Hollywood Takes a Hit
China's total box office reached a new record of 21.77 billion yuan ($3.6 billion) in 2013, up 28 percent on 2012, according to the official figures released by the Film Bureau under the State General Administration of Press, Publication, Radio, Film and Television (the State Film Bureau) on January 9.
With this new box office high, China has again taken its place as the world's second largest movie market, a position it has held since 2012. Accounting for 10 percent of the world's total box office, China's staggering domestic achievement trails only the United States, which raked in $10.9 billion in 2013.
"China's entertainment industry has been growing rapidly in recent years. In particular, the film industry has taken a lead," Zhu Yuqing, a veteran Chinese filmmaker, said to China National Radio.
"We have reached an age of consumption, in which people are more and more willing to spend their money on leisure activities. Cinemas have become a major entertainment venue for city-siders. For young people, eager to get out of the house, films have become their favorite form of entertainment. Furthermore, IMAX and 3D technology have helped boost the number of Chinese cinemagoers," Zhu said. "It has been predicted that China's box office growth will continue for many years to come."
Like previous years, domestic films and Hollywood productions dominated China's box office in 2013. What distinguished 2013, however, was that homegrown films prevailed over Hollywood productions in box office earnings with a gross of 12.77 billion yuan ($2.1 billion) during the year.
Homegrown films accounted for 58.6 percent of box office earnings in 2013, compared to 48.46 percent in 2012. Hollywood, the mightiest movie empire in the world, took the second largest share of China's box office, claiming around 45 percent, a slip down from 51 percent in 2012.
Among the 10 highest-grossing films shown in Chinese cinemas during 2013, seven were made domestically and only three came from Hollywood. This is a sharp reversal from 2012 when Hollywood movies captured more than half of all ticket sales and only three local movies made it into the top 10.
Outside of Hollywood, no other foreign film industry managed to make a major impact on the Chinese box office. For example, South Korean blockbuster The Thieves earned only 22 million yuan ($3.6 million) in China last year.
The boom in domestic films is an encouraging sign for domestic filmmakers, Zhu said, identifying two main reasons for homegrown films surpassing Hollywood.
"On one hand, the quality of domestic movies has improved a lot in terms of both storytelling and technology. The market plays a decisive role in pushing filmmakers toward improvement. Though local films cannot compete with Hollywood in terms of technology, Chinese cinemagoers prefer to see local stories and stars," Zhu explained.
Comedy and romance were the two most popular genres for domestic cinemagoers, accounting for 16 percent of the total box office revenue for domestic films. The year's highest-grossing film, fantasy adventure-comedy Journey to the West: Conquering the Demons, directed by Hong Kong's Stephen Chow, amassed 1.25 billion yuan ($205 million) at the domestic box office during the 2013 Spring Festival.
The Spring Festival period is usually the hottest season for the Chinese box office, with couples and families flocking to the cinemas during the holiday period. Comedy, again, proved to be the biggest box-office draw during this time.
"On the other hand, Chinese cinemagoers have tired of too many Hollywood big-budget films featuring special effects and CGI (computer-generated imagery) technology. While they may be dazzling, these pictures are failing to satisfy Chinese cinemagoers. Their tastes have diversified and they are looking for films that provide a deeper reflection of culture," Zhu said.
Last year's box office returns have also shown filmmakers what sorts of films resonate with Chinese audiences, Zhu said. The Hollywood films that performed best at the domestic box office were those that included Chinese elements.
For example, Iron Man 3 took 768 million yuan ($124.06 million), ranking second at the Chinese box office. Four minutes of additional footage, featuring Chinese actors Fan Bingbing and Wang Xueqi, was added to the Chinese release in order to boost its popularity with local audiences.
Another U.S. blockbuster, Pacific Rim, collected $114.32 million at the Chinese box office, a considerably larger sum than what it earned in the United States. Similarly, much of Gravity, which also cracked China's top 10, was set in a Chinese space station. When Chinese people see their national flag or Chinese characters in a film, they feel a much greater connection to the story.
China's burgeoning box office has caught the attention of many Hollywood filmmakers who have attempted to cash-in on the unstoppable growth of the Chinese market. Films such as Iron Man 3 and the upcoming Transformers 4 often pander to local audiences by including Chinese elements. This explains why many Hollywood stars and directors, such as Leonardo DiCaprio, Nicole Kidman, Michael Bay and Alfonso Cuarón, have recently made trips to China, hoping to drum up business.
"Chinese faces and settings will definitely be highlighted in more Hollywood productions," said Zhu.
But Chinese cinemagoers are hard to predict. Tiny Times, directed by Guo Jingming and based on his own novel, hit $79.12 million. The film courted controversy due to its superficial values and ostentatious displays of luxury. Yet despite its poor critical reception, teenagers across the country flocked to cinemas to see the film. Guo said the success of the movie could be attributed to his millions of young fans.
A 2012 deal, brokered between China and the United States, has allowed Chinese cinemas to show more Hollywood productions each year, with the quota increased to 34 films annually.
But more Hollywood films launching in China has led to intensified competition. Many Hollywood blockbusters have to compete against each other in the Chinese market. For instance, last November, four Hollywood blockbusters, Thor: The Dark World, Gravity, Escape Plan and The Hunger Games: Catching Fire, all crowded into China's cinemas one after another, at almost the same time.
Investing in film
More and more investors have been enticed by the substantial returns offered by the booming film industry. In the past three years, the number of Chinese filmmaking companies has grown rapidly, with statistics from the State Film Bureau suggesting that the total is now in excess of 1,000 companies.
However, homegrown films are facing increasingly fierce competition from each other. Last year China produced 638 films, of which no more than half reached theaters. Despite rising box office grosses, most domestic films and filmmakers still failed to break even. Film producers have realized that they need to exercise market discipline. Thus, producers have cut down on redundant projects and focused their attention on a smaller number of films.
China Film Group Corp. (CFGC), a state-owned film giant, remains one of the largest corporations in the Chinese film industry. In 2013, the 25 films that CFGC produced or released earned over 20 million yuan ($3.3 million) each at the domestic box office. CFGC took a total of 5.9 billion yuan ($974.7 million), nearly one third of last year's total box office gain.
Yet many private companies have proven themselves to be powerful players in the film industry. Huayi Brothers Media Corp. (H. Brothers), the largest domestic private film production company, was China's second highest box office earner in 2013, collecting 3 billion yuan ($495.6 million).
LeTV is the dark horse of the Chinese film industry. In the three years since it began its business, LeTV has shot into the top three private film companies, with nine films and 1 billion yuan ($165 million) earned at the box office in 2013. Tiny Times was one of LeTV's highest performing productions.
Zhang Zhao, President of LeTV, has pioneered the O2O (online to offline) business model since the company was founded. LeTV has developed into an industry heavyweight by releasing films both in theaters and via online video-on-demand.
In Zhang's opinion, the Chinese film market has not established a mature chain of production, from film production to marketing.
"The Chinese film market is highly competitive. Every day there are new film companies emerging and many going bust. Filmmakers and investors are like gold miners. But very few of them really understand the market," Zhang said to China Newsweek. "We need to better understand our audiences and better target our marketing."
"Last year, all film companies felt the huge pressure of market competition. Producers are likely to face equal levels of stress this coming year," Zhang said.
The cinematic gamble
For most domestic film companies, box office receipts are their major, if not their only source of revenue. Thus, every film is a gamble for producers and investors.
Jessica Kam, a veteran Hong Kong film producer, said this single-profit model is chiefly responsible for the high risks involved in the Chinese film industry.
Kam has a wealth of Hollywood experience. Hollywood film companies earn around 70 percent of their revenue from film merchandise and other distribution channels. Only 30 percent of revenue comes from the box office. In contrast, box office receipts are responsible for as much as 90 percent of Chinese film companies' revenue, Kam told EntGroup, a research company of Chinese entertainment industry, in a recent interview.
Furthermore, film release dates frequently change, often spoiling the plans of film companies. Thus, box office revenue is always unpredictable. This reveals the immaturity of the Chinese film market, Kam said.
In Hollywood, many films with low box office earnings have the opportunity to bounce back via the distribution of Internet copyright and DVD sales, as well as toys and even theme park rides. Hollywood producers protect their bottom lines by developing various sideline projects and products to accompany their films.
For example, the U.S. film giant The Walt Disney Co. has 9,000 employees working on film productions, but in its subsidiary corporation Disney Consumer Products, there are 40,000 employees creating sideline products for Disney films, Kam said.
Many domestic film companies are beginning to realize this problem and they have made efforts to diversify their businesses and expand their range of film products. For example, on the heels of the September release of Young Detective Dee: Rise of the Sea Dragon, the H. Brothers launched a mobile phone game in order to supplement the film's box office revenue. The company is establishing an integrated industry chain that includes films, distribution, sideline products and games.