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.

Bribery Accusations Make Waves in China’s Film Circles


by Robert Cain for China Film Biz

May 2, 2012

My friends who are close to China Film Group (CFG) Chairman Han Sanping tell me that Han is battling accusations of corruption in the wake of the SEC’s recent announcement that it will investigate Hollywood’s studios for alleged violations in China of U.S. anti-bribery laws. While some defend Chairman Han as being above reproach, others, perhaps his political enemies, have been quick to vilify him. Whatever the truth may be—and I can only speculate—the ferocity of the rhetoric flying around in Beijing underscores how deeply political the business of film is in China.

With the PRC in the midst of a momentous, once-in-a-decade power transition that has already spawned enough sordid tales of lust, intrigue and murder to fill a lifetime of soap opera episodes, tensions are high and the rumor mill is rife with chatter. A figure as powerful and visible as Han can be an easy target for those jockeying for position in the new power matrix.

Whether the allegations are true or not, the centralization and vise grip control that Han’s China Film Group enjoys over all film production and distribution activities in China unfortunately result in a system where bribery is often encouraged. Every step from script to shooting to distribution requires government approval. And with the notoriously low salaries that China’s government employees receive—one friend tells me that according to public records, Han’s official monthly salary is lower than those of most entry level employees in Hollywood—the motivations for accepting “gifts” must be powerful. While China’s adoption of WTO ordained business practices has had a positive impact on business ethics, China is still a long, long way from being as clean as, say, Sweden or Australia.

Han’s rise to power has been swift and unparalleled in the history of China’s film industry. A mere 8 years ago when China was the world’s 25th largest film market and Han was fairly new in his post, he wrote pleading letters to certain Hollywood stars in hopes of luring them to participate in China’s modest film productions. Now, with China having vaulted to 2nd place behind the U.S. in theatrical revenue and its industry awash in cash, Hollywood’s studio heads regularly fly to Beijing to pay tribute to Han and to beg for seats at his box office banquet.

Han has been responsible for the production and distribution of hundreds of movies, and for launching the careers of dozens of China’s top stars and filmmakers. However his CFG career ends—it’s been widely expected that he’ll relinquish his post when the new political regime takes power later this year—he has presided over one of the most extraordinary periods of growth ever seen by the global film industry. It would be a shame if his career were to end in ignominy, and I, as one who has enjoyed some pleasant and entirely above-board dealings with Mr. Han, hope that he will be cleared of any allegations of wrong-doing.

On another money-related note, I’ve been gratified to be able to arrange meetings for several of the world’s most powerful money managers during their visits to Los Angeles in recent weeks, and I’ve been impressed by the lengths to which certain multi-billionaire businessmen have bent over backwards to accommodate my overseas guests’ schedules. Although some Hollywood moguls were unable to join us on short notice, I greatly appreciated the efforts of those who did, and to those who were unable to reply to me in time (or to those whom I may have inadvertently overlooked in a rather manic couple of weeks) I would like to extend an invitation for the next time these money mavericks come to town.

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.