China’s economy grew at the slowest rate in a quarter-century last year by official measure, but that economic gloom couldn’t dampen an unqualified box-office boom: Annual ticket sales revenue rose 48.7% at mainland theaters in 2015 to a record total of US$6.78 billion (RMB44 billion).
While 2014 saw China’s film business continue to industrialize as moviegoers’ tastes filtered back to production studios through an ever-expanding phalanx of theaters (see China Economic Review’s previous industry overview), 2015 saw it double down on a drive toward consumer-facing cinema. Where ticket sales were once all the feedback studios needed, online literature and streaming series now provide edgier film fodder.
That has kicked existing efforts to capitalize on intellectual property into overdrive—one major consequence of which being that Chinese firms are suddenly as eager as Hollywood studios to exercise their copyrights.
“Copyright is now becoming a sword in the hands of Chinese rights owners,” said Mathew Alderson, partner at Harris & Moure, PLLC and frequent contributor on developments in Chinese copyright law for China Law Blog. “Chinese companies are not going to spend a lot of money acquiring rights from foreign sources only to let Chinese pirates in the next province free-ride on the investment.”
Boffo at the B.O.
That interest in IP is also reflected in Chinese films’ growing dominance of the domestic box office: Only three of the ten highest-grossing films in 2015 came from US studios, down from five in 2014.
And while the top spot did go to Universal Pictures’ “Furious 7” with a box-office take of US$390.9 million, the Hong Kong-China co-production “Monster Hunt” was only about US$9 million behind. Figures from the State Administration of Press, Publication, Radio, Film and Television (SARFT) likewise showed Hollywood movies’ share of annual mainland box-office revenue fell to 38.4% in 2015, down from 45.5% the year prior.
Movies like “Monster Hunt” embody two trends from 2015 highlighted by Michael Keane, professor of Chinese media at Curtin University: The growing popularity of action comedies that appeal to younger audiences, and continued collaborations between Hong Kong and Chinese cinema. Such co-productions allow mainland investors to funnel funds to Hong Kong studios which can take advantage of less stringent content controls and local directors willing to work on movies that could see a mainland release, even if they couldn’t get made there.
The record revenue generated by “Monster Hunt” has since been thrown into question, with accusations of box-office inflation eventually substantiated by an admission from the film’s distributor that it had given tickets away late in the film’s run.
But much of that revenue was real, and the potential of action-comedy co-productions was demonstrated again with even greater gusto by the success of “The Mermaid” in 2016. The Stephen Chow film recently became the first in mainland box-office history to pass the RMB3 billion mark, setting an all-time record—dethroning “Furious 7” and even doing decent business during a limited release in the States that has also been well-received by American critics, much to Hollywood’s chagrin.
The allegations of box office fraud that dogged “Monster Hunt” appear to have prompted regulators to enact new ticket sales rules and even agree to let Hollywood studios audit Chinese box office receipts, according to The Hollywood Reporter. The draft text for China’s new Film Industry Promotion Law, made public in November, would also provide more box office regulation, but it doesn’t stop there.
While it fails to open up film production and distribution to foreign firms or lift the onerous quota system for foreign films, Alderson noted that the draft law “would definitely streamline the official co-production process for foreign producers.”
He noted it also gave express official recognition to the need for improvements in the system of film finance and the need for tax incentives for local producers. Barring major changes – always a possibility before a draft text is passed – the new law would encourage financial institutions to provide financing and other services to facilitate the growth of China’s film industry, including recommending pledge services for film-related intellectual property.
Such high-level government recognition of intellectual property’s importance reflects IP’s newly elevated status in China. New industry news site China Film Insider even deemed IP “the industry buzzword of 2015.” With good reason.
The buzz around IP makes sense in light of the fact that some of last year’s top performers at the box office had roots in shows or sketches that streamed exclusively online, a development Alderson said was reflective of deeper changes in audience interest and industry funding.
“We are seeing domestic motion pictures emerging rapidly out of so-called online literature,” he said, referring to China’s vibrant online communities focused on writing and video production. Indeed, China’s submission to the 2016 Academy Awards, “Go Away, Mr. Tumor”, was originally an online comic in which illustrator Xiong Dun chronicled her own losing battle against cancer.
The film was also co-produced by Wanda Pictures, a unit of mainland conglomerate Wanda Group. While the firm’s recent acquisition of Legendary Entertainment made waves, Wanda has also invested in the Beijing comedy theater Kaixin Mahua (“Happy Dough Twist“) as an incubator which has since become a film production unit that turns out low-budget comedies. Along with Tencent and Alibaba, Wanda is shooting to become a content production house that sidesteps the old model and responds more to consumer trends.
And with content now the focus of so many major business interests, Alderson said that Chinese companies in particular were reporting more success with administrative proceedings against pirates, though the current copyright takedown system doesn’t compensate copyright holders for their losses. But the film business isn’t alone in its growing capacity to scrub the Internet of unwanted media.
Keane warned that greater government restrictions on online content could curtail up-and-coming sources of new IP, but it was too soon to say what approach regulators would take with enforcement. The recent cancellation of the popular online drama “Addiction” – which featured a predominantly gay cast -doesn’t bode well for shows that attempt to address subject matter viewed as unconventional by a deeply conservative regulatory apparatus.
Still, he added, it was easy to imagine China’s streaming sites (LeTV and Youku Tudou) and content producers (Tencent, Alibaba, Wanda) ultimately converging on an industry model in which the respective content ecosystems of major players vie for user eyeballs—as is already the case in the US with Netflix and Amazon.
It’s also possible that crowdfunding could disrupt the film industry’s current trajectory, as it has once already: Much of the marketing budget for the 2015 animated feature “Monkey King: Hero is Back” came from crowdfunding, courtesy parents who pitched in to get their children’s names in the movie’s credits. That marketing bump likely helped the film go on to snag the tenth-place spot on last year’s list of top box-office hits.
“Crowdfunding is the question on people’s lips,” Keane said. The model remains largely unregulated in China—always a potential pitfall for any media enterprise. But he said it real, untapped potential that could ruffle not a few industry feathers. “If it can be better regulated,” he said, “it could have a major impact.”
That is as big an “if” as one is like to encounter in the mainland film industry. But if funding follows suit with Chinese cinema’s increasingly consumer-facing content, that may prove not a question of “if”, but “when”. ♦
Author: Hudson Lockett (@KangHexin)