With production volume and box-office revenue growing at more than 20% year on year, along with breakneck multiplex development, China is a film market the global industry cannot afford to neglect. However, entering the Chinese market also means tackling the country’s yet-to-be-resolved issues - censorship and piracy.

Last year, the number of films produced in China reached 402, a rise of 22% on 2006. Only about 105 of these films were released in the country’s cinemas. The top-grossing local films were The Warlords - co-produced by China Film with Hong Kong’s Media Asia and Morgan & Chan Films - and Huayi Brothers’ The Assembly.

These two war pictures changed the stereotype that Chinese blockbusters, or da pian (big-budget films), are usually dramas about martial arts or ancient political struggles. In previous years, da pian referred to films such as Zhang Yimou’s martial-arts epic Hero or palace drama Curse Of The Golden Flower. This year, The Warlords and The Assembly have made war films a popular genre among Chinese audiences.

The Assembly (picutred below) has also surpassed Hero to become the second highest-grossing Chinese film of all time in China (Curse Of The Golden Flower is number one). Set in 1948, it follows an old soldier looking for his lost companions during the Chinese Civil War.

The Assembly

Beijing Film Academy professor Zheng Dongtian says the film ‘breaks the boundaries between main melody (propaganda) film and commercial war movies, and finds a good balance between the two’.

However, it is not just big-budget films finding success; mid-sized films have also begun to make waves. Last year, there were 10 films grossing more than $4.2m (rmb30m) and 20 films grossing more than $1.4m (rmb10m). These include action titles such as Flash Point and Invisible Target, which were both Hong Kong-Chinese co-productions and grossed around $4.8m (rmb34m), and local comedy Crossed Lines, which grossed $5.2m (rmb37m). Their performance demonstrates that the traditionally polarised revenue structure of the box office has been diminished. In 2005 and 2006, big-budget films accounted for 50% of total box-office gross, but in 2007 blockbusters accounted for only 25%.

‘Blockbusters are still (a) box-office guarantee in China’s market,’ says Wang Zhonglei, CEO of Huayi Brothers Pictures, China’s largest private production company. In terms of production, Wang says mid-sized films - budgeted between $2.8m (rmb20m) and $5.6m (rmb40m) - are still an uncertain investment, and it is better to adopt the cross-region co-production model to share the risks.

‘Comedy, suspense and action, including war, are the main genres in film production,’ says Wang. For example, Huayi Brothers’ production strategy in 2008 remains the same: the company will make two big-budget films (more than $11.3m), two small-sized projects (less than $2.1m), and invest in a few mid-sized co-productions. Huayi’s big-budget projects include English-language action adventure The Forbidden Kingdom, starring Jet Li and Jackie Chan, which it co-produced with the US’s Casey Silver Productions, and Florian Gallenberger’s John Rabe, set during the Nanking massacre, which is a co-production with several French and German production outfits.

The state-owned China Film Group Corporation (Cfgc) remains a powerhouse in the country’s film production. Owning production facilities, a distribution company and the power to negotiate release times, as well as several cinema circuits, China Film has become one of the most popular co-production partners for shooting and releasing a movie in China. Last year it successfully set up co-production deals on The Warlords, Stephen Chow’s CJ7 and Chen Kaige’s Mei Lanfang, and created considerable box-office revenue for the first two. The Cfgc can drive forward big co-productions by corralling smaller private enterprises, and in 2008 it aims to further expand its list of co-production partners to include Korea’s CJ Entertainment and US studios. It also plans to list on the Chinese stock market.

Stricter censorship

However, this year might not be the best time to tackle topics such as sex, the supernatural or horror. In January, the authorities decided to ban the producers of Lost In Beijing for spreading what it claimed were pornographic clips on the internet. Then in February, China’s General Administration of Press and Publication announced a ban on videos/DVDs containing elements of horror or the supernatural. ‘Because of current restrictions, thrillers and horror films will have limited development in the near future,’ says Huayi Brothers’ Wang.

Overseas productions looking to shoot in China are also currently having a hard time. The Weinstein Company’s period drama Shanghai was recently forced to find another location when it was refused permission to shoot in China. The controversy that surrounded edited scenes from Lost In Beijing and Lust, Caution finding their way onto the internet, plus increased caution in the run-up to the Beijing Olympics, are being blamed for the clampdown.

Last year also provided a good harvest for the country’s budding film distribution business. The total box-office revenues reached $468.3m (rmb3.3bn) - a 26% increase on 2006. Revenue-sharing Hollywood films showed 37% growth compared to box-office figures in 2006. However, due to US-China trade disputes, there have been delays to the release of some major blockbusters. At the time of writing, six revenue-sharing films have been released so far this year, only two of which, family films The Pursuit Of Happyness and The Water Horse: Legend Of The Deep, are from US studios. Of the two US films, The Water Horseperformed best, grossing around $4.2m (rmb30m).

‘This delay for major blockbusters may also affect the box office of flat-fee imported films, ie, European, Asian or US independent films,’ says Johnny Liu of Beijing-based Avrio Films.

In China, there are a few private firms involved in the marketing and promotion of flat-fee imported films, working in tandem with the two official foreign film distributors - the Cfgc and Huaxia Films. Avrio has dealt with international sales companies such as Summit Entertainment, and has promoted distribution of films including Babel. This year Avrio will be promoting Korean title D-War, Bridge To Terabithia and the 2006 film Step Up.

Flat-fee films enjoyed considerable success in March and April last year, filling in the gaps when Hollywood and local blockbusters were unavailable. However, this year National Treasure: Book Of Secrets and The Golden Compass, two revenue-sharing titles, will be released in March. ‘This year it may be difficult. With big titles’ schedules delayed to March, there is not much space for smaller films,’ Liu says.

Li Chuan of Dequan Film Investment, which also works on promotion of flat-fee imports, holds a different view. He believes that as China’s cinemas continue to expand and the audience begins to diversify, the flat-fee market is expected to grow at a rate of 30% a year. ‘A flat-fee film should be able to generate revenue of more than $1.4m (rmb10m),’ says Li.

It is generally believed that flat-fee films account for 10%-15% of China’s total box-office revenue. So far, action films are the main genre among flat-fee films.

One main reason behind the country’s box-office surge is the growing number of multiplex cinemas. Last year, 102 cinemas opened with 493 screens. There are now also 625 digital screens in China, and the total box-office revenue for digital cinemas reached $29.6m (rmb210m) in 2007 - an increase of 43% on the revenue for 2006. Recent blockbusters such as CJ7 and Kung Fu Dunk have made full use of those 625 screens on their way to becoming box-office successes. And when snow storms blocked the delivery of film prints during the Chinese New Year, digital screens provided timely help for the release of CJ7.

In terms of existing cinema owners, Cfgc set up its Cinema Investment Company in June 2007, which plans to open 10 new cinemas each year with eight screens in each cinema. Construction has begun in eight second-tier cities along the Yangtze River and a few in north-east China.

Wanda Cinema Circuit was one of the fastest growing privately owned cinema circuits last year. It now owns 28 multiplexes and 226 screens, and its annual revenue puts it among the top three cinema circuits in China. According to Li Yaohan, Wanda’s chairman, the group is planning to build 32 new multiplexes over the next two years.

Besides the existing cinema circuits, production companies such as Huayi Brothers and Chengtian Entertainment also plan to move into exhibition. After buying a controlling stake in Hong Kong’s Golden Harvest Entertainment, Chengtian now handles its cinemas in Shenzhen, and plans to expand the number of screens in existing cinemas.

Despite the overall growth in the film industry, piracy is still the main concern for all sectors. China’s DVD piracy rate is estimated at 93% of total sales, while online piracy is estimated at 80%-90%. The past two years saw a big increase in the amount of intellectual property infringement lawsuits and successful prosecutions of pirated movie websites.

Companies such as Huayi Brothers and the US studios were compensated in such cases. However, there is still much room for improvement. As Li Luyang, president of legal online movie download site Quacor.com, says: ‘In China, whether you are a production company, a distribution or DVD company, or an online distributor, it is a must to have a department in the company spending manpower and money on fighting piracy. And it is a long battle.’