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

How to Deal With Classic Chinese Negotiating Tactics


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By Robert Cain for China Film Biz

September 3, 2012

This is the first of 2 articles on the topic. The following link will take you to Part 2.

While preparing recently for negotiations with a Chinese distributor that wants to acquire a film I’m producing, I found myself nodding in agreement with advice offered by attorney Steve Dickinson in an article he wrote for the Harris Moure law firm’s ChinaLawBlog. Dickinson describes several business negotiating tactics that are often used by Chinese businesses to win major concessions from their foreign counterparts, and he sets forth a few rules foreign companies can follow to counter those tactics.

With permission from Dan Harris of Harris Moure, I have summarized several key points from Dickinson’s article below.

In negotiating with Chinese companies, we often see the following tactics from the Chinese side:

  • The most common tactic is for the Chinese company to seek to wear the foreign side down. This approach has two variants. In the first variant, the Chinese side relentlessly introduces new issues as quickly as old ones are resolved, resulting in an endless negotiation. The second variant is for the Chinese side to make wildly unreasonable demands and then increasingly resist the objections and counter-proposals of the foreign company. Both variants are designed to wear down the foreign side in a war of attrition until they become exhausted and finally capitulate to the Chinese side’s demands. Successful use of this strategy relies on the foreign negotiators’ disadvantages with regard to time and expense. The foreigners are typically busy people with too much to do and who rely on costly attorneys to do much of their bidding, while the negotiators on the Chinese side are relatively low-paid functionaries who have no other job but to instigate and manage such endless negotiations.
  • Another effective tactic is the artificial deadline. Under this approach, at the very beginning of the negotiating process the Chinese side sets a fixed date for a public signing ceremony, at which high-level officers from both sides will participate amidst much pomp and circumstance. The date is set far enough in advance to ensure that parties negotiating in good faith would reasonably expect to reach an agreement. But then the Chinese side ensures that no agreement is reached,  either by engaging in re-negotiations and other delay tactics, or by refusing to concede on key points. Then, just a day or two before the signing ceremony, the Chinese side announces that the contract must be revised on one or more key issues in a way that entirely benefits the Chinese side, often because of some eleventh hour “emergency” in the form of a demand from a “government regulator” or an outside source such as a bank or insurance company. The Chinese side explains by saying, “we don’t want to go back on our word, but these other folks have forced us to do this.” Again, the plan is that the combination of the pressure of the impending signing ceremony and the general fatigue of the negotiators will result in a crucial concession favoring the Chinese side.
  • A third technique is for the Chinese side to revisit the key issues after the contract has been signed. In this strategy, after much negotiating the Chinese side signs a contract, conceding on the key issues. With the negotiation now behind them, the foreign side’s key negotiators, advisors and lawyers move on to work on other projects. After the agreed project has been started, and the foreign side has committed its people, funding, and other resources, the Chinese side then announces that certain key provisions of the contract must be changed, again, usually claiming this change is mandated by law, government regulators or banks and insurance companies. The only foreign personnel left at this point are the ones responsible for the project’s success, who have a strong incentive to allow for the change so the project can proceed. Often, these people do not fully understand the implications of the change the Chinese side is now demanding. They typically present the change to busy upper management as a minor technical revision and it gets signed. Everyone remembers how the initial negotiation was so troublesome and nobody wants to bring in “legal” to start the process over again.

Though crude and obvious, the three tactics work wonderfully well, so Chinese companies can be counted on to employ them. There is one simple antidote for each tactic:

  1. If the Chinese side uses the “wear ‘em down” technique, the foreign side should simply refuse to participate. The foreign side should firmly state its position and not bend unless and until the Chinese side agrees or at least moves closer to the foreign side’s position.
  2. Never agree to a fixed signing date. Make it clear that the signing ceremony will be scheduled only after the contract has completed final negotiations. Never allow the Chinese side to use a deadline as a tool. This seems like obvious advice, but we see the rule constantly violated. Chinese companies love signing ceremonies and foreigners fall into the trap because they do not want to cause offense at the start. The Chinese have contempt for a sucker, so refusing to go along on this obvious technique will not cause offense: it will instead earn the respect of the Chinese side.
  3. Make it clear that there will be no changes to the contract after signing and any attempt by the Chinese side to change the contract will be treated as a material breach, leading to termination and a lawsuit for damages. Chinese companies are well known for using the signing of a contract as the start of a new negotiating process, not the termination. If the foreign party is willing to accept this approach, then a clear procedure must be instituted on the foreign side that brings back in the legal and China advisory team. The neutral players on the foreign side must make the decisions. The decisions should not be made by the foreign side players who have already become committed to the project.

When faced with the difficulties of language and cultural barriers, we sometimes forget ourselves and allow for tactics and behavior that we would never tolerate in our home territory. Bearing these simple rules in mind can help to reduce the frustration of a prolonged, seemingly unfair negotiation.

Remember too that your Chinese counterpart may have very different motivations than yours and a different context for the negotiation. I have sometimes found myself seeking a harmonious, “win-win” resolution only to learn that the Chinese side was operating under a “winner takes all” strategy.

As Henry Kissinger wrote in his superb book “On China,” Chinese statesmen have a long and successful history of dealing with foreigners, one that is informed by the writings and teachings of such brilliant strategists as Sun Tzu, author of The Art of War:

To Sun Tzu… the successful [negotiator] waits before charging headlong into battle. He shies away from an enemy’s strength; he spends his time observing and cultivating changes in the strategic landscape. He studies the enemy’s preparations and his morale, husbands resources and defines them carefully, and plays on his opponent’s psychological weaknesses—until at last he perceives the opportune moment to strike the enemy at his weakest point. He then deploys his resources swiftly and suddenly, rushing along the path of least resistance, in an assertion of superiority that careful timing and preparation have rendered a fait accompli. The Art of War articulates a doctrine less of territorial conquest than of psychological dominance.

I’m not suggesting that every Chinese negotiation should be viewed as a battle of life and death. But neither should a foreign negotiator assume that their Chinese counterpart shares similar motivations, values, or business ethics. Anyone can and should benefit from Sun Tzu’s sage advice, that foreknowledge and preparation are crucial to a successful outcome.

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.