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 and at