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Why is China So ‘Furious’?

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Paul Walker

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By Robert Cain for China Film Biz

April 22, 2015

In the weeks leading up to its April 12th opening day in China, the consensus among box office watchers was that Furious 7 would wind up with a final gross of around $125 million for its PRC run, and that its distributors would be ecstatic about that.

After all, only four Hollywood releases—Transformers 3, Transformers 4, Avatar and the 2012 Titanic re-release—have ever reached that rarefied level in China. The previous Fast & Furious installment had topped out at $68 million in Chinese receipts in 2013, a strong but not spectacular showing.

But from its earliest midnight screenings it was clear that Furious 7 wasn’t going to stick to the driver’s manual. Now, 11 days into its scorching China run, Furious 7 has amassed an incredible total of $280 million in China, and will likely finish up at about $375 million. With a May Day holiday boost and a bit of luck it could even approach $400 million. China is absolutely mad for Furious.

What was unthinkable just a few weeks ago is now a certainty: Furious 7 will not only beat the previous PRC record holder, Transformers 4, by a wide margin, but is also certain to top its own North American total. While it’s not unprecedented for films that do moderately well in North America to perform better in China than in their home territory (e.g., Pacific Rim), never before has a bona fide American smash hit exceeded its own domestic gross in a foreign territory. This is truly uncharted territory.

First 11 days comp F7Source: Pacific Bridge Pictures research

What happened? Let’s break it down.

Furious 7’s success in the Middle Kingdom can be explained partly by the same factors that made it a winner everywhere: quality marketing, high ‘want-to-see’ factor, and strong word of mouth. But several factors worked especially well in China to drive the film to its world-beating grosses:

  1. Advantageous release date. What first appeared to be a so-so Sunday release slot proved not to be a problem, mainly because Furious faced no Hollywood competition in its opening week, and it has flattened the Chinese films unfortunate enough to stand in its way. Even Chinese megastar Fan BingBing proved no match for Diesel, Walker and company, as her romance Ever Since We Love scored only $11 million this past weekend against nearly $90 million for F7.
  2. Massive release pattern. With an allocation of more than 70 percent of China’s screens, and more than 90,000 showtimes per day, this undoubtedly ranks as one of the widest releases ever seen. It’s only on the film’s third weekend that Furious will control less than half of all PRC screens as DWA’s Home and Arnold Schwarzenegger’s Sabotage arrive in mainland theaters.
  3. First-class promotion. With the two-year gap since Fast and Furious 6, Universal had plenty of lead time to work with SARFT and China Film Group–an investor in the film–to arrange a smooth release and mount a stellar marketing campaign. With CFG’s clout behind it and with its new China executive team in Beijing, the studio was able to support Furious 7 with more on-the-ground resources than with any past release.
  4. Strong word of mouth. Furious notched a very high 8.5 rating on audience review site Douban.com as word spread like wildfire that Furious 7 is FUN.
  5. The Paul Walker factor. Curiosity to see the final ride into the sunset of the well-liked actor who was in many ways the heart of this franchise drew numerous Fast and Furious newbies to Chinese multiplexes. Granted, this was an important factor in most of the world, but probably more so in China, where social media can instantly make or break a movie. According to a charming Chinese banker friend of mine, Paul Walker was THE trending topic of conversation on WeChat as the film rolled out.
  6. The right movie at the right time. Furious 7 is precisely the sort of big budget, effects-driven, Hollywood action spectacular that Chinese audiences love best. Sure, superhero movies are nice, but as the Transformers franchise has amply demonstrated, what the PRC really wants is machine porn: movies featuring monster machines that race and fly and do gravity defying stunts to save the world. It had been nearly a year since the last such film in this genre, Transformers 4, had graced China’s screens, so there was lots of pent-up demand for a film like F7 when it arrived.

There’s talk around the industry that Universal hasn’t yet decided whether to produce another installment of what is now the 8th highest grossing movie franchise in Hollywood history. That the ensemble of actors may not wish to come back for another film. To this I say, “If you believe that, there’s a Wall in China that I’d like to sell you.”

With all respect to the individuals involved, there is absolutely no way that Universal is going to put this golden goose down.

There are so many options Universal has now that Furious 7 has established its status as a juggernaut franchise in mainland China. They can produce the next installment of Fast and Furious as a co-production there and be reasonably assured of recouping their entire budget in the PRC alone, with the rest of the world, including North America, as gravy. If the cast doesn’t want to come back, re-boot it with a brand new cast. Or do a China spin-off with an all-Chinese cast. Do it with talking cars if necessary, for goodness’ sake! Or call me, I’ve got a script outline and treatment ready to go. But don’t think for a second about trying to stop this mean, green, driving machine.

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

‘Tiny Times,’ Gargantuan Grosses

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by Robert Cain for China Film Biz

July 4, 2013

Happy 4th of July everyone, it’s America’s Independence Day. As a person who enjoys the uninfringed right to express my thoughts to readers around the world, I’m extremely grateful for the precious freedom America’s founders fought for and bequeathed to their descendants.

On another note, I’m dedicating this post to Dominic Ng, Bennett Pozil, and their superb team at East West Bank. They recently hosted me at two of their events and made invaluable introductions for me to their clients. Dominic was kind enough to publicly recognize my work in a room full of heavy hitters at his “U.S.-China Economic Relations“ summit at the Biltmore Hotel in downtown Los Angeles. And since Bennett has been after me to keep writing this blog, pleading that in its absence he’s been forced to read trade papers like the Hollywood something-or-other and another thing whose name I forget that starts with the letter “V”, I suppose anyone who gets some use out of this humble publication should thank Bennett for his persistent cajoling.

It has been an eventful month or so since I last wrote about China’s film biz. In recent weeks Iron Man 3 finished its run at $121 million, edging out local romantic drama So Young to become the second highest grossing film of the year so far behind Journey to the West. Dreamworks’ animated movie The Croods defied everyone’s expectations, including my own, running up a magnificent $63 million, which places it among the highest grossing animated films in Chinese history. Legendary East announced a partnership with China Film Group; local film American Dreams in China ran up an $86 million gross; Man of Steel opened on 6,500 screens, the biggest launch to date in China; and Paramount’s World War Z was barred by the censors, despite the producers having made pre-emptive changes to avoid offending them.

Also, the July release schedule was announced, and with four big Hollywood titles opening (After Earth, White House Down, Fast and Furious 6, and Pacific Rim) the U.S. studios might finally get a chance to make up some ground against their Chinese competitors. Finally, the release schedule for December 2013 has been set, and it looks to be a blockbuster holiday, with Tiny Times 1.5, Jackie Chan’s Police Story 2013, mega-director Feng Xiaogang’s Personal Tailor, and possibly Overheard 3 and the star-studded Monkey King (with Donnie Yen, Chow Yun-fat and Aaron Kwok) all set to open within a two-week period. My Chinese correspondent Firedeep predicts that four of these five films will wind up out-grossing Iron Man 3.

Which brings us up to the present. China’s exhibitors and producers are enjoying another stellar year so far, with almost $1.7 billion in grosses in the first half, nearly 40 percent ahead of the first half of 2012. Given the patterns of prior years, I expect a $3.7 billion final tally for the year. It’s worth noting that China is now routinely grossing more each month than it did in the entire year of 2006. At the current rate of growth the PRC market will surpass North America as the world’s largest territory in 2017, and even if growth slows considerably the succession will take place in 2018 or 2019 at the latest.

The week ending June 30th was the third biggest so far this year, at $87.5 million. Tiny Times set new records for the opening day of a local film at $12.4 million, and went even wider than Man of Steel, running on nearly 50 percent of China’s 15,000+ screens. Look for the teen female oriented Tiny Times to wind up at around $100 million when its run ends.Box office week ending 6-30-13

Man of Steel continued strong, with $21.1 million in its second week. Heavy competition from Tiny Times will curtail its grosses, and it will likely finish in the $55 million to $60 million range, which is where many recent U.S. blockbusters have settled.

Star Trek Into Darkness finished up its run right in that same range, with $57 million. To the surprise of many observers Star Trek outperformed in China, earning a healthy 13 percent of its worldwide gross in the PRC. Compare this to, say, Skyfall, Oz the Great and Powerful, and The Hobbit, each of which earned only 5 percent of their respective worldwide totals in China.

In the coming days I’ll write more about China’s first half results and the U.S. studios’  performance. Until then, happy independence day!

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.

Blackout Continues to Yield Bounty for Chinese Films

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By Robert Cain for China Film Biz

August 22, 2012

Local language films enjoyed another solid session as China’s summer ‘blackout’ period neared its end last week, with new China-Hong Kong co-pro The Bullet Vanishes opening to $12.9 million, and holdover The Silent War adding $11 million to become only the third Chinese language film this year to cross the lofty $30 million box office threshold. Four of 2012’s five best Chinese language film debuts have occurred during the past eight weeks, when the PRC has been enforcing its ‘domestic film protection’ period.

By all measures China’s film czars can rightly consider the protection period a smashing success for local films, which have racked up $300 million in ticket sales and a 73 percent share of China’s total box office during the past eight weeks. Compare this with just $60 million in ticket sales and a 17 percent box office share for Chinese films during the eight weeks immediately prior to the blackout.

But not everyone in China is happy. The protective measures have angered many moviegoers who feel cheated of their right to enjoy this summer’s blockbusters on the big screen while everyone else in the world can see them. As one netizen with the Weibo handle “Bububing” groused on China’s version of Twitter, “Isn’t it a breach of consumer rights to force audiences to only watch domestic films?”

The head of the China Film Critics Society, Zhang Boqing, also protested the blackout, asserting that the key to protecting domestic films lies in improving their quality, not in imposing protectionist measures. And Shenzhen based film critic Gu Yan said the existence of the protection month reflects how little confidence the Chinese film industry has in its own products.

Although the blackout has also been frustrating—and costly—for Hollywood’s majors (the embargo has effectively reduced U.S. films’ box office share from 67 percent to 54 percent for the year so far), they should all be thankful that the scheme succeeded. If it hadn’t, SARFT would likely have imposed more radical, and perhaps even punitive, measures to balance the playing field. For now at least, U.S. distributors can take comfort that their films will be allowed some latitude going forward. At least, that is, until Golden Week starts in October.

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 Colonization of China’s Box Office

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by Robert Cain for China Film Biz

May 30, 2012

Men in Black III opened last week in China to a stellar $25 million box office tally over 3 days, marking the second biggest opening weekend in China this year after Titanic 3D’s massive $58 million April debut.

Men in Black’s first place showing also marked the 19th week in a row that a Hollywood film placed first at the Chinese box office, and the fourth week in a row in which at least the top three films were American.

The last time a Chinese movie topped the charts was the second week of January, when The Great Magician (actually a Hong Kong-China co-production) had no foreign competition, as there weren’t any Hollywood films at all in wide release at the time.

In fact, the last time a newly released Chinese film opened in first place in China was when The Flowers of War (also a Hong Kong-China co-production) did so in mid-December, 2011. Again, there were no Hollywood films in wide release at that time. To find the last time a purely domestic Chinese film topped the box office we must go back to mid-November, 2011, when the romantic comedy hit Love Is Not Blind was champ.

For the year so far, the 12 Hollywood films that were released wide have taken a 64 percent cumulative share of China’s national box office. The roughly 50 (depending on how they’re defined) Chinese-made films have taken a cumulative share of only 17 percent. But if we count only from February onward, when Hollywood films were actually in release, Hollywood’s share was 77 percent. 

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(Click on chart to view larger image)

 While this trend of increasing Hollywood dominance bodes well for the American studios, it also raises the question of what Chinese filmmakers, and the Chinese government, intend to do about it.  With the import quota now increased from 20 films to 34, it’s a dead certainty that, at least in the short term, Hollywood’s dominance of China will continue, and very likely increase.

Of course, Chinese distributors and government movie tax collectors are reaping a huge bounty on all these American films, but anyone taking the long-term view must realize that things can’t continue this way for very long. The State Administration of Radio Film and Television (SARFT), China’s powerful government overseer of media, is bound to speak out against the accelerating influence of “western cultural values” among the populace. The political implications of Hollywood’s colonization of China’s movie theaters are far too vast to be ignored by anyone, least of all SARFT.

If and when it decides to act, SARFT can adopt one of two approaches in response to the American cultural ‘invasion.’ It can either choose what I call a constraining strategy, or it can go with an empowering strategy.

Under the constraining strategy, SARFT would limit Hollywood movies’ access to China’s distribution channels. Although China is legally committed under WTO rules to allow foreign films into the country, there is no law that says what kinds of films must be imported, how long they must be made available to audiences, or whether they must be allowed access to the best quality venues and distribution networks.

So, for example, SARFT might decide to allow fewer Hollywood blockbusters into China, and choose instead to release more documentaries, or more movies from India, or Iran, or North Korea. This would be a perfectly legal, WTO-compliant method of reducing Hollywood’s dominance. Or SARFT could also limit the number of theaters each film release would be allowed, or perhaps it could even designate that certain ‘quality’ theaters be reserved for Chinese films, while Hollywood films would be ‘ghettoized’ to lesser theaters.

Although this sort of approach wouldn’t be good for anyone (except possibly the North Korean film industry), it’s not hard to imagine SARFT adopting some of these tactics because they would be relatively easy to implement and they would have an immediate impact. Sure, China’s theater owners and moviegoers and Hollywood’s studios would raise a stink, but China’s government has repeatedly demonstrated its willingness to withstand and even ignore pressure from foreigners and from its own citizens alike.

The downside of this constraining approach is that it would only mask, but not solve, the fundamental problem, which is that Chinese films are unable to compete with American ones. For SARFT to solve this problem it would need to think more creatively and more constructively, and commit to what I call an empowering strategy.

The empowering strategy would take the long-term view of creating value, as much as possible, for everyone involved. The highest goal of this approach would not be to limit Hollywood’s market share, but to maximize China’s, by empowering its film industry. This approach would reduce the burden of censorship, allowing Chinese filmmakers a broader palette of storytelling options to put them on more equal footing with filmmakers in Hollywood and the rest of the world. It would subsidize and support China’s artists and visionaries with story development and filmmaking grants. And it would provide bridges, rather than obstacles, for the world’s best filmmaking talents to come and work in China and help develop the country’s next generation of writers, directors, producers and other filmmaking artists. 

This sort of empowering approach may seem like a utopian dream, but in fact a strategy like this worked beautifully in China’s neighboring country, South Korea. Through the 1990s Korean films held only a 15 percent share of their domestic box office. But under a 5-year government-industry cooperative plan implemented in the mid 1990s, Korea eliminated many of its censorship strictures, invested in training and facilities, created a financial infrastructure that supports film production, and provided grants to writers, directors and producers to kick-start what swiftly became a world-class national cinema. By 2003 Korean films captured a 53 percent share of their domestic market, and Korea became recognized as a major filmmaking and cultural hub for the rest of Asia. 

There’s no reason why China can’t accomplish a similar feat. The entrepreneurial spirit needed to drive film production is already abundant in China. The country’s talent pool needs to be further developed, but it is ready and waiting, and there are plenty of qualified foreign experts willing to jump in and help them. And the money to support an empowering strategy is plentiful—far more money is skimmed by theaters off the top of box office receipts each week than would be necessary to support such a plan. The main thing currently standing in the way of China’s cultural competitiveness is the Chinese government.

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.

7 Ways to Tell Whether You Have an Effective China Strategy

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by Robert Cain for China Film Biz

May 7, 2012

If you’re looking to engage in China’s booming film business and you don’t have a clear, action-oriented strategy, then you’re not maximizing your chances for success and you may even be wasting your time there. Although China is now the world’s second biggest and fastest growing box office territory, it presents unique business challenges that even the most experienced entertainment industry players won’t have encountered anywhere else. Many of the pitfalls of doing business in China can be avoided through proper planning. Ask yourself the following questions to determine whether you have a winning China strategy:

1. Are you clear on your outcomes? You must be clear about your goals if you want to achieve them. Is your aim to make co-productions with global crossover potential? Mandarin language box office hits? Or are you mainly aiming for a share of China’s burgeoning VOD business? Each of these goals requires a customized approach, specifically tailored tactics and the right local partners and government contacts to enable success. Make sure your goals are realistic and achievable, and put yourself on a timetable for achieving them. Be as specific as possible. In order to choose the correct strategic roadmap you first have to know where you’re going.

2. Are you working with the right local people? There’s no question that local partners are essential to reaching your goals in China. But it can be extremely difficult to find the right people, those who will act as reliable, trustworthy partners and who can get things done. Lacking information and reliable methods for vetting Chinese collaborators, foreigners often rely at their peril on fancy government titles or inflated claims of connections to key decision-makers, only to wind up sorely disappointed or even cheated. If you don’t have the requisite knowledge and contacts to evaluate your prospective partners and to choose the right ones, then consult with experts who do.

3. Is your content appropriate for the Chinese market? I receive dozens of scripts and pitches every week that producers think appropriate for China, but I turn away 95 percent of them because they don’t pass the following simple tests:

  • Is the content censorship friendly? It never ceases to amaze me, but the majority of the scripts I receive involve gang violence, corrupt officials, graphic sex, and countless other elements that are taboo under Chinese censorship strictures. Know the rules before you invest your time in a project that has no chance of obtaining SARFT approval.
  • Is the story commercially viable for Chinese audiences? Your buddy comedy or political thriller may be perfect for English-speaking audiences, but its humor, language, foreign context or cultural references will likely bewilder Chinese moviegoers. Pay attention to what’s working commercially in China. Just because a story has Chinese characters doesn’t mean it has Chinese audience appeal. Teens and twenty-something ticket buyers in China are just as likely to avoid Ming dynasty costume dramas or tired kung fu action remakes as are their American and European counterparts.

A small investment of time and effort in understanding China’s rules and its movie-going audience will not only help you to avoid wasting time on inappropriate projects, but could also guide you to those projects that are primed for commercial success.

4. Are you taking appropriate action? China’s entertainment industry presents a perfect trifecta of opportunity: a huge potential market that has only begun to be tapped; growth that is unprecedented in the history of the movie business; and local competitors who have limited experience—especially in the global marketplace—and who know they need outside help to reach their potential. If you’re not making China a major priority then you’re probably squandering the opportunity of a lifetime. If you’re an executive of a big company who’s visiting China once a quarter or so and you have an executive or two on the ground, then you’re merely dabbling. Before you know it China will be the world’s largest movie market, and if you’re not thinking and acting on that reality every single day then you’re not doing enough.

5. Are you focused on delivering value? If your China plan only involves receiving but not giving back, then you have a short-term strategy, not a long-term one. Guanxi, or relationships, are the essence of business success in China, and guanxi involve give and take. What’s your plan for fulfilling the needs of distributors? Of ticket buyers? How do you intend to benefit your business partners? Are your interests aligned? Does your plan allow them to profit together with you? What else can you offer, to your partners, your customers, and to China itself? Consider supporting projects that meet the Chinese government’s ‘soft power’ ambitions, that present a positive image of China to the world. If you come to China with giving on your mind and in your actions, you should have no trouble with the receiving part.

6. Do you have adequate information? China is not only growing fast, it’s changing fast too. A critical component of success there is the ability to adapt, to revise your strategy and tactics in step with changes in the business environment as they occur. If you don’t have constant, timely, reliable information about box office trends, technological advances, personnel changes, shifts in government policy and the like, then you’re at a dangerous competitive disadvantage. Be prepared with the necessary insight to assess information and understand trends. Make sure you are properly positioned to stay on top of each wave of change, to benefit from rather than get swamped by every shift in the currents.

7. Do you have the right team? Given China’s extraordinary growth prospects, and thus its critical importance, you need to put your “A” team on the China beat. Make sure you have the right people in your lineup. Chances are you don’t currently have them. From your employees to your legal and business representatives, what you want is people who have been effective in cross-Pacific business, who have worked in China and in your home country. Take generalists over specialists, people who understand story, production, and the business side of entertainment. People who have strong networks among key industry players in China and also around the world. People who can hit the ground running in China. It’s a country and culture that can take many years to understand, and you can save precious time by employing staff who already know the territory and business environment. Success in China will come from being “Chinese” in your behavior, not from acting like an outsider trying to come in and make a killing.

My company, Pacific Bridge Pictures, is here to help you in crafting and executing your China strategy and projects. Our partners have more than 40 years of experience in developing, financing, producing and distributing motion pictures and television programs, in China, the U.S., and around the world. We have built successful companies, and we have worked for or consulted to most of Hollywood’s major studios, for many independent producers, and with such leading Chinese media players as China Film Group, Shanghai Media Group, and CCTV. I began my career working for and learning under Harvard Business School strategy guru Michael Porter, and have applied that knowledge to lead more than 100 entertainment companies through the process of defining their strategies and achieving their goals.

For more information about Pacific Bridge’s strategic advisory and production services for China, please contact rob@pacificbridgepics.com.

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 Revenue for U.S. Films Has Doubled in Five Months

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by Robert Cain for China Film Biz

May 4, 2012

After more than a decade of sizzling hot, 35 percent annualized growth, China’s theatrical film market is showing no sign of slowing down.

In fact, as incredible as it may seem, the pace of growth has actually picked up. So far this year China’s box office revenue is growing faster than the historical trend. While the average per-film revenue for all films has remained flat through April, many more films are being released this year relative to 2011, with the result that total box office is up by nearly 40 percent.

American film producers have been the biggest beneficiaries of China’s latest growth spurt, as Chinese audiences have increasingly turned away from homegrown product in favor of U.S. tent-pole movies.

Since we last looked at China’s contribution to the global box office of U.S.-made films five months ago, the numbers have positively exploded. In 2011, the average American film release in China earned $19.5 million in ticket sales, and the median U.S. film saw 5 percent of its total global theatrical revenue come from China. This year both those figures have doubled, with the average U.S. film earning $39.2 million in Chinese box office receipts, and the PRC now accounting for 11 percent of the median U.S. film’s global theatrical revenue.  (Note: international revenues are difficult to come by; for this article I am relying on public sources such as boxofficemojo.com and IMDB.com, which may in some cases provide information that is inaccurate).

Even if we take Titanic 3D, an outlier if there ever was one, out of the calculation, the average U.S. film has still grossed $30 million in China this year, 50 percent more than in 2011.

At this pace, by 2014 I expect Hollywood films will routinely earn more ticket revenue in China than they do in North America. This prediction would have been outlandish even six months ago, but now it’s looking inevitable that China will soon rival the United States in importance to Hollywood. The reality that Chinese tastes will swiftly become a major driver of the global movie business is one that Hollywood is not yet prepared to deal with, but it is the raison d’etre of my company, Pacific Bridge Pictures. At Pacific Bridge we’re dedicated to developing, financing and producing China/foreign film co-productions, and we’ve consulted to numerous studios and entertainment companies on cross-Pacific media initiatives.

While things are looking up for American films, for domestic Chinese films the trend has gone in the wrong direction. Revenues for the average Chinese-made release in China have fallen by 40 percent, from $5.6 million in 2011 to less than $4 million in 2012. Hong Kong-made films and China-Hong Kong co-productions are down by 18 percent on average, though Taiwanese films have been the exception to the rule, soaring this year to an average of $8.4 million per film, up from $1.9 million in 2011.

Wang Zhongjun, co-founder and CEO of the prominent film production and distribution conglomerate Huayi Brothers recently said, “2012 is a prosperous but difficult year for Chinese films. As Hollywood is getting a larger portion of the market, we are concerned about the competition. Huayi Brothers feels the pressure, but we are putting the responsibility on ourselves.”

Wang went on to express a commonly held view: “Through the years of cooperation, all the foreign companies came to us with their only interest being how much revenue the Chinese market could hold for them,” he complained. “When I asked how much revenue they can bring in for us from the overseas market, they just couldn’t answer.”

Foreign producers had better be prepared to answer that question if they expect to continue to prosper in China. What China’s film industry, and the Chinese government, want more than anything is to become major players on the global stage. It’s unlikely that the PRC’s leadership will tolerate foreign domination of such a strategically important sector as media for very long. The smart long-term players are crafting strategies for cooperation and mutual benefit with Chinese partners. More on that topic next week.

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 Surges Ahead; On Pace to Nearly Double Japan This Year

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By Robert Cain for China Film Biz

February 28, 2012

Several weeks ago I published an article asserting that China has surpassed Japan in box office revenue and is now, on a week-to-week and month-to-month basis, the 2nd largest theatrical market in the world after the United States. I forwarded this article to friends and acquaintances at several publications, including “The Los Angeles Times,” “The Wall Street Journal,” “The Wrap” and “The Atlantic Monthly.” To my disappointment and dismay not one of them picked up the story. I suspected that they and others doubted my figures were correct.

Over lunch in early February an acquaintance who runs international production for a major Hollywood studio confirmed my suspicion. He said he’d spoken with several of his executives and they told him that the numbers I was relying upon were wrong.

So I went back and double-checked my figures, and during the past few weeks while traveling in China I conducted further investigation. Having carefully studied the data and having interviewed a handful of experts in China, I must report that the studio executives were right, that my numbers were off. But not in the way they think.

My numbers for China, it turns out, were low; China is ahead of Japan by an even wider margin than I had thought, and it has been ahead for quite some time.

One major reason for the discrepancy is that I had failed to take into account China’s massive box office skimming. As I reported last week, according to most of the experts I consulted, as much as 40 percent of movie ticket revenue in China never makes it back to its rightful recipients, the distributors. If the ticket sales don’t get reported then they’re not captured in SARFT’s official figures, and so SARFT’s figures are too low.

But even if we disregard the skimming and rely on official figures—after all, the number that distributors care about is the amount that goes into their coffers—China still easily beats Japan by virtually every measure.

Comparing officially reported weekly box office results, China beat Japan in 7 of the first 8 weeks of 2012 (it also beat Japan in each of the last 3 weeks of 2011).  All told, China’s total gross for 2012 so far is 64 percent higher than Japan’s, at US $426 million vs. US $259 million.

2012 Weekly Box Office Results, China vs. Japan

Source: Pacific Bridge Pictures research

If skimming was indeed equal to 40 percent of gross receipts last year, then China’s real box office total for 2011 would have been close to US $3 billion, far ahead of Japan’s reported $2.2 billion.  While there may be some under-reporting in Japan, it is almost certainly modest compared to China’s, and there is little doubt that China has been out-grossing Japan for several quarters and possibly longer.

And why shouldn’t it? China now has more than 10,000 movie screens, with the number increasing daily. Japan, on the other hand, has only 3,400 screens and virtually zero growth. China’s box office for the first 8 weeks of 2012 was up by 49 percent relative to the same period in 2011; Japan’s was down by 3 percent .

Most important to those Hollywood studio executives I mentioned is how their own films fare in each market. And by this measure there’s no contest: China beats Japan hands-down. Each of the last ten Hollywood films to play in both markets earned more in China than in Japan, in most cases a lot more. The aggregate gross for the ten films in China was US $330 million versus $175 million in Japan.

Source: Pacific Bridge Pictures research (Note: Mission Impossible 4 ultimate China gross estimated at $107mm)

Assuming that Japan continues at its zero-growth pace for the rest of this year, and that China reaches $2.8 billion in officially reported revenues, the actual, unreported totals for 2012 would put China at $3.9 billion (2.8 billion plus 40 percent) and Japan at $2.2 billion.

So the question of whether China is bigger than Japan has been long settled. The real question now is how long it will take China to catch up with the U.S. It will happen faster than most realize, and when it does it will be too late for many to do much about it.

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.

A Sweet and Sour Week at the Cinema

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By Robert Cain for China Film Biz

January 4, 2012

It was a December to remember in China, with the national box office hitting a new record at just over $2 billion. What has been most noteworthy about the past year—and the past decade—is the Chinese cinema industry’s extraordinary rate of growth. The quadrupling of the country’s overall economy in the decade since 2001 has been astonishing enough, but that was barely a blip compared to the nearly thirty-fold growth of China’s theatrical box office during the same period. In the blink of an eye China has matured from a minor film territory into an international powerhouse, the country to watch.

One of the bright spots in December was the ongoing competition between Zhang Yimou’s The Flowers of War and Tsui Hark’s Flying Swords of Dragon Gate. Both films performed extremely well, becoming the two highest grossing Chinese language films of 2011, with nearly $77 million in revenue for Flowers and $69 million for Flying Swords so far.  Both are in contention to possibly break the all-time record gross in China for a Chinese-language film, which is currently held by the 2010 release Let the Bullets Fly with $105 million.

And yet, in some ways December was a disappointment. Without a single major Hollywood film released during the entire month, Chinese audiences had limited choices at the multiplex, and many stayed away. For the week ending January 1st, revenues declined by 4.5 percent compared with the same week in 2010, despite higher ticket prices and nearly 3,000 new movie screens in operation. Per-screen averages were down by about 40 percent from last year.

Six new films opened last week, but their combined revenue amounted to less than $6 million, with the Chinese action pic Speed Angels leading the way at $2.4 million. Speed Angels was the seventh film of the year released by the successful indie distributor Enlight, but it fell far short of the company’s 2011 hits Mural ($27 million gross), All’s Well Ends Well ($24 million), and White Vengeance ($23 million).

The lone American opener was the Daniel Craig-Rachel Weisz ghost thriller Dream House, which echoed its weak U.S. opening with a tepid $1.4 million take at the Chinese tills.

Flowers and Flying Swords should continue to lead the market for the next two weeks, as there won’t be any serous competition until January 15th, when Sherlock Holmes: A Game of Shadows, hits the theaters. Things will heat up after that, with the Jay Chou action vehicle The Viral Factor opening on the 19th, and All’s Well Ends Well 2012 opening on the 20th.

Late in the fall American movies’ share of the Chinese box office was above 50 percent, but because the last Hollywood blockbuster release of the year—The Adventures of Tintin—came all the way back in mid-November, U.S. box office share drifted down to 46 percent by the end of the year. Home grown Chinese films captured a 24 percent share and China/Hong Kong co-productions took 22 percent.

        Share of China Box Office receipts by Film’s Country of Origin, 2011

Look for more 2011 box office analysis in an upcoming post later this week.

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.

American Film Market Recap: Chinese Film Buyers Clean Up

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by Robert Cain
November 11, 2011

The Chinese buyer contingent at this week’s just-ended American Film Market was much bigger and busier than in years past, with dramatically higher attendance, purchases, and prices for US and international films.

One major buyer who declined to be named called it a “frenzy,” adding that “Chinese buyers are buying any and all content they can get their hands on.”

Several attendees complained mid-way through the market week that there was nothing left to buy. An acquisitions executive for China Lion Films—a company with which I work closely—mentioned that she attended screenings where the rights were snapped up before the film’s closing credits. China Lion did manage to pick up one film, the Canadian comedy “Starbuck.”

Chinese Attendance at AFM: 2010 vs. 2011

Source: American Film Market

China Film Group (CFG), by far the country’s biggest player in production and distribution, chose to sit out the frenzy, opting instead to use the market as an opportunity to establish relationships.

But many had their checkbooks out throughout the week, only to be outbid or pre-empted again and again.

With competition high, prices for Chinese rights soared at the market, with high 5-figure and 6-figure deals fairly common. These rates are 5 or 10 times higher than what they would have been only a few years ago. Still, prices tend to be somewhat lower for foreign films than for Chinese films, largely because of the value of TV rights, which can go for well over $1 million for popular Chinese language pictures.

Several U.S. distributors, including IM Global and GK Films, are said to have completely sold out their inventory of China rights. IM Global is rumored to have sold its entire 14 film slate to a single Chinese buyer for a package price of $2 million. Another rumor circulating the halls of the Loew’s Hotel was that one Chinese buyer had acquired the rights to 40 films.

Given the limited number of theatrical film distribution slots in China—20 revenue sharing slots and 30 additional flat-fee picture slots—one might reasonably ask what the new rights owners intend to do with all these films.

“With prices rising so fast maybe they’re stockpiling films for their library value,” speculated one major Hollywood studio chairman.

A more cynical view is that many of the buyers in these transactions may have knowingly made contingent commitments that will likely unravel.  Because Chinese purchase contracts routinely include a standard cancellation provision that allows purchasers to void the deal if a film is barred from exhibition by Chinese government censors, buyers enter into agreements knowing they have an easy out. If a film doesn’t receive a coveted quota slot—even if it does pass censorship—the buyers may invoke the cancellation clauses and nix their payment obligations.

Whatever their ultimate motivations, the buyers at this year’s AFM underscored the fact that China needs product, especially American product, to serve the Chinese movie-going audience’s increasingly voracious appetite. With revenue growth far outstripping Chinese producers’ ability to supply commercially viable films, Hollywood is and will continue to be a hugely important partner for China’s movie distributors.

Rob Cain is a film producer and entertainment consultant who has been doing business in China since 1987. He can be contacted at rob@pacificbridgepics.com.

China’s Movie Streaming Sites Are Going Legit

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By Robert Cain

Slowly, steadily, China’s movie streaming sites are going legit. Small dollars/yuan now, but the potential business opportunity is exciting for filmmakers everywhere.

Youku, Tudou, and M1905, among other Chinese content sites, have begun paying for the right to stream movies to their users. It’s an encouraging trend that could signal the beginnings of a shift away from video piracy in China.

Rob Cain is a film producer and entertainment consultant who has been doing business in China since 1987. He can be contacted at rob@pacificbridgepics.com.

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