides were apparently satisfied with this solution, and the show will go on. China’s theaters will continue to run films from the five distributors, and Back to 1942 will unspool on the 29th.

Having witnessed an endless string of financial shenanigans in China’s movie business, I can’t help feeling that this whole dispute was staged as a ploy to justify an end result that undeniably favors domestic films over imported ones. After all, China’s film regulators have for years twisted and strained to get around the WTO rules, and have often simply reneged on their legal obligations, in order to keep foreign films’ revenues below a 50 percent aggregate share of the box office.

With the attractive NFDFMC bonuses to tempt them, it’s hard to imagine that any theater chain in China will ever again submit an annual report with a domestic film box office share of less than 50 percent. The new rules give them powerful incentive to under-report the grosses of the foreign films they exhibit (if they aren’t already doing so) in order to maintain the desired balance and win their juicy year-end spoils.

As if this shift against the interests of foreign distributors wasn’t injury enough, I’m also hearing rumors that SARFT is planning to find ways to roll back the 25 percent share it pays foreign films to a somewhat lower rate. If you’ve heard anything about this please write me at the email address below.

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.

On the Money Trail: Are Chinese Distributors Paying Producers What They Owe?

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Follow me on Twitter @robcain or Sina Weibo @robcain, or connect with me on LinkedIn.By Robert Cain for China Film Biz

November 5, 2012

With the American Film Market going on this week, Chinese buyers are in town in L.A., haggling with non-Chinese producers over prices for their films and reportedly making record-breaking offers. As the non-Chinese producers enter into these deals, one thing that is sure to be on their minds is the concern as to whether Chinese distributors will pay them their fair, contractually negotiated share of box office receipts.

No other aspect of the film business is more important than collections, but when it comes to China, Hollywood has been uncharacteristically quiet on this topic. As far as I know there has been no public complaint from the studios, no claims of cheating, no audits.

Does this mean that producers are getting their fair share. The answer, I am certain, is an emphatic “no.”

This is an incendiary topic, one that few producers are willing to address publicly for fear that China’s major distribution companies will take offense and ban them from conducting further business in the PRC. None of the U.S. producers, studio executives or industry representatives with whom I’ve spoken on this issue would do so on the record.

But one bold Chinese producer did speak out, presumably because he felt he had nothing else to lose.

I’m referring to Hao Yaning, Chairman of United Film Investment, which co-financed and produced the Chinese comedy My Own Swordsman. China Film Group (CFG) released My Own Swordsman in 2011 to great success, at least for itself. Hao, who put up 30 percent of the film’s $2 million budget, was entitled to a commensurate 30 percent share of net distribution receipts, after marketing and distribution costs. But Hao claims he was paid only a minute fraction of what he was owed; although the film grossed at least US $30 million according to CFG’s reports (Hao believes the actual figure was more like $48 million), CFG paid him only US $800,000.

To put the numbers in context, distributor rentals in China typically amount to about 40 percent of gross after the exhibitor’s share and box office taxes are deducted. Using CFG’s figure of $30 million, then deducting an estimated $1.5 million for P&A (ad expenditures are typically very low in China), and another 20 percent (again, my estimate) for CFG’s distribution fee, that would leave a pool of at least a $8.4 million for Han and his company to share in. His 30 percent would amount, very conservatively, to over $2.5 million.

Hao believed that the profit pool was actually $16 million, not $8.4 million, and he was understandably less than thrilled with what he felt was CFG’s retention of at least 80 percent of the money it owed him (or at least 68 percent if we use CFG’s own numbers).

Fed up with the situation, Hao did what no one else had done before. In June he sued China Film Group, alleging that the studio violated a number of terms of their agreement for My Own Swordsman, including “severe falsification” of box office profit reports. Hao demanded that CFG pay him a sum working out to more than RMB 102 million, or roughly US $16 million.

A Chinese court accepted the case, which would never have happened unless higher-ups in the Communist Party wanted it to. Apparently, someone at or near the top has taken an interest in this issue.

For its part, China Film Group issued an aggressive statement of its own:

Before the courts have determined the relevant facts and passed judgment, United Film investment has repeatedly publicized remarks on CFG not giving the sufficient percentage to United Film as well as other complaints inconsistent with the facts. This has led to a serious misleading of the public, and has severely harmed the rights and interests of CFG. CFG retains the right to investigate legal liability on the part of United Film for severe infringement of CFG’s reputation.

CFG’s concerns are presumably less about My Own Swordsman and more about the potential grievances that could come from their major foreign suppliers in Hollywood (not to mention CFG’s own pending IPO, which could be negatively impacted by the lawsuit).

For their part those at the studios who spoke off the record had comments like this:

“I’m hearing the same things you’re hearing, that there is significant box office cheating going on.”

“Collection has been very slow in China, typically more than 90 days.”

“Skimming is one of the issues that’s an ongoing anxiety, it’s a reality of what’s going on not only in China but in a number of our territories.”

“China Film Group told us after a certain point that we had made enough money on our picture in China, and that even though the film was still making money they were not going to pay us any more.”

“The common wisdom is that there is skimming and under-reporting. No one knows exactly how much it is.”

As I wrote back in February, what I heard directly from box office reporting company executives was that skimming of receipts runs as high as 40 percent.

It’s not like the studios to stand by and do nothing when they believe they’re being short-changed. So what’s going on here?

For one thing, the studios do understand that this is a fraught and potentially dangerous issue for them in their most important international territory. As one studio executive put it, “The problem is that if you complain, you risk being put out of business in China.”

But the studios also have an ace up their sleeves, and they’re considering when and how to play it. The WTO memorandum of understanding on audiovisual products that was negotiated between China and the U.S. earlier this year includes a provision that allows U.S. companies to audit the records of Chinese distributors. Although they haven’t yet invoked this provision, one well-placed industry representative told me this:

The audit provision was a specific ask we had that was expressed through the United States government. It’s there because we want it and feel it’s important. There have been conversations about what to do and when and how to do it. We want to make sure we are able to conduct an audit in a way that will be definitive and dispositive.

This same individual told me that there have been cases in the past where several studios had concerns about whether full payments were being made, and there is an ongoing concern about the timeliness of payments, but he felt that “the process is getting back to normal.”

2012 has been an unusual year owing to the major changes wrought by the WTO MOU, and also because of the leadership transition that is now under way in the People’s Republic. The timing simply hasn’t been right for raising the collections issue. Once the dust has settled and China’s new leaders are in place, perhaps at some point early next year, the major studios will take action and enforce their rights to ensure that they are being paid properly.

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.

Hollywood’s Looming China Syndrome

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By Robert Cain for China Film Biz

September 11, 2012

In the 1979 Oscar nominated thriller “The China Syndrome,” a pair of journalists played by Jane Fonda and Michael Douglas stir up a hornet’s nest when they expose a nuclear plant accident that they fear could result in a “China Syndrome,” a worst-case scenario where the reactor core melts through its containment structures and drops into the underlying earth, “all the way to China.” The nasty end result would be a nuclear explosion that would render Southern California completely uninhabitable.

The film’s frantic tension arises from the conflict between the journalists’ efforts to obtain justice, and the nuclear plant operator’s self-preserving, sometimes violent attempts to maintain a cover-up of the accident. Fonda and Douglas characters’ righteous ambition winds up getting Jack Lemmon’s well-intentioned plant supervisor killed, and ultimately jeopardizes their own lives and careers, with the film’s final shot suggesting that nothing has really changed.

Hollywood’s major studios have set in motion a similarly risky and probably fruitless course of action by complaining publicly about what they feel is unfair treatment of their films in China. In pressing the U.S. Trade Representative to take diplomatic steps, the studios are escalating tensions in a situation that, if continued, could well result in a “China Syndrome” of their own that would poison their long-term prospects in the world’s fastest-growing and soon to be largest movie market.

The source of the studios’ discontent is their perception that recent moves by China Film Group have aimed to reduce the grosses of American films at Chinese multiplexes, by setting “blackout periods” during which Hollywood movie releases are limited, and by pitting at least two of these movies, “The Amazing Spider-Man” and “The Dark Knight Rises” against each other on the same weekend.

According to the Los Angeles Times, MPAA Chief Policy Officer Greg Frazier admits that the Chinese haven’t really done anything illegal. “Are they violating WTO obligations? Probably not.” To his credit, Frazier has been much more restrained and diplomatic in his statements than his studio counterparts have been.

The timing and tenor of the Americans’ complaints betray a complete disregard for the facts, a pronounced insensitivity about current events in China, and an alarming level of ignorance about how to win favor and get things done there.

Let’s take a look at what’s been happening with American movies in China:

  • In the first half of 2012, U.S. movies took a 68 percent share of China’s box office receipts. After the summer blackout, their share now stands at 60 percent. Domestic Chinese films have a 15 percent share, and China/Hong Kong co-productions another 23 percent. The rest of the world: 2 percent.
  • “The Amazing Spider-Man” and “The Dark Knight Rises” had China’s third and fourth best opening weeks, and after just 14 days in release the two films are already China’s 9th and 10th highest grossing pictures of 2012.
  • As I pointed out in an article last month, American films enjoy wider distribution, more screens and longer runs in China than do Chinese films.
  • During the past two weeks, U.S. films have taken 98 percent of China’s nationwide movie ticket revenues.
  • Of the 11 highest grossing movies in China this year, 10 are American.

Get the picture?

Now let’s look at China’s domestic scene:

  • The economy is experiencing an epic slowdown, one that is putting tens of millions out of work and raising serious questions about China’s financial viability.
  • The country’s communist party leadership is embroiled in the midst of an unwieldy succession crisis. With a once-in-a-decade power transition about to begin, one of the party’s top political stars has been disgraced with murder and corruption charges, and presumed president-to-be Xi Jinping has completely disappeared from public view, possibly due to a heart attack.
  • Territorial disputes over islands in the South China Sea and East China Sea have escalated to frightening levels, with diplomatic and trade relations between China and Japan deteriorating to post-WWII lows.
  • The party’s legitimacy is under threat from rifts within its ranks and also from the public via social media. As Dr. Cheng Li, a research director at the Brookings Institute recently put it, “This legitimacy crisis is worse than in 1989, and may be the worst in the history of the Communist Party. People are afraid that it could lead to revolution if it is not handled well.”

With all this turbulence, do the studio heads really think this is a good time to complain about movie schedules? Last weekend, the studios made almost as much money in Chinese theaters as they did in U.S. ones. To the Chinese they must seem like unwanted houseguests who, after living in the guest house for a while, have commandeered the master bedroom, eaten almost everything in the fridge, and now they’re screaming bloody murder because the homeowners have told them to stay out of the kitchen on weekends and marked a couple of food containers as off-limits.

Meanwhile, the Chinese homeowners are overwhelmed with problems: uncle and auntie have murdered a foreigner in the living room, the phone is constantly ringing with calls from bill collectors, major cracks have appeared in the foundation, and the neighbors have figured out how to open the windows from the outside and hurl insults at them about their previously private bodily functions.

And what are these ungrateful Americans doing for them anyway? Only a few companies—most notably IMAX, Fox, and Dreamworks Animation—have made efforts to appease the PRC’s political leaders and make a contribution, by producing and distributing Chinese language films.

Xenophobia is on the rise in China, and anti-American sentiment has climbed to levels not seen in decades. The communist leaders can gain much-needed legitimacy at home by standing up to pushy foreigners. If the studios aren’t careful they could easily precipitate their own nuclear meltdown, with China Film Group punishing the studios by shifting their imports toward American indies and non-U.S. films. And a nationalistic boycott of American movies isn’t unthinkable; the territorial disputes with Japan appear to have resulted in lower car sales in China recently for Toyota, Mazda and Nissan.

It’s natural during tough times to scapegoat foreigners; both the Americans and the Chinese are guilty of that. The studios should back off and leave things alone until the 18th Party Congress has chosen its new chiefs and the dust has settled on other current crises. The MPAA has done a marvelous job so far and they should keep their powder dry for the times ahead when they can have a meaningful impact with the next generation of leaders. And all of us should learn to take a more conciliatory tone in our conversations with the Chinese. We may not like their style, but they hold the keys to the future of our business. Triggering a nuclear reaction won’t benefit anyone.

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

Spider-Man, Dark Knight Power China’s 2nd Best Ever Box Office Week

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By Robert Cain for China Film Biz

September 4, 2012

Pent-up demand for Hollywood blockbusters powered China’s box office to its second-highest grossing frame ever last week, as The Amazing Spider-Man and The Dark Knight Rises attracted nearly equal numbers of moviegoers in their long-awaited China debuts. Both pictures started slowly last Monday but drew better than I had expected throughout the week, finishing up with $35.9 million and $34.8 million respectively, good enough to notch the sixth and seventh best full-week totals of 2012.

Both pictures were handicapped in at least two ways: each had been in release for at least a month in the rest of the world, a lag that usually allows DVD and online piracy to severely impact the Chinese grosses, and the two films were pitted against each other on the same opening date by China Film Group’s release schedulers, forcing most filmgoers to choose one film over the other.  But after being starved of major live action tent-poles for most of the summer (due to a SARFT-imposed blackout of most Hollywood movies), Chinese audiences came out in huge numbers to drive a $76.7 million weekly aggregate, the highest nationwide gross since mid-April, when Titanic 3D earned $74 million and led the PRC’s theaters to a record $83.6 million weekly total.

Their reward for waiting out the blackout is that Spider-Man, Dark Knight and Prometheus will enjoy several weeks without competition from any other new Hollywood releases, and they should perform well into late September, when the National Day holiday will see the rollout of several Chinese language blockbusters.

In reviewing the box office figures of the past several weeks, one thing that is abundantly clear is that even when Chinese films are protected from foreign competition, they’re unable to generate enough interest to keep China’s multiplexes busy. Although there is an occasional Painted Skin or Silent War to draw meaningful crowds, China’s studios are still making far too few commercially attractive films to earn the 50 percent domestic box office share that SARFT expects of them.

Year-to-date China has passed the $1.7 billion mark, and with four months to go it should easily reach $2.5 billion by December. Whether it can overcome the damage done by SARFT’s blackout and reach the magic $3 billion level this year will depend largely upon whether Chinese audiences show up for home-grown hopefuls like director Li Yu’s Fan Bingbing starrer Double Xposure, Feng Xiaogang’s 1942, Wong Kar-wai’s The Grandmaster and other Chinese language tent-poles.

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

Is Big Bad China Picking on Poor Lil’ Hollywood?

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By Robert Cain for China Film Biz

August 16, 2012

If you’ve read my previous columns you know that I’m no fan of the Chinese government’s film production- and distribution-related policies, and I’m certainly not a defender of the country’s tactics with regard to Hollywood. But I feel compelled to take exception to a recent series of articles in the American press that I believe unfairly characterizes China Film Group (CFG) as being single-mindedly devoted to curtailing the theatrical revenue of American studio films in the PRC.

In several recent articles (like this and this and this) the Los Angeles Times has decried China Film Group’s ‘aggressive steps’ to ‘curb the grosses’ of Hollywood tent-pole films by releasing pictures like The Dark Knight Rises and The Amazing Spider-Man against each other on the same weekend.

The Times and Variety also cite CFG’s decision to open Ice Age: Continental Drift on the same date as Dr. Seuss’ The Lorax, and a possible Bourne Legacy versus Total Recall showdown in September as further damning evidence that the Chinese are out to get Hollywood movies and put them in their place.

There’s no denyng that China’s film authorities wish to promote a healthy domestic film industry, and that part of making this possible means allowing room for locally made films to find an audience among Chinese filmgoers. Because few Chinese films this year have proven capable of competing head-to-head with American blockbusters, CFG has taken to coordinating release schedules to protect local films from Hollywood competition during key seasons like the summer school break, the October Golden Week holidays, and the year-end holiday season. As part of this effort, back in late June SARFT initiated a ‘film protection month’ (which will actually last for about two months) during which China will allow only 7 American imports to open at its multiplexes, and only two of these films—both 3D animated features—will be from major studios.

A key effect of this tactic is that it pushes back the releases of a handful of Hollywood tent-poles, squeezing several openings closer together than they might otherwise have occurred. But is China really targeting Hollywood films, as the Times put it, “to depress the box office receipts”? Is there a systematic campaign to punish American movies and drive down their grosses? I’m not seeing it, and on the whole the evidence doesn’t support this assertion.

Through the first 32 weeks of 2012, Chinese theaters released 54 films that were made in foreign territories. Of these, 25 were American films, and 7 more were U.S.-foreign co-productions like Killer Elite and Lockout. That works out to an average of exactly one American film every week, compared to barely one film every other week from the entire rest of the world combined. During this period American films took a 57 percent share of the nearly $1.6 billion in total PRC box office receipts, with the vast majority of that amount going to major studio pictures.

These are big numbers given that China’s obligations under the WTO don’t specifically require it to allow any American films into Chinese theaters. Yes, China must allow 34 imported revenue sharing ‘quota’ films annually under the updated (as of February, 2012) WTO agreement, but there’s no law that says these movies must be from major Hollywood studios.  If the Chinese were really intent on depriving Hollywood of renminbi they would be allocating a lot more of their quota slots to films from places like Iran, India and Brazil, or to indie films from specialty distributors like Magnolia Pictures and Strand Releasing. But they’re not doing that.

If anything, it seems to me that China has been surprisingly permissive with and solicitous of Hollywood’s studios. That such graphic films as The Dark Knight Rises (MPAA: “intense sequences of violence”) and The Hunger Games (MPAA: “intense violent thematic material and disturbing images”) are being allowed to screen at all came as quite a surprise to many Chinese filmmakers who would never be allowed, under China’s strict censorship rules, to indulge in the levels of violence and political commentary that these films enjoy. If China Film Group wants these films to fail, why is it going to so much trouble to bother releasing them, when it could easily and legitimately deny their releases on censorship grounds?

The truth is that China has rolled out a big fat welcome mat for Hollywood movies for most of this year. The average major Hollywood film opens on nearly 50 percent more screens during its opening week than the average major Chinese film, and is allowed to run for an average of 6 more days, or 15 percent longer, than the biggest Chinese movies. And let’s not forget that all these Hollywood movies are squeezing out domestic films; more than three-quarters of the movies made in China never receive a theatrical release.

 

*Chinese and China/Hong Kong co-productions indicated in RED

*Chinese and China/Hong Kong co-productions indicated in RED

Yes, the Times is right that for a few weekends this summer and fall, a handful of U.S. studio tent-poles will be forced to compete with each other for the same audiences. But China Film Group routinely does the same thing with Chinese films. One only has to go back as far as last week to find a comparable example, when four new Chinese animated films were released against each other.

And back in December, two hotly anticipated Chinese language tent-poles, The Flowers of War and Flying Swords of Dragon Gate, opened on the very same day. Both films did just fine, becoming respectively the 2nd and 4th highest grossing films released in China in 2011.

As much as China’s government authorities would like to see local films dominate the PRC’s multiplexes, they know that Hollywood movies are good business all around. Ticket sales from U.S. films help to build the country’s exhibition industry, which is still one of the most under-screened in the world. CFG makes far more money on each American film they release than they do on Chinese films, and that pays a lot of salaries and helps CFG build a war chest to fund domestic production. And tax revenues from ticket sales of American movies contribute to SARFT’s operating budget. In short, there are plenty of good reasons for CFG to maximize the revenues of Hollywood films.

SARFT and CFG do want to keep up appearances, and part of keeping up appearances is to help domestic films maintain a respectable share of China’s box office, ideally around 50 to 55 percent. When Hollywood movies squeezed Chinese films’ share down below 20 percent during the first half of this year, CFG was forced to take action, with the result that the major studio films will get a little less leeway for themselves for the rest of this year. Describing this shift as an attempt to ‘depress’ the grosses of American films overstates the situation and improperly encourages the impression of a hostile Chinese attitude.

The Dark Knight Rises and The Amazing Spider-Man will be just fine. Each of these pictures will release on several thousand screens in China, and each will earn at least $50 million in box office receipts there, which will be more than they earn just about anywhere else outside North America. The time to raise the alarm will be when China starts rejecting studio films that it should allow, or ghettoizing them to small numbers of screens in lower-grossing secondary markets. None of that has happened yet, and so long as the studios are respectful and play fair with the Chinese authorities, China’s welcome will remain wide open.

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

Chinese Audiences Embrace Non-Studio Hollywood Movies

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By Robert Cain for China Film Biz

August 11, 2012

China’s on-again, off again love affair with Hollywood movies heated up last week, abruptly ending a summer fling with Chinese filmmakers, at least for the moment. After a month’s vacation from late June to late July when American films were embargoed from China’s multiplexes, Hollywood movies have roared back to reclaim the lion’s share of the box office, with 82 percent of last week’s total ticket revenue.

Even though SARFT has only partially, temporarily opened the door to US imports, allowing two animated features and two non-studio pictures into domestic theaters in the past few weeks, there’s been enough pent-up demand to propel three of those films—Fox’s Ice Age 4, the Simon West/Jason Statham crime thriller The Mechanic, and Lionsgate’s John Singleton action-mystery Abduction—to the top 3 ranks of the box office chart for the week ending August 5th.

The Mechanic and Abduction were only modest performers stateside, earning $29.1 million and $28.1 million during their North American runs in 2011.  But the Chinese audience is clearly hungry for new Hollywood fare, and in the absence of new live action American studio films, PRC moviegoers showered the two non-studio pictures with solid, if not spectacular, welcoming parties. At nearly $8 million, The Mechanic enjoyed the second best non-studio foreign film opening of the year so far, behind the $10 million June bow of Lionsgate’s The Hunger Games.

Ice Age 4 reached a key milestone by becoming the second highest grossing animated film ever in China, with almost $45 million in ticket sales in its first 10 days. With little real competition for the family market in coming weeks, Ice Age could challenge Kung Fu Panda 2’s Chinese box office record of $92 million.

This week the door will close again to Hollywood, although two non-Chinese films will debut: the China-US co-pro Shanghai Calling, and Europa Corp’s Guy Pearce starrer Lockout, which earned $14 million in the US and $25 million worldwide earlier this year. Four new Chinese animated features also bow this week and on August 15th another Lionsgate film, The Lincoln Lawyer, will open against a handful of new Chinese releases.

August box office will remain subdued until the 30th, when The Dark Knight Rises is scheduled to open. Whether China Film Group will move The Amazing Spider-Man off that same release date remains to be seen.  But the fickle attitude of China’s film czars toward Hollywood’s studios has become exceedingly obvious, and chatter about co-productions is now on the rise.

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

China’s Leading Movie Production Companies

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by Robert Cain for China Film Biz

July 29, 2012

With their import quotas, foreign film blackouts, and other methods of market management, SARFT and the PRC government have made it abundantly clear that protection of local films and producers is a major Chinese policy goal.

Since Chinese protectionism is unlikely to go away, U.S. and other foreign producers who seek to participate in China’s booming film business will need to start engaging more with local Chinese companies.

There are several thousand licensed production companies in China (more than 1,500 in Beijing alone), so outsiders need systematic ways to narrow their lists of potential collaborators down to manageable size. One such method is to measure companies by their respective market shares. That’s my purpose here.

I’ve listed below China’s top production companies by their market share during the first 7 months of 2012. In calculating market share I’ve attributed each Chinese language film to a single production company, even though in some cases there were as many as 15 production companies credited on a single film. In such cases I’ve attributed credit for the film only to the company that received the first position credit. Co-productions with foreign companies are attributed to the mainland Chinese partner.

ImageSource: Pacific Bridge Pictures research

Here’s more detail on the top five:

Ningxia Film Group

Ningxia Film Group is the official government owned production company of Ningxia Autonomous Region, a tiny northern Chinese province that borders Inner Mongolia. The company landed at the top of this list by virtue of a single film, Painted Skin: The Resurrection, the only film it has ever produced. Ningxia’s President, Hong Yangtao explained that he had only one chance at making a movie: “We shot this film to survive.” His strategy for producing and launching Painted Skin 2 has resulted in mainland China’s most successful film ever, so it’s very possible that Ningxia may avoid the fate of becoming a one-hit wonder.

China Film Group

With all of its financial strength, distribution clout, and government influence, it’s surprising that China Film Group’s production division has managed only a 3 percent share of its home market this year, far less than any one of the Hollywood studios have captured in China. The Beijing-based company is a government-owned behemoth that is far more influential in the distribution sphere, where it has played a role in releasing 19 of the top 20 grossing films of 2012. Under its Chairman Han Sanping, CFG is preparing for an upcoming IPO.

Huayi Brothers

China’s most powerful independent (i.e., non state-owned) entertainment conglomerate, Beijing-based Huayi Brothers is a diversified company engaged in film and TV production, distribution, theatrical exhibition, and talent management. Huayi Brothers trades on the Shenzhen stock exchange at a market capitalization of US $1.5 billion. The company’s Wang Brothers are skilled at attracting top directors, and they consistently rank among China’s market share leaders. If any Chinese company can challenge Hollywood’s studios for market dominance in China, Huayi Brothers is certainly a top contender.

Bona Film Group

Like Huayi Brothers, Beijing based Bona Film Group is also an independent, publicly traded company engaged in both production and distribution of films. Trading on the US NASDAQ exchange, Bona’s current market capitalization is US $345 million. Under President Yu Dong the company has been a reliable supplier of blockbuster hits in recent years, and usually captures at least a 10 percent share of the domestic market. Bona is one of the more internationally-oriented Chinese companies, with interests in Hong Kong and the United States, and is now 20 percent owned by News Corp. Look to Bona to be one of the next producers of a crossover hit that breaks out internationally.

Enlight Media

Under CEO Wang Changtian, Enlight Media rarely mis-fires in its production and distribution of feature films.  Squarely focused on the action and romance genres, Enlight usually places several films in China’s top 20 grossers, and currently has in release the country’s fourth highest-grossing Chinese language film, The Four. Enlight is also a major player in China’s TV series production and distribution businesses. Under the leadership of its CEO Wang Changtian, the publicly traded, Beijing-based company has achieved a market capitalization of nearly US $1 billion.

Companies that didn’t make the top 15 ranking above but that are worthy of mention include Shanghai Toonmax, Stellar Pictures, Xiaoxiang Film Group, Henan Film Studios, DMG Entertainment, and Dadi Films.

Too many production companies are competing in China for scarce resources—and for even scarcer quality scripts. If the PRC’s film regulators are serious about making their domestic industry more competitive, they should focus less on protectionist measures and more on encouraging consolidation and cooperation among the industry’s disparate players.

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.

China Film Personality: Han Sanping

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by Robert Cain for China Film Biz

March 7, 2012

This week Hollywood welcomes one of the Chinese film industry’s most important and influential players, Han Sanping (韓三平). As Chairman of the Chinese government/business mega-conglomerate China Film Group, Han is responsible for more financing, production, distribution, export and import of films than everyone else in China combined.

Han is visiting Los Angeles this week to meet with executives at several studios (Universal, Sony and Disney have been specifically mentioned in the industry trades) to seek out co-producing partners, and to consider requests for precious import quota slots. A couple of clients of mine are meeting Han this week to ask that he allow their blockbusters to screen in Chinese cineplexes.

There is no real Hollywood equivalent to Han, because he wears so many hats: producer, director, studio executive, government administrator, and mentor. If you took Jack Valenti, Lew Wasserman, and Steven Spielberg and rolled them into one, you’d begin to get an idea of Han’s power and influence in China. He has overseen the production and distribution of hundreds of movies and television series, he manages the Beijing Film Studios, and he has final greenlight authority on all co-productions with foreign partners.

Han is also widely recognized as a kingmaker who has nurtured the careers of such top directors as Chen Kaige, Zhang Yimou and Feng Xiaogang, and of many leading Chinese actors and actresses as well.

The kingmaker’s own career was nurtured and mentored by my new friend Liu Cheng. Han began producing movies nearly 20 years ago, which makes him the equivalent of an OG in China because there are few film veterans who can claim that sort of longevity. He has had a producing role on numerous Chinese blockbusters including Red Cliff (directed by John Woo), The Warlords (Peter Chan), Shaolin (Benny Chan) and Aftershock (Feng Xiaogang), and on such Hollywood films as Mission Impossible III and The Karate Kid. He also directed two of China’s highest grossing films of the past three years, the star-studded, Chinese Communist Party sponsored propaganda films The Founding of a Republic and The Beginning of the Great Revival.

Last year I helped Han to evaluate Hollywood visual effects companies for one of his films, and as a result I gained some access to his inner circle. I’ve heard that his trip this week has yielded at least one major surprise: there has been a marked negative shift in the major studios’ attitudes toward co-production with Chinese partners.

Apparently, in the wake of the Chinese government’s recent announcement regarding its relaxation of film import quotas and its enhancement of revenue sharing, the studios’ appetites have diminished for co-production as a means of boosting their China business. With enough quota slots now for each major studio to average 5 or 6 Chinese releases per year, and with their share of revenue now bumped up to 25 percent of box office gross, the Hollywood giants see little incentive to deal with the hassles of Chinese co-production. An unanticipated consequence of Beijing’s opening up of the Chinese market is that it may encourage less Hollywood cooperation, not more. Most of the studios have had trying experiences in the past with Chinese partners, and any incremental revenue they might theoretically earn by making movies in China isn’t considered sufficient compensation for the risks, creative restrictions, and headaches they would have to bear.

From my vantage point this is a good thing. China still wants access to Hollywood expertise and market clout, and the less the studios want to provide these things the more opportunity there will be for entrepreneurial American and other foreign companies. We may see more Chinese money begin to flow into high profile independent productions.

Han Sanping won’t have to concern himself with these issues for much longer; he’s nearing the mandatory retirement age of 60, and it’s widely anticipated that he will soon be leaving his post. Some speculate that Zhang Qiang, a younger protégée of Han’s, will step into the China Film Group chairman’s seat later this year.

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.

Hands In the Cookie Jar: Chinese Box Office Skimming Said to Reach 40 Percent

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By Robert Cain for China Film Biz

February 26, 2012

Back in the mid-2000’s when I spent three years in Russia setting up and running movie production companies, I often heard stories about exhibitors skimming revenues from the box office and reporting considerably shrunken figures to distributors. One audacious Moscow theater operator actually told me he’d decided that weekend revenues were his alone to keep, and that he shared only in the weekday receipts.

Having observed numerous similarities in the ethics (or occasional lack thereof) between the Russian and Chinese film industries, I’ve often wondered whether a similar phenomenon exists in China.

So when I traveled to the People’s Republic in mid-February I made a point of visiting several people who are in a position to know, and I asked them. Their unanimous consensus was that extensive exhibitor cheating exists in China, and those who are closest to the source assured me that under-reporting runs as high as 40 percent of total box office takings.

My interviewees included a theater owner/operator, a distributor, several entertainment attorneys, and most significantly, two box office reporting software company executives. Because box office skimming is a crime punishable by severe penalties, these individuals spoke with me with the understanding that they would remain anonymous.

Although I have no access to the underlying data, enough experts independently confirmed the 40 percent figure that I can publish it with some confidence, as outlandish as it may seem. Only the distributor thought this figure was too high—they were convinced that skimming runs no higher than 20 percent—but they admitted to having no real basis for backing up that assertion.

The parties closest to the data, the box office reporting software company executives, claimed to have deep knowledge of cinema sales and operations. They told me they have direct access to actual ticket sales figures and also to the numbers reported to distributors. They said that, although SARFT requires cinemas to install sophisticated point-of-sale reporting systems at all box office locations, there are several ways in which exhibitors can short-change distributors on rental revenues.

One software executive said that his company, which has a significant share of the market, actively helps theater operators to cheat. He builds ‘back-door’ mechanisms into his tracking software that allow monies to be diverted out of the officially reported revenue figures. He said that SARFT officials hate the cheating because it robs them of tax revenues and also, presumably, of the ability to funnel more money into their own accounts.

Another executive told me that online ticket selling, which accounts for a considerable share of movie ticket sales, also offers opportunities for mis-reporting. His company provides a platform for marketing, sales facilitation, tracking and delivery of tickets to end users, so he sees every aspect of the transactions. He said that theater owners offer bundled combos where a moviegoer can buy two tickets, two popcorns, and two drinks for say, 200 renminbi (RMB) (around US $32). The tickets would be worth 120 RMB if purchased separately, but the theater operator allocates 140 RMB in revenue to the popcorn and drinks, leaving just 60 RMB to the value of the tickets, thus cheating the distributor of 50 percent of their rightful revenue.

Sometimes the under-reporting is highly transparent and official. A theater operator told me that China Film Group collected 1.1 billion RMB from ticket sales for Transformers 3. But, as the story goes, when it came time to pay Paramount its share, CFG told the studio that because it had already made more than enough money on the movie, its revenue share would be limited to the first 900 million RMB in receipts. CFG would be keeping all the revenue on the last 200 million, and there was nothing Paramount could do about it.

Apparently China’s film industry officials have a strong sense of fairness about their business. But oddly enough, it only runs one way. I’ve yet to hear a story about a Chinese official saying they’d made too much money on a picture and consequently feeling compelled by a sense of fairness to give some back.

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.

Lionsgate to Receive Chinese Co-Financing on 10 Films– Or Maybe Not

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By Robert Cain for China Film Biz

February 23, 2012 from Tokyo, Japan

(Note: In order to protect the interests of a business partner I have modified this article to remove all references to the name of an investor and his fund.)

I have word directly from a Chinese investor that his fund struck a deal on Wednesday morning with Lionsgate to co-produce a slate of 10 films over the next three years. The fund says it will invest 50 percent of the total production costs in a ‘portfolio’ of Lionsgate movies, primarily in the action genre, with a wide range of budgets.

The investor, who wishes to maintain anonymity for himself and for his fund, told me the news in person in a meeting on Wednesday afternoon in Beijing.

He also told me that his fund will invest in a low-budget movie to be directed by Michael Bay, for which the director and crew will be paid not in cash but in equity participation in the project. And he said he’s planning to invest in the Avatar sequel together with China Film Group and Fox.

However, Lionsgate has yet to confirm the news of their supposed deal, and I am inclined to take the investor’s pronouncements with a grain of salt.

As we’ve seen in recent weeks and months, numerous claims and pronouncements have been made by Chinese investors regarding their intended partnerships with American film producers. And although I’m glad to know of their interest in Hollywood, I must caution readers that many of these purported deals will fall well short of expectations.

Exaggeration and mis-represenation are not uncommon in Hollywood and elsewhere, but they are unfortunately endemic in China. With so much naïve exuberance in the U.S. about potential fresh sources of capital from China, and with so many Chinese individuals and institutions flush with cash and opportunity, there are high hopes on both sides. With few long-term relationships or experienced guides to shepherd deals, many hopeful fundraisers in Hollywood will be burned with false promises, and many eager investors in China will be bilked of their renminbi.

As a producer, fundraiser and consultant who has for many years been in the middle of the U.S.-China film trade, I believe it is important to root out dishonesty and inefficiency wherever it occurs. The main reason that I started writing China Film Biz was to bring a clear and sober perspective to the cross-Pacific dialogue and to help others benefit from the mistakes I’ve made. I see it as very much in everyone’s interest to help elevate the level of integrity and accountability in U.S.-China entertainment dealings.

It is in this very spirit that my friends at TransAsia Lawyers, a prominent entertainment and media law firm based in Beijing, have launched ChinaGoAbroad, a web-based information and transaction platform dedicated to bringing new standards of transparency to inbound and outbound investments in and from China. They do so with the full blessing of SARFT, China’s state administration that oversees all media investments.

ChinaGoAbroad’s mission is to serve as a resource and matchmaker to facilitate business and to help honest dealmakers find one another. In this age of instant communications, of internet blogs, of Twitter and Sina Weibo, the posers and charlatans had better watch out.

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.