China’s Movie Industry is Growing Faster Than Any Other Country’s Anywhere, Any Time, Ever


Despite a Slowing National Economy, China’s Movie Business is Growing Faster Than Ever

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The Increasingly Astonishing Rise of China’s Film Business


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Rocket liftoff

By Robert Cain for China Film Biz

April 6, 2013

Year after year I keep telling myself that China’s box office growth has to eventually slow down. An industry that has been rising at a pace 4 or 5 times faster than its country’s GDP for over a decade can’t continue at that rate for long. But year after year I’m amazed that growth just keeps accelerating. From 2001 to 2007, theatrical revenue increased at a 34 percent compound annual rate (as measured in US dollars); from 2008 to 2012 the pace quickened to 43 percent per year. So far in 2013 China’s movie revenue has increased 51 percent, and there’s no sign of a slowdown.

This year, China’s theatrical movie business is growing more than 6 times faster than its GDP. North America’s theatrical business, in contrast, has been growing slower even than its recession-worn economy, at an annual rate of just over 1 percent since 2002

China vs N. America box office growth 2002-13

Over the past few days China enjoyed a national holiday, the Qing Ming Festival (清明节), and again moviegoers turned out in huge numbers, roughly doubling last year’s holiday box office total with over $31 million in revenue on Thursday and Friday.

There are three main factors driving this incredible growth:

  1. China is undergoing the largest and most rapid development of a middle class in human history. Hundreds of millions of people are moving up from subsistence to affluence before our eyes.
  2. Cinema construction is booming. Thousands of new screens are opening each year, affording millions of potential customers the opportunity—many of them for the first time ever—to enjoy the moviegoing experience in modern multiplexes.
  3. The Chinese population has embraced movies, both foreign and increasingly domestically made Chinese movies, with exuberance. High ticket prices and generally mediocre films haven’t deterred them from filling up theaters to capacity.

Things will eventually have to cool off, but with so many big cities still lacking multiplexes, it will be many years before China reaches a saturation point. The biggest factor constraining growth is the shortage of screens. There are currently about 15,000 movie screens in 3,700 theaters across the country, the second largest national total in the world, but with its 1.3 billion population China is still woefully under-screened, with just one per every 90,000 people. The U.S. has almost 40,000 screens, or roughly one per every 8,000 people, according to the MPAA. To reach the U.S. level of screen density per capita, China would have to build an additional 150,000 screens.

Even if we assume China never gets anywhere near that massive screen count, and even if we assume that the growth trend slows down, it’s inevitable that China will soon have a much, much larger movie business than North America. For the sake of illustration let’s make a few conservative assumptions:

1. Box office growth in China slows down to 30 percent for the next 3 years, then 20 percent for the following 4 years, then 10 percent for the following 5 years until 2025.

2. Growth in North America maintains its 1.5 percent historical annual growth.

What we wind up with is a picture like this:Projected b.o. China vs N. Am thru 2025

Under conservative assumptions, we’ll see China’s gross box office surpassing that of  North America by 2018, and going on to double North America by the middle of the next decade. No other territory will come close even to North America, except possibly India. Hollywood’s century of hegemony over the global movie business will clearly soon come to an end.

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.

Studio Report Card 2012: A Roller Coaster Year for U.S. Distributors in China


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By Robert Cain for China Film Biz

December 28, 2012

2012 has been an up and down year for Hollywood’s studios in China, offering a rising bounty of distribution revenues amid a series of sometimes gratifying, sometimes unsettling, but almost always surprising gives and takeaways from the unpredictable Chinese government’s film regime.

Early on, the Year of the Dragon looked to be a propitious one for Hollywood, perhaps the beginning of a long-term reign of market dominance for American films. But by summer the bloom was off the rose and Hollywood’s leaders were confronted with the question so many ‘foreign barbarians’ have faced throughout history: how to deal with the Middle Kingdom and win.

On the positive side, 2012 was the year in which China finally capitulated to years of MPAA and WTO pressure and meaningfully loosened restrictions on the import and distribution of foreign films. On the other hand, it was also the year in which China began making liberal use of blackouts—“domestic film protection periods,” in PRC parlance—to manage the grosses and maintain at least a 50 percent market share for domestically made films. By year’s end the studios had more to worry about in China than they ever did before.

None of this would matter so much were it not for the fact that China has clearly emerged as the world’s most important growth opportunity for Hollywood. For more than a decade the mainland’s aggregate box office has grown at a pace three to four times faster than its overall economy, and in 2012 it surpassed Japan to become the second largest film territory after North America.

The analysis presented below provides what I hope is a valuable snapshot, and a few useful insights, about where American distributors now stand at year’s end.

To conduct this analysis I reviewed the box office results of the more than 40 American films that released in China between January and December, 2012. These included both revenue-sharing ‘quota’ films and ‘flat fee’ imports. I classified each film as belonging to a single U.S. distributor, although in some cases multiple companies were involved. In deciding which film belonged to whom I assessed, as best as I could, which company was receiving the distribution receipts from China.

While the PRC’s rapidly rising revenue tide has lifted all of Hollywood’s boats, the benefits have not been equally apportioned. Twentieth Century Fox, for instance, grossed more than twice as much in the mainland as second place finisher Warner Bros. Universal lagged behind the other 5 majors, both in aggregate box office and in average gross per film. Although Lionsgate finished just behind Universal, the mini-major has come on strong in recent months to establish itself as a solid player at China’s multiplexes.Aggregate bo by studio 2012

Some might point to the outlier success of Titanic 3D ($154.8 million in China) as the key driver of Fox’s dominant showing, but the truth is that with its deep bench of strong performers like Life of Pi, Ice Age 3 and Prometheus, Fox would have beaten the others in total box office gross and average gross per picture even without Titanic.Average China bo by company 2012

While the PRC’s film regulators make efforts to appear even-handed in their dealings with all the studios, it is possible for a U.S. studio to win favor in the form of more rev-share distribution slots and better release dates. Fox, with its investment in local Chinese language films and its acquisition of a stake in Beijing based distributor Bona Film Group, appears to have earned special treatment as the only foreign company to have been granted six rev-share releases by SARFT in 2012. Disney and Warner Bros snagged five slots each, while Sony, Paramount and Universal each got only four. To its credit, Lionsgate won 3 slots with seemingly censor-defying pics as The Hunger Games and Twilight.

Another useful measure to examine is China indexing, that is, the share of total worldwide box office earned by each company’s films in China. This figure tells us how ‘China friendly’ each company’s slate has been; the higher the number, the greater the China appeal. The average index for all studio films in 2012 was 8.8 percent.China indexing 2012

Fox, again, came out on top by this measure, with its out-sized index of 15.8 percent. Universal ironically took second place because its international dud Battleship over-performed in China. Disney’s big China hit The Avengers was counter-balanced by the company’s under-performing animated films Wreck-it Ralph and Brave.

In many ways, 2012 has been a watershed year for Hollywood in China. Whether the studios are on an upward trajectory there or a downward one is impossible to say. But each studio’s fate in the Middle Kingdom is at least partly in its own hands, and 2013 may well be the year when those fates are ultimately decided.

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

Huh? You Say That China Has Loosened Its Film Import Quota?


By Robert Cain for China Film Biz

February 19, 2012 from Shanghai, China

I would have liked to put the headline for this story in giant, screaming, 48-point font. To be the first to inform you of ground-breaking news.

I would have liked to present you with the scoop that China has increased its movie import quota from the previous 20 films to the new level of 34 each year, and that it has raised the revenue share it will remit to foreign producers from 13-17 percent of box office takings to a more generous 25 percent in future.

But you already knew all that.

Here in Beijing, there’s been scant mention of any of this in the media. The government has been keeping a tight lid on a story that it apparently prefers to keep quiet in the PRC. In a day full of meetings on Saturday with film distributors, producers, and even the powerful head of China Film Group’s production division, not one person I spoke with was even remotely aware of the news. I only found out about it because a handful of friends back home in the USA were kind enough to email me stories from Variety, the Los Angeles Times, and other publications.

In fact, the front page headlines in Sunday’s China Daily (and all the pages that followed) have nothing to do with movies. Instead, the lead story reports—somewhat ironically—about Vice President Xi’s insistence that Washington loosen up its own trade restrictions that limit exports of American technology to China. China badly wants to access American innovations in such areas as civil aviation, integrated circuits, machine tools and other products. American movies and TV, not so much.

In fact the timing of the film quota announcement was rather awkward for the Chinese Communist Party, given that it came on the heels of a week of tough talk in Beijing about eliminating foreign TV programs from Chinese prime time broadcasts, and a general mood of xenophobic aversion to western cultural imports. The silence here about the shift in film import policy is deafening.

The policy shift was not exactly what Hollywood and the MPAA were asking for, but it is nevertheless big news, and I expect my producer and distributor friends back home are in a jubilant mood today. As Vice President Biden put it, “The agreement with China will make it easier than ever before for U.S. studios and independent filmmakers to reach the fast growing Chinese audience, supporting thousands of American jobs in and around the film industry.”

Specifically, the new agreement will allow, in addition to the previously authorized 20 foreign films per year, another 14 “enhanced” films, such as those made in 3D or IMAX formats. This last point is interesting, as it allows the Chinese government a bit of face-saving. The loosening of the quota might appear to folks in the PRC as capitulation by Beijing to US pressure, but the “enhanced” film requirement allows the Chinese to characterize the agreement as a ‘technological advance.’

After some investigation with studio and government connections in Beijing I’ve learned that there are important additional elements to the agreement which would smooth the process for mounting China-US co-productions, and also make it easier for US companies to set up joint ventures in China. But there are undoubtedly countless details to sort out before the new agreement can be implemented, and China could well drag its feet in putting the new policies in place. None of the U.S. press articles I saw mentioned any implementation timetable.

Of course, if you’re an attentive reader of this blog you know that film-related announcements from China are often overblown, exaggerative, and sometimes just plain false. Everyone got it wrong—myself included—in speculating that Jeffrey Katzenberg had arranged for Vice President Xi Jinping to announce a $2 billion joint venture between Shanghai Media, China Media Capital and Dreamworks Animation. Instead Jeffrey made the announcement himself regarding a far more modest $330 million deal.

Even former MPAA chief Jack Valenti got egg on his face back in 1994 when he proclaimed that he had negotiated a contract to lift all Chinese quotas and completely open up the Chinese entertainment market to Hollywood content. He later learned to his disappointment that he had negotiated the deal with a CCP apparatchik who lacked any decision-making authority.

If and when the new quota rules do get implemented, the biggest winners won’t be American studios, independents, or filmmakers. The biggest winners will be China Film Group and the PRC’s theater operators. With 14 additional Hollywood films to release each year, they’ll collectively rake in some $600 million or $700 million in incremental box office during the first year alone, with much more in subsequent years. 75 percent of that amount will stay in their pockets, making them the real beneficiaries of China’s ‘conciliatory’ moves.

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.