Chinese box office takings on track to top the world

Chinese box office takings amounted to $3.5 billion last year, and by Sept 21, this year's total had reached $3.44 billion, leaving almost no doubt that the 2013 figure will be topped. This cements China's place as a strong cinema market, behind only North America.

China's box office has enjoyed double-digit growth since 2002 as the number of cinemas has expanded. Last year about 14 cinema screens went up each day, and in the past few years more and more young people have headed to the movies, young professionals in particular. Since 2004, box office growth has exceeded 32 percent every year and is forecast to surpass that of North America in about five years.

This year Paramount Pictures' Transformers: Age of Extinction pulled in $301 million in China, setting a record for the country. Last year about 58 percent of box office revenue was from domestic Chinese films, including co-productions with international filmmakers in China.

For decades, Chinese commercial feature films were made by government-owned film studios such as China Film Group, Shanghai Media Group, Changchun Film Group, Xian Film Group, Emei Film Group, Zhujiang Film Group, Guangxi Film Group, Xiaoxiang Film Group and PLA/August First Studios. For the past 15 years some of these studios produced one or two films a year, and some even fewer than that. The most prolific was China Film Group, which last year produced and distributed 35 of its own feature films.

More recently, privately owned Chinese film production and distribution companies have emerged such as Bona Film, Enlight Media, Huayi Brothers, LeTV and Wanda, some of them publicly traded companies. The five private companies have accounted for more than half this year's box office in China. For both new and traditional players the Chinese cinema market represents 90 percent of their revenue.

On top of cinema opportunities, the digital distribution market, which is still limited, is rapidly growing. Subscription video on demand is gaining popularity among young people, particularly well-educated young professionals, via both the Internet and mobile phones. Key players in this space are iQiyi, Youku, Sohu, Tencent and BesTV. The TV market is relatively small, with CCTV6 (the China Movie Channel) the dominant player in this arena. The typically related home video market is near zero because of piracy.

Another trend is the increasing power Chinese Internet players have in cinema and TV markets. The BAT phenomenon, referring to the companies Baidu, Alibaba and Tencent, symbolizes the aggressive moves these three have made as they have got into film production and distribution in recent years.

Recent IPO star Alibaba is the latest major - and now extremely cash flush - player to announce its production goals. It launched a film company in May. In March Alibaba launched Yu Le Bao (Entertainment Bao), a crowdfunding investment vehicle, and bought an 18.5 percent share of the online video platform Youku Tudou for $1.22 billion.

Youku Tudou, the Chinese version of YouTube, is the largest such platform in China. Youku Tudou also launched its own film production company, He Yi Film, in August. It will produce nine or more feature-length films a year for initial Internet distribution.

Baidu has been in the business longer than its two big competitors. It is the controlling shareholder of the top Chinese online video platform iQiyi, the later offering various formats of video on demand, including transactional video-on-demand services, subscription video on demand and advertising-supported video on demand. In July iQiyi launched a film development and production unit. Last month, Baidu launched Baifa Youxi, a crowdfunding vehicle similar to Alibaba's.

Tencent has a video platform for exhibiting film and television programs on the Internet. To further its options, Tencent is also building a strategic alliance with China's top private film company, Huayi Brothers Media. They announced in August that they will use Tencent's giant social media platform WeChat to promote Huayi Brothers Media's talent.

Wanda, the largest private cinema owner in China, and now the owner of the US theatrical giant AMC, has also been building strategic Internet alliances. In August it invested $810 million in Tencent and Baidu to build a new joint-venture entity.

All the above activities are indicators of the increasingly white hot Chinese film market. Not only has China enjoyed records for both revenue and cinema screen growth over the past 10 years, but it is expected to continue to grow at a similar rate for some time, much of this due to the particularly strong interest by multiple Chinese populations in the social experience of movies.

This is why China is fast becoming so attractive to worldwide filmmakers and film corporations, who are increasingly paying visits and paying homage to the most powerful of China's new-content leadership.

Are there opportunities for Western filmmakers and their offerings? Of course, as indicated by the fact that China's highest-ever opening gross was a US studio mainstay film, Transformers 4 with other US cash cows, X-Men: Days of Future Past and Dawn of The Planet of The Apes, three 2014 US films enjoying significant box office success.

The Chinese filmed entertainment business, like any international business, will never be easy despite box office success. It has its own regulations, censorship, and of course, its own relationship-centric Chinese business culture. In this context, authentic, trusted and win-win relationships are the first step to optimizing chances for success along with a great story and characters of relevance not only to global audiences but also to local ones, too.

Chinese players have increased their presence in all international arenas, with offices opening in Los Angeles and Europe, and with attendance at key festivals such as Cannes, Toronto and the American Film Market. Anyone wanting to enter the market is advised to have Chinese-speaking personnel who understand the business and a clear initial dedication to investing in genuinely authentic and positive relationships before closing deals. Doing that will save a lot of time and frustration.

The author is President of China Media Consulting, a consulting firm in California. She is also a visiting professor at the Beijing Film Academy. Her book The Study of the US Filmed Entertainment Business was published by Beijing United Publishing Co and Post Wave Publishing in April.

David C. Traub contributed to this comment.

(China Daily European Weekly 10/03/2014 page9)