American film studios are desperate to win approval for releases in China because its film market is rocketing. From 2003 to 2010 box-office receipts on the mainland grew by an annual rate of more than 40% on average. In 2012 Chinese film revenues passed those of Japan, then the second-biggest market. Chinese box-office receipts are forecast to top $10 billion a year by 2017, when China will be closing in on America as the world’s biggest market.
“MY NAME is The Future.” So declares a heroic Chinese astronaut in Mandarin after saving the life of Stephen Colbert, an American comedian, during a recent episode of the “Late Show”. Dubbed the Pander Express, the sketch mocked how far Hollywood studios are willing to go in modifying their movies to pander to national pride and curry favour with Chinese officials.
No wonder, then, that Western entertainment firms have been ploughing money into China. IMAX, which specialises in large-screen theatres, floated shares in its China division earlier this month to finance a big expansion there. In September Warner Brothers announced a joint venture with China Media Capital, a local investment firm, to produce movies palatable to China tastes. CMC is also an investor in Oriental DreamWorks, a local entity collaborating with DreamWorks, an American studio, to make the next in the “Kung Fu Panda” series.
Hollywood should beware the siren song. “The aggregate growth in numbers suggests the streets are paved with gold, but it’s not that easy,” warns Peter Shiao of Orb Media, an independent production and finance company. There are only two ways for films made abroad to enter the Chinese market: 34 big foreign productions a year are let in via a quota system; Chinese firms are also allowed to acquire the rights to 30 to 40 smaller foreign films a year for a fixed fee.
Because distribution of foreign films is controlled by politicised state-owned entities, even an easing of these quotas—as is now rumoured—will not help much. Liu Cuiping of EntGroup, a research firm, points out that the film-opening schedule is an important protectionist tool. This July, typically a big month for movies, for example, no new Hollywood blockbusters were permitted on Chinese screens. She adds that subsidies and preferential taxation also favour local firms.
To avoid these handicaps, foreign firms are ploughing money into “co-productions” with local partners. Yet Chinese culture has proven even harder to master than its politics. Clark Xu of CMC observes that “nobody has cracked the code on creating stories that can work in both China and the West.” Tastes in China are also rapidly evolving, with younger consumers and those living in secondary cities now dominating ticket sales. “It’s not just a question of money,” insists Gregory Ouanhon of Fundamental Films, a film production and distribution firm in Shanghai. He thinks Western studios are finally realising how difficult and time-consuming a process it is to develop a script that appeals both to Chinese censors and to the country’s cinema-goers.
Meanwhile, local rivals, long dismissed by Hollywood moguls as unsophisticated bumpkins, are getting into their stride. Chinese film companies are investing in new technologies, improving creative capabilities and attracting more financial backing. Powerhouses like Huayi Brothers Media and Beijing Enlight Media are now producing blockbusters of their own. “Lost in Thailand”, a road-trip movie released by Enlight in 2012, became the first Chinese film to earn $200m at the box office. “Lost in Hong Kong”, a sequel released at the end of September (see picture), earned over $100m on its opening weekend.
From storytelling nous to animation wizardry, Hollywood studios are still far ahead. But Chinese upstarts could leapfrog them in one area: business models. When it comes to the integration of the internet into the film business, “China beats Hollywood hands down,” Mr Shiao argues. He thinks innovation in this area at Western firms is stifled by concerns about such things as pay-television rights and DVD sales—markets that never took off in China.
Free of such legacy issues, Chinese firms are experimenting with their business models to develop new online revenue streams and to enhance fan engagement on social media. The producer of “Monkey King: Hero is Back”, an animated film, crowdfunded the movie through WeChat, a Chinese messaging app, promising to add the names of investors’ children to the film credits if they gave over 100,000 yuan ($16,000) each; the film raised over 7m yuan this way.
The internet has also become an important distribution channel. Alibaba, Tencent and Baidu, China’s biggest internet firms, are all investing in online video. As in America, revenues from streaming services are expected to surpass takings at the box office in a few years. Local filmgoers, for their part, are increasingly young and technology savvy: 63% of movie tickets are now bought online, compared to 13% in America. Even if Hollywood does not find a pot of gold in China, it may be there that it learns what the future of the global film business holds.