Legendary East’s Fortune Cookie Crumbles

By Robert Cain for China Film Biz

December 30, 2011

Legendary Pictures’ China ambitions ran into a great wall of investor resistance yesterday, as Hong Kong financing partner Paul Y Engineering (PYE) announced that it has been unable to raise sufficient investor interest to complete its $220 million investment in Legendary East, a planned three-way partnership with Legendary and Beijing-based Huayi Brothers.

Here’s the first part of the press release that was issued by PYE and its parent company, PYI:

The most revealing phrase in the press release is the statement that “some or all of the parties… may continue, in the near term, to discuss potential changes in the transaction structure…”

While PYE Chairman James Chiu blamed “the current difficult environment of the capital markets” for his failure to raise the necessary funds for the joint venture, I strongly suspect that other factors were the real reason for his quashing the deal. As I wrote in a previous post, the deal terms as originally announced were decidedly lopsided in Legendary’s favor, and in any event it made no sense for a construction firm like Paul Y to be putting shareholder money into movies, a business about which PYE’s senior executives openly admitted they know absolutely nothing.

PYE had originally explained its participation in the Legendary East joint venture as an effort to diversify its business into a more profitable industry sector with less cyclicality than its core construction operation. But as my former boss, Harvard Business School professor Michael Porter, would tell you, this is just the sort of misguided thinking that almost always leads to ruin.

In a study I conducted for Porter that led to a seminal article he wrote for the Harvard Business Review, we found that corporate diversifications like the one PYE proposed most often dissipated instead of created shareholder value. Investors are almost always better served by making their own diversification decisions within their personal stock portfolios instead of having corporate managers try to make these diversifications for them.

PYE’s and PYI’s investors no doubt took issue with their management team’s intentions and refused to go along.  PYI Chairman Tom Lau made himself an easy target for investor revolt in November when he said. “We do not understand the business of motion pictures nor do we pretend that we can contribute anything more than money.” It was one of the most candid statements I’ve ever seen from a major company Chairman, and also one of the least confidence inspiring.

I’m a big fan of Legendary, and I hope they find a way to realize their ambitions. My friends at the company tell me they’re pushing ahead with their China plans, and for their sake I hope that either PYE or other investors will provide the capital they need. But for Legendary to succeed in the long run in China they’ll have to do so on business terms that make sense for both sides. Even if the initial capital raise had succeeded, the PYE-Legendary East deal wasn’t a good one for PYE or for Huayi Brothers, and therefore looked to me like a partnership that would have been doomed from the start.

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 Box Office: Zhang Yimou’s ‘Flowers’ Still Smell Sweet

By Robert Cain for China Film Biz

December 27, 2011

For the week ending December 25th, 2011, Flowers of War and Flying Swords of Dragon Gate once again held the first and second spots in what was a very good but not great weekend at the Chinese box office.

The $71 million cumulative box office total may look good at first glance—indeed, it was the second best week of 2011 after Transformers 3’s opening week in July, and Flowers set a new single-week record for a Chinese film. But the total box office was actually up only 4 percent on a Chinese RMB basis compared with the same week last year. And considering that there are 45 percent more movie screens operating across China now than at this time last year, the past week’s box office looks downright unimpressive by comparison.

The problem may have been the oversaturation of Flowers and Flying Swords. Those two pictures grabbed up more than 80 percent of China’s 9,000 screens, leaving little else in the theaters for moviegoers who might have wished to see a different film. The strongest new opener, China Film Group’s romance Dear Enemy, managed just $6.5 million in sales, and the second best, The Allure of Tears, brought in $3.8 million. The rest of the field, a mix of 3 holdovers and 3 new releases, every one of them Chinese, brought in a grand total of $600,000.

Flowers of War will pass Beginning of the Great Revival this week to become the highest grossing Chinese film of 2011. With a couple more strong weekends it could possibly challenge Kung Fu Panda 2’s  $92 million China gross for the number two spot among all films released this year. But even if it does reach that lofty height, Flowers will only recoup a third or so of its negative cost in China. In order to break into the black it will have to gross, at minimum, $120 million in the international marketplace. This has only happened once before for a Chinese film, when Crouching Tiger, Hidden Dragon became a breakout hit in the United States back in 2001. Flowers of War lacks the compelling narrative, the exotic appeal, and the universally resonant themes that Crouching Tiger offered, so the possibility that Flowers might replicate those numbers seems remote.

The most important box office news this week is that China’s cumulative gross for the year has definitely crossed $2 billion, making it only the third country in history, after the U.S. and Japan, to reach that mark. Even more remarkably, it was only last year that China crossed the $1 billion mark for the first time ever. The above analysis notwithstanding, a $71 million box office haul in one week would be extraordinary anywhere in the world outside North America; it’s indicative of China’s incredible growth that the number fails to impress only by comparison against last year’s numbers.

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 and the Changing World Map of the Film Business

By Robert Cain for China Film Biz

December 25, 2011

In his thoughtful article in the latest issue of McKinsey Quarterly, my former work colleague Pankaj Ghemawat encourages senior business executives to shake up their thinking by adopting a more global perspective on their businesses. Ghemawat suggests that leaders can “enhance their intuition about the opportunities and threats inherent in our semiglobalized world” by using “rooted maps”—an example of which is provided below.

Source: “Re-Mapping Your Strategic Mindset” by Pankaj Ghemawat, McKinsey Quarterly

This global map of the U.S. film industry sizes each country according to its contribution to 2009 U.S. box office revenues, and colors it based on the market share captured by U.S.-made films. Those countries colored light blue are the ones where U.S. films capture 85 percent or more of the national box office. The map provides a quick visual reference as to where America’s business currently is, and the strength of local competitors.

If we updated the figures in this map to reflect 2011 box office results, two noticeable changes would occur: the U.S. map would shrink slightly, and the map for China would double in size to reflect its rapid recent market expansion.  But if we adjust for the amount of money that actually flows back to the U.S. from China—net of the exorbitant distribution fees China’s monopolistic import structure charges—its map would shrink back down to about the size of Venezuela.

China should thus be a top priority for Hollywood’s executives for two reasons: 1) China’s share of the global market will continue to expand and before long will overtake that of the U.S.; and 2) If they intend to participate meaningfully in the movie industry’s future growth, Hollywood’s leaders will need to find ways to repatriate a larger share of China’s domestic revenue.

An analagous map for China reveals a very different situation than the one for the U.S. So little of the Chinese film industry’s box office comes from outside the country that other territories appear as mere specks on China’s world map.

Source: Pacific Bridge Pictures analysis

Of course, China’s film industry leaders would like to paint a very different picture in the future. The Communist Party is investing mightily to expand the country’s cultural exports in the effort to extend its ‘soft power’ around the globe. As China’s domestic business grows, and as the infrastructure and skill base to support it improve, China’s ability to compete internationally should theoretically grow too.

But China’s internal capabilities are still limited, so it will need outside help to reach its global market share goals. Severe shortages of experienced, commercially capable screenwriters, directors, producers, and other talent mean that few films made in China without foreign partners are able to attract international attention.

Only two places can truly offer the sort of help that China needs: Hong Kong and Hollywood. The degree to which Hollywood benefits from China’s future growth will depend, in large part, on decisions that Hollywood’s executives make now and in the very near future, and whether or not they take a cue from their Hong Kong brethren.

Hong Kong is extremely well positioned to support and benefit from the Chinese film market. With its cultural, linguistic, and geographic proximity, and its established talent base, Hong Kong is already a major partner for China’s production industry. Hong Kong’s producers offer a crucial understanding and skill set that China’s producers lack: how to make films that appeal to international audiences (not to mention domestic Chinese audiences). Very few Chinese films ever achieve distribution outside China, and those that do tend to fall flat. As the chart below illustrates, Hong Kong/China co-productions perform far better internationally than do purely Chinese films.

Source: Pacific Bridge Pictures analysis

America also clearly has a great deal to offer China, far more than Hong Kong can. Hollywood’s movie development, production and distribution system has dominated the global market for a century. But as China’s capabilities develop—and they most certainly will, with or without Hollywood’s help—China will become an increasingly potent global competitor. Hong Kong’s producers have already entrenched themselves in the Chinese system; some 70 percent of China’s co-productions in recent years were made with Hong Kong partners. The question now is whether Hollywood will do the same.

During the past few years, Chinese producers and financiers have demonstrated a strong appetite for hiring and working with U.S. talent. The degree to which U.S. players get to participate in the Chinese system will be largely up to them. Those that seize the chance and recalibrate their skills to work together with Chinese partners will open up an entirely new world of opportunity for themselves.

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.

WTO: WTF? Why Doesn’t China Have to Play by the Rules on Movies?

By Robert Cain for China Film Biz

December 23, 2011

Will China ever live up to its obligations to loosen the importation of Hollywood movies as required by World Trade Organization (WTO) rules?  Don’t bet on it.

This month marked two major anniversaries for China and the WTO. December 11th was the 10th anniversary of China’s entry into the 153 nation global trade club, an accession that took 15 years of negotiation before it was approved. And December 21st was the 2nd anniversary of the WTO’s formal denial of Beijing’s request to maintain its restrictions on imports of foreign movies and television programs. Although the WTO told Beijing in no uncertain terms two years ago that it had to start playing by the same rules as all the other 152 member countries with respect to movie imports, Beijing has yet to budge.

Before China’s accession in 2001, both China and the major developed countries like the U.S. eagerly lobbied for the PRC’s entry into the WTO. China sought freer international access to its exports of textiles, tires, and microwave ovens, and the developed nations saw opportunities both for trade and also to instill the values of democracy and human rights in China. Hollywood, for its part, relished the chance to open up a market of more than a billion potential paying customers for its movies and TV shows.

Ten years on, China has won big; Hollywood and those hoping for political change, not so much.

Owing largely to its WTO access to global markets, China since 2001 has enjoyed one of the most successful economic periods ever in global history; its global trade has quintupled, and GDP as measured in dollar terms has quadrupled. Hundreds of millions of people have been lifted out of poverty. China now has the world’s largest middle class, and dozens of billionaire fortunes have been made.

But those in the U.S. and other developed nations have generally seen China’s WTO membership as a bust for them. Even though it has mostly abided by the letter of its accession agreement, which required Beijing to relax over 7,000 tariffs, quotas, and other trade barriers, it’s a widely held perception that China has often ignored the spirit of the agreement and that the benefits of rising trade have accrued in a lopsided manner to the PRC.

As for politics, the WTO has had virtually zero effect on China. If anything, China’s conservative political values have only hardened over the past decade. Speaking to his countrymen just four months after China’s WTO entry, then prime minister Zhu Rongji warned that “Western hostile forces are continuing to promote their strategy of Westernizing and breaking up our country,” and he accused these people of conducting “infiltration and sabotage.” It’s important to note that, although Zhu didn’t specifically mention Hollywood in his speech, the western ideals and cultural values expressed in Hollywood’s films were and continue to be viewed with extreme suspicion by China’s leaders. As far as the U.S. film industry’s hopes went for friendlier trade relations with China, Prime Minister Zhu might as well have been pointing his finger directly at Hollywood.

So when the WTO told Beijing two years ago that it was violating its commitments to free trade and that it would have to get its act together on film imports, the Chinese felt they had much to lose and little to gain by complying.

Specifically, China was required by the WTO to make two major changes in its policies on film imports. First, that China’s limitation of the right to import films to just two state-owned companies, China Film Group and Huaxia, be abolished. The state monopoly on film importation is clearly anti-competitive, and it allows China to set below-market pricing for the films it allows into the country. As a result, although China is now undoubtedly the biggest foreign market for American movies, with perhaps $7 billion in legitimate and (mostly) black market revenue generated annually by Hollywood films, very little of this revenue—about $200 million by my estimate—flows back to the U.S. The state monopoly creates a double whammy for foreigners: it eliminates their ability to negotiate fair deal terms with legitimate buyers, and it also encourages the system of illegal piracy that imports and distributes the hundreds of films each year that aren’t allowed in via official channels.

The second WTO demand was that China end its prohibition against foreign invested enterprises’ (FIEs) ownership of film import and distribution companies. As Berkeley professor and China law specialist Stanley Lubman wrote in an April, 2011 article for the Wall Street Journal, “The exclusion of FIEs violated China’s obligation to treat foreign enterprises the same as Chinese enterprises.” Control of the import and distribution of their films would enable foreign companies to enjoy a much greater share of the value they generate.

Two other major barriers to film import that Hollywood would like to see abolished are China’s 20-film annual import quota, and its censorship review of each and every imported film for “content which could have a negative effect on public morals.” Unfortunately for Hollywood, the WTO has not pursued these two barriers to film imports, reasoning that other WTO member countries already have similar restrictions in place.

In any event, the rather generous deadline the WTO imposed for China’s compliance with its edicts came and went back on March 19, 2011. China hasn’t made a single change. Despite maintaining a system of trade barriers that former MPAA CEO Dan Glickman called “among the most restrictive and burdensome in the world,” China has been allowed to continue its unfair trade practices with impunity.

So what happened? After all this time and negotiation, and despite relentless pressure from the MPAA, Congress, and U.S. trade representatives, why is China still not playing by the rules to which it committed when it joined the WTO?

The answer, simply, is that China doesn’t want to and no one can make them.

Control over the content that reaches its population is a key pillar of the Chinese Communist Party’s political power. “Public morals” are a genuine concern, but even more than that, censorship is designed to protect the status quo of authoritarian rule. Any ideas and values that aren’t handed down by the Communist Party to the people are potential threats to the legitimacy of government power. An attack on censorship and content controls is tantamount to an attack on the Chinese government itself.

It’s not that China can completely ignore the WTO’s rulings, but so far it has managed to get by paying lip service to its obligations. When the March compliance deadline arrived, China responded with a terse, one-page “status report” that said it “respects the ruling and recommendations of the [WTO]” but also expressed “serious concerns” about the [WTO’s] Report.” It was an artfully noncommittal response. As Lubman put it in his WSJ article, ‘Formalistic and uninformative, the one-page ”status report” gives no hint of how or when China will respond to the WTO.’

So China is deeply entrenched in its position, prepared to wage a much fiercer battle over film imports and restrictions than the WTO, or even the U.S., seems willing to stomach. Assuming that Congress doesn’t have the political will to retaliate by imposing harsh import penalties on Chinese products, Hollywood’s only real options are either to create some sort of trade embargo of its own to pressure the Chinese to accept changes, or to simply abide by the status quo. Either way, American movies will continue to flow into China, whether by legitimate channels or not.

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.

Dragons and Flowers and Swords, Oh My! A solid box office weekend in China

By Robert Cain for China Film Biz

December 19, 2011

The hotly anticipated box office duel between the Zhang Yimou/Christian Bale historical epic The Flowers of War and the Tsui Hark/Jet Li wuxia action pic Flying Swords of Dragon Gate came to a head last week with solid but not record-breaking results.

Both films did brisk business, with Flowers pulling in $23.9 million versus Flying Swords’ $22.3 million, but their producers were undoubtedly hoping for more.

With its reported $91 million budget, Flowers of War needs to do Avatar-sized numbers (that film cumed $208 million in China in 2009-10) to have a profitable theatrical run, but it failed even to exceed the opening of the $1.4 million budgeted Love is Not Blind, which took in $28.5 million in its opening week back in early November.

Although it’s too early to say for sure, it looks unlikely that Flowers will break $100 million in Chinese ticket sales, much less the $200 million it needs. Given its limited international prospects due to its dark and China-specific subject matter, Flowers could earn the unwelcome distinction of becoming the biggest money-loser by far in China this year.

Bona Group’s Flying Swords also slightly under-performed relative to expectations, but with its much lower $35 million budget and its stronger international appeal, it will be much more likely to recoup its investment. Both films will be pinning their hopes on a strong finish to 2011; as in many other territories, the last few weeks are traditionally among the best of the year in China.

Overall, box office totaled $50.8 million for the week ending December 18th, a 34 percent increase over the same week last year, when Let the Bullets Fly began its record-breaking run with a $27 million opening.  It was also a 122 percent jump from last week’s $22.8 million.

Flowers’ and Flying Swords’ respective box office performances made for the 4th and 5th best opening weekends of 2011, and together with The Adventures of Tintin they raised the count to 30 films that have grossed $20 million or more in China since January 1st.

By my tally, as of last Sunday the PRC’s total box office for 2011 now stands at $1.92 billion, with 13 more movie-going days to go. If Flowers and Swords hold up, as I expect they will, and if the year’s remaining 9 new releases do at least a fair amount of business, China will exceed $2 billion for the first time. Considering that total national box office was less than $200 million just 7 years ago, that would be an auspicious way for the film industry to enter the new 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.

How (and why) to Qualify Your Film as an Official Chinese Co-production

By Robert Cain for China Film Biz

December 18, 2011

If you’re not making films in China already, it’s time to take a serious look at doing so.  Just as China has become a dominant international player in many other industries, it has also captured a steadily increasing share of the global theatrical revenue pie, mainly through the brisk growth of its domestic box office.

Assuming current trends continue, and chances are very good that they will, China will soon overtake the U.S. and become an increasingly influential force in the global film business.

Because China’s stringent import quotas and its rules regarding box office splits limit the share of the domestic pie that goes to foreign-made films, it is growing more and more economically attractive to work with Chinese partners and make films that can meaningfully participate in that market’s domestic revenues. The best way for a non-Chinese producer to do so is produce movies that qualify as official co-productions. Co-productions are the only type of film foreign producers can participate in that are not subject to import quotas and that return to the foreigner a “fair” share—that is, around 40 percent—of the box office receipts.

Co-productions are also the primary vehicle in which most Chinese investors wish to participate with foreign partners. Whereas there are few Chinese financiers who will even consider funding a wholly foreign production, many will gladly invest as much as 50 percent–and in some cases as much as 70 percent–of the budget of a co-production.

There exists a common misperception in America that because so few U.S.-China co-production films have been made, that it must be difficult to make them.  Many in Hollywood seem to think that The Mummy 3The Karate Kid, and The Forbidden Kingdom are the only co-pros to have been completed. But in fact Japanese, German, Korean and Hong Kong producers are investing heavily in co-productions in China. In 2010, 95 films applied for co-production licenses and 63 were approved, and in 2011 at least 30 co-pros were released in Chinese theaters.

No, making co-production films isn’t necessarily difficult–I’ve done it myself–but there are quite a few steps involved so it’s important to be knowledgeable and well prepared. A good place to start is the State Administration of Radio Film and Television’s (SARFT’s) 2004 document, “Administration of Sino-foreign Cooperation in the Production of Films Provisions.” To save you the trouble of wading through all 23 articles of that document, I’ve abstracted the key provisions below.

The first few articles state that a co-production is defined as one between a Chinese production company that has obtained a lawful Co-Production Permit and a foreign production company; that the provisions govern all films made between Chinese and foreign producers, whether those films are made inside or outside China; and that SARFT is the governing body that oversees co-productions (many of the duties of administering co-productions are actually handled by a SARFT division called China Film Co-Production Corporation).

The document goes on to define three types of co-productions: 1) “Joint” productions, in which both the Chinese and foreign partners invest capital, labor and other resources and “share the interests and bear the risks jointly”; 2) “Coordinated” or “assisted” productions, whereby the foreign party contributes capital and carries out filming in China, and the Chinese Party assists by providing equipment, labor, etc. in exchange for compensation; and 3) “Production by appointment,” whereby the foreign party appoints the Chinese party to carry out production in China on its behalf.

Since only the first type, joint productions, is exempted from import quotas and allowed to share meaningfully in theatrical revenues, we’ll only concern ourselves with that type here.

Co-productions must also conform to all the applicable laws and censorship rules that govern domestic Chinese films, and the producers must all be in good standing without any banned films to their names.

Now, the nitty-gritty of the application process.  Articles 9 and 10, which are reproduced below, delineate the required submission materials and procedures:

If and when a permit is issued, it is valid for two years.

Another key provision deals with hiring: “Where it is necessary to employ overseas major crew personnel for a joint production, it shall be approved by SARFT, and the proportion of the major actors of the Foreign Party shall not exceed two-thirds of the total number of the major actors.”

This hiring provision is extremely vague—the term “major actors” is often interpreted to mean all personnel of any kind. There are no strict requirements regarding who must be employed on a co-production, nor whether Chinese talent or themes must be featured in the film. Likewise, there are no strict requirements regarding the percentage of the film that must be shot in China; SARFT has the authority to allow co-productions to shoot partly or even entirely outside China. Suffice it to say that the more Chinese cultural elements, featured actors, crew, facilities and locations are involved, the better the odds of obtaining approval.

After the film is completed it must be submitted to SARFT, either in Chinese language or with Chinese subtitles, for review to determine whether it will be approved for domestic exhibition in China and for export.

Given the complexity of the process and the subjectivity of many of the key rules, foreign producers ought to be careful to choose a local Chinese partner who is well connected with the relevant government authorities and who has the fortitude to help take a project all the way through to completion. The difference between an approved co-production versus  an imported quota film or one that receives no Chinese distribution at all can often be measured in millions of dollars of profits captured or lost.

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.

SARFT Report Confirms It: China Box Office to Exceed $2 Billion in 2011

By Robert Cain for China Film Biz

December 16, 2011

SARFT Chairman Cai Fuchao picked an auspicious day, December 15, to announce the latest statistics for China’s cinema business. While two just-opened films featuring Christian Bale (Flowers of War) and Jet Li (Flying Swords of Dragon Gate) battled for moviegoers’ attention and drew huge crowds at the theaters, Cai dropped the news that box office revenue in China this year has already exceeded 12 billion RMB, or US $1.86 billion at 2011’s average exchange rate. Cai also noted that the country’s cinema screen count has crossed the 9,000 mark, a 45 percent increase over the 6,200 screens operating at year end 2010.

That 12 billion figure was for the week ending December 11, which means that there are still 3 more weeks in the year for China to extend its record breaking revenue surge. With last night’s screenings of Flowers of War and Flying Swords reportedly running at better than 90 percent of capacity and with ticket prices high$12.50 for Flowers and nearly $19 for the 3D Flying Swords—these two films alone will likely push China past $2 billion for the year.   

For those of us who closely track China’s film business, Cai’s announcement was like water in the desert, as SARFT only announces these figures a few times a year. Both the box office and screen count numbers were positive surprises for me. It now appears certain that box office growth will hit or exceed the 30 percent rate I had predicted. New screens have been opening at a rate of 8 per day, and the current screen count has surpassed my year-end estimate of 8,900.

Total revenue has expanded by a staggering 110 percent in just two years, and is up more than six-fold in the past 5 years. When compared with North America’s sluggish growth of less than 2 percent per year (actually, negative growth on an inflation adjusted basis), it’s mystifying that Hollywood’s major studios haven’t deployed teams of their best people to tackle the opportunities there.  Most are largely sitting on the sidelines, tossing a picture or two a year into Chinese theaters, and mainly just watching the China juggernaut pass them by.

For 2011, China’s box office growth has once again nearly quadrupled the country’s overall GDP growth rate, at least the 8th year in a row that it has done so. And contrary to those who think the industry is due for a downturn, I believe China’s film business is still in its infancy.  It will most likely pass Japan in 2012 to become the world’s biggest territory outside North America; give it 7 or 8 more years and China will pass North America. The reasons for this continuing surge have to do with income growth, improving availability and quality of films, and especially rising screen count. Cinemas will continue to be built because there is a huge shortage of them: China has dozens of cities with populations larger than Boston or Washington that still lack a single multiplex.

There exists a fairly predictable straight-line correlation between the number of cinema screens in a country and total box office revenue. If you build it, they will come, so long as you aren’t over-built. Even with its spectacular 10-year long cinema expansion, China is still the world’s most under-screened major market. Given the country’s projected GDP and per capita income growth, it can build another 50,000 screens and still not be anywhere near over-built. With upside like that, fortunes are just waiting to be made.

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 Box Office: The Calm Before the Storm?

By Robert Cain for China Film Biz

December 14, 2011

For the week ending December 11th, White Vengeance held the top spot for the second week in a row in a disappointingly sluggish frame at the Chinese box office. While Vengeance grossed a respectable $8.3 million for the week to up its cume to $21.4 million, the 5 new openers combined mustered an aggregated gross of only $5 million between them.

Tops among the new entrants was South Korea’s monster flick Sector 7, which picked up $2.5 million, good enough for second place and also making it the highest grossing Korean film in China this year. Far behind among the new releases was India’s Bollywood smash hit from 2009, the Aamir Khan starrer 3 Idiots, which despite amassing a $55 million total in India, managed a scant $1.2 million from Chinese theaters.

Priest and The Adventures of Tintin held onto the 3rd and 4th slots, respectively, raising their cumes to $5.3 million for Priest and $20.4 million for Tintin. Distributor DMG has done a respectable job in handling Priest; despite the conventional wisdom that horror doesn’t click in China—not to mention the fact that vampire movies are technically prohibited under SARFT rules—the picture has significantly over-indexed in its PRC release, earning an estimated 8 percent of its worldwide gross there.

White Vengeance became the 34th film of the year to join the 100mm RMB/$15mm club, double last year’s total of 17. Of those 34 films 17 are from Hollywood, 9 are from China, and 8 are China-Hong Kong co-productions.

Breakaway rom-com hit Love is Not Blind winds down its run with nearly $56 million, making it the second highest grossing Chinese language film this year behind Beginning of the Great Revival.

All told the week was one of the slowest of the year, with total receipts of $23.4 million, a 21 percent dip from the same week in 2010.  Many are hoping that the year-end box office will kick into high gear next week when the $35 million budgeted Tsui Hark/Jet Li wuxia action romp Flying Swords of Dragon Gate opens against the  Zhang Yimou/Christian Bale $90+ millon historical epic Flowers of War.  Both pictures represent big gambles for their backers, as each will need to make record or near record box office numbers in order to recoup its investment.

Indeed, with questionable prospects outside of China due to its dark subject matter and contrived, melodramatic plotting, Flowers of War will need to gross well over $200 million in China to pay back its reported $91 million investment. That would be double the existing record for a domestic release of a Chinese language film (Let the Bullets Fly at $111 million). Although director Zhang Yimou is a huge draw in China, and star Christian Bale is well known there, it’s unlikely that this film has the commercial juice to pull in the Avatar sized numbers it needs.

Flying Swords of Dragon Gate seems the likelier of the two films to achieve commercial success. The Tsui Hark/Jet Li pairing represents a potent box office combo with a long pedigree of success. The Once Upon a Time in China films they made together are well-loved around the world and propelled both of their careers as masters of the action genre. And it should also help that Flying Swords is a remake of the beloved classic 1966 King Hu film Dragon Gate Inn, one of my personal all-time favorites.

Still, as Chinese audiences have proven, nothing is certain and anything is possible. Both films should perform well, and it won’t be much of a surprise if this turns out to be the biggest week at the box office 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.

China’s Third Affliction and the Soft Power of Film

By Robert Cain for China Film Biz

December 11, 2011

China’s increasing focus on exporting its values could ironically spell opportunity for foreign filmmakers. Read on to learn how and why.

Back in 2008 the term “three afflictions” began appearing in the Chinese press to describe the major impediments that hampered China’s national strength during the past century. These were foreign aggression, poverty stemming from a weak economy, and the demonization of China by ‘hateful’ and ‘ignorant’ Western nations.

As the press stories told it, the first affliction was conquered by Mao Zedong when he unified China under the Chinese Communist Party (CCP) and expelled the last of the foreign occupiers, the Japanese. The second was thrown off when Deng Xiaoping declared “to get rich is glorious” and engineered the great Chinese economic miracle that continues to the present day.

With the first two afflictions licked, the CCP has now set its sights on tackling the third, which can be summed up as poor global public opinion. Government leaders are concerned that China’s negative image stands in the way of its international influence, and they’ve decided to do something about it.

A major party initiative to project China’s ‘soft power’—that is, its ability to shape global events by promoting its cultural values around the world—was announced in November by President Hu Jintao when he delivered a policy speech urging the country’s artists and writers to “get closer to the realities and lives of the masses, to uphold the spiritual torch of the Chinese nationality, and to produce a greater number of excellent works that live up to the history, the times, and the people.”

And then he said something that must have jolted every Chinese artist and intellectual: “Let all flowers bloom together and let hundreds of schools contend.” This statement directly echoed Chairman Mao’s famous 1957 statement “Let a hundred flowers bloom and a hundred schools of thought contend to promote progress in the arts and sciences and a flourishing socialist culture in our land.”

OK, enough history; what does all of this mean for filmmakers?

For one thing, it means money. Lots of it. Hu and his colleagues in the CCP are anxious that Western culture and values have gone global in a way that Chinese culture and values have not, so they are investing billions in the effort to export China’s own value system, building the world’s most modern soundstages, production facilities, post production houses, animation houses, and the like. ‘Soft power’ and the cultural means to promote it have been elevated to the highest level of strategic importance. This is tantamount to a war of words and ideas with the West.

But it takes more than artillery to win a war, it takes skilled personnel to operate the machinery. Winning minds takes the ability to generate creative ideas and the skills of persuasion, capabilities that the CCP sorely lacks. The post-1949 Communists have never before had to compete in the marketplace of ideas because in China they own and control the market.

To compete on the global stage China will need skills that it hasn’t needed before. Skills like story development and screenwriting for international audiences. Sophistication in marketing, advertising and distribution to successfully circulate movies to the far-flung corners of the globe. Above all, the ability to understand what makes international filmgoers tick: why they go to see the movies they do and why they don’t go to see Chinese movies.

These skills and capabilities aren’t going to magically appear inside China; they will almost certainly need to be imported. China’s top filmmakers—skilled directors like Zhang Yimou and Feng Xiaogang—have generated huge and loyal followings inside the country, but they do hardly any business outside. For instance, Feng’s recent Chinese blockbuster melodrama Aftershock, which racked up nearly $100 million in ticket sales in China, earned a paltry $62,962 from its release in the U.S.

More than either side realizes, China needs Hollywood. And for Hollywood’s legions of skilled but underemployed writers, directors, producers, rotoscopers, sound editors, marketers, distributors and other talents, this means money and opportunity. If you’re one of these talents, China has a shortage of your kind of expertise, and piles of cash to pay you for it.

Will seizing these opportunities mean selling out your values and becoming a mouthpiece (喉舌) of the Communist Party? Hardly. The past decade’s two greatest examples of films that successfully promoted Chinese culture were made by outsiders pursuing their own self-interest.

Crouching Tiger, Hidden Dragon, directed by Taiwan’s (!!!) Ang Lee, swept the world with beautiful and sensuous images of China, earning $200 million worldwide (nearly $300 million in 2011 dollars). And Dreamworks Animation’s Kung Fu Panda films have been highly praised by CCP members for their ability to entertain audiences both inside and outside China while remaining faithful to traditional Confucian values. The two Panda films have earned $1.3 billion in worldwide box office receipts, and  Dreamworks’ Chairman Jeffrey Katzenberg is in talks to set up a $300 million joint venture to make films in China. Although Katzenberg and Lee have done a great deal of good for China, no one is accusing them of being Communist Party lackeys or sympathizers.

Foreign filmmakers have an additional advantage over their Chinese counterparts: freedom. Remember Hu Jintao’s exhortation to “let flowers bloom and hundreds of schools contend”? His intent must have been to send a chilling reminder to the Chinese that their ideas and artistic contributions are welcome only so long as they toe the line of political correctness and espouse the party’s message. When Mao Zedong launched the original “100 Flowers” campaign in 1957, he encouraged uninhibited public discourse to uncover a variety of views and solutions to national policy issues. After six weeks of this ‘experiment’ with freedom of expression, Mao swiftly repressed or executed those whose views offended him. While Chinese artists must be extremely cautious to avoid a similar fate, the worst that can happen to foreign filmmakers is that their projects will be rejected by the censors.

As David Bandurski put it in his recent New York Times article, “China’s ‘third affliction’ is a self-inflicted malady” that it cannot cure by diktat. “Governments in countries with cultural censorship may no longer fear criticism at the hands of their own country’s cultural work, but they must endure the ridicule of the whole world.” China’s best hope for improving its global image will be to enlist outsiders—storytelling mercenaries, or modern-day de Toquevilles, if you prefer—to shine a light on that nation’s best, brightest, and most universal values. If you’re a Hollywood filmmaker, there is no shame in telling stories that explore the wonders of China’s magnificent 5,000 year old culture. If you can make globally successful films while you’re at it, China and its leaders will thank you.

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 Screaming For “Vengeance”

By Robert Cain for China Film Biz

December 9, 2011

Writer-director Daniel Lee’s period action epic White Vengeance led a crowded field of new entrants to take the Chinese box office crown last week with a gross of $13.1 million. This was enough to give the China/Hong Kong co-production the 7th best opening week for a non-Hollywood film this year, and the 13th best opening week amongst all films.

The rest of the field, which included a total of 7 new films, failed to excite moviegoers. Second place went to another China/Hong Kong co-pro, holdover East Meets West, which took in $3.4 million. Two of the openers were foreign imports: the critically panned Screen Gems action-horror flick Priest, which grossed $3.1 million for DMG, and Terry Gilliam’s France/Canada co-pro fantasy The Imaginarium of Dr. Parnassus, which picked up just $1.2 million for Huaxia.

Still, total box office for the top 10 films amounted to $30.6 million, a decent if not spectacular week.

It will take some major hits in the next few weeks for China’s total theatrical revenue to cross the $2 billion mark in 2011, but that’s exactly what might happen, with two big Chinese blockbusters slated to open against each other on December 15th. Tsui Hark’s $35 million action film Flying Swords of Dragon Gate, starring Jet Li, will go up against the $100 million Zhang Yimou-Christian Bale historical epic Flowers of War.

The rivalry between the producers of these two films will add some spice to next week’s box office competition. The feisty and outspoken Zhang Weiping, producer of  Flowers of War, has banned Bona Group, the producer-distributor of Flying Swords from carrying his film in Bona’s company-owned theaters, claiming that Bona has dragged its feet in paying Zhang monies owed on previous films.

Whatever happens, look for box office records to be broken as these two highly anticipated movies kick-off China’s peak holiday season.

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.