Something is brewing in Taiwan. In the past 12 months it has become a more active buying market for international films, home to new distributors with deep pockets, while Hong Kong companies, such as Filmko, are launching local production offices to benefit from government subsidies and local talent. At the heart of the new optimism is the success of local film Cape No. 7, the biggest hit in Taiwan since James Cameron's Titanic.

The traditional heart of cinema in the capital Taipei is Ximen, a district in the west of the city popular among teenagers. It boasts the largest concentration of theatres and the city's largest screens. There has been a steady shift towards multiplex culture in other parts of the city, appealing to slightly older audiences in their twenties and thirties. For example, the 17-screen Vie theatre in eastern Taipei accounted for 25% of Taipei box office last year.

In both 2006 and 2007, there were more than 11 million admissions in the capital, representing $80m in annual ticket sales (box-office figures are only available for Taipei). Admissions are down about 5% in 2008 with 9.5 million admissions by late November representing just $68m in ticket sales. The first six months were particularly disappointing with no single film making $3m, the standard for a blockbuster success. Just three films have passed the milestone in 2008, compared to six in 2007.

Cape No. 7 was the biggest surprise of the year, and a cultural phenomenon. The romantic comedy grossed $6.9m in Taipei - 100 times the typical gross for a local film - and it is now top of the Hong Kong box office. The success rubbed off on two other Taiwan films, Orz Boyz and Blue Brave: The Legend Of Formosa In 1895.

Hollywood blockbusters are the staple for a cinema-going audience primarily in their teens and twenties. And this year has seen Japanese and French cinema edged out by Chinese films and Thai horror titles. Taiwan is in an unusual situation in Asia in that each Hollywood major has its own local distribution office and marketing team. Although tax breaks for the US studios were withdrawn recently, the majors still dominate distribution.

Other distributors in Taiwan have to find ways to compete. CMC Entertainment and VieVision Pictures secure access as shareholders in successful multiplexes. Scholar Films and Long Shong own their own theatres but none are key venues. While CMC handles big-budget independent English-language films, VieVision has carved a niche for itself with Thai horror and Japanese blockbusters. Peter Chan's A+ Pictures is the leading distributor of thriller and horror films.

Two new buyers with deep pockets entered the market this year. Catchplay launched with a $12m war chest while Double Edge Entertainment, after securing millions from the Taiwan government for local production, shifted its attention to distribution with high-profile titles that had been overlooked or rejected by other buyers. However, despite paying high prices for titles, neither company has yet had a bona fide hit. Catchplay's Rambo made a modest $312,000 while Double Edge's The Eye secured a disappointing $164,000.

But the mainstay of Taiwan distribution are professional small distributors who focus on international arthouse titles and survive on 1,000-2,000 ticket sales per film with the odd hit. Examples include Joint Entertainment, Atom Cinema, Zoom Hunt, Cineplex and Swallow Wing. Flash Forward Entertainment and Serenity Entertainment pick up higher-profile films with crossover potential from Japan and France.

Censorship is rarely an issue in Taiwan where films such as Lust, Caution have been released uncut. Taiwan has one of the most liberal rating systems in the region. Films that pass for over-18s in Hong Kong and over-21s in Singapore routinely secure a PG-12 rating in Taiwan. There is no quota system protecting Taiwan films, but the government has marketing subsidies and award schemes for good box office.

At this year's Golden Horse Film Festival (November 6-21), new programming director Patrick Jia, fresh from five years in the marketing department of Twentieth Century Fox's Taipei office, was inspired to focus on US independent cinema after the local success of Group Power Workshop's Juno. Counter-programmed at the end of May during Hollywood blockbuster season, Juno secured a healthy $230,000 in Taipei representing more than 30,000 tickets sales on 10 screens.

"The market for arthouse films will always be there because they fulfil a basic human need," states James Liu of Joint Entertainment. "We're a service business, like a restaurant, and we must find new ways to reach the audience."

RankTitle (origin) DistributorGross (US$)
1.CJ7 (HK) Wdsmpi$2.6m
2.Red Cliff: Part 1 (Ch) CMC Entertainment$2.3m
3.The Other Boleyn Girl (US-UK) 20th Century Fox$374,341
4.Juno (US) Group Power Workshop$229,836
5.4bia (Thai) VieVision Pictures$166,455
6.Body (Thai) VieVision Pictures$158,958
7.The Children Of Huang Shi (China) New Action Entertainment$149,362
8.An Empress And The Warriors (HK) Group Power Workshop$141,663
9.Art Of The Devil 3 (Thai) Scholar Film$129,773
10.The Orphanage (Sp) Swallow Wing$121,005
nt$1 = us$0.03 *To November 23
RankTitle (origin) DistributorGross (US$)
1.Cape No. 7 (Tai) Wdsmpi$6.9m**
2.Orz Boyz (Tai) Warner Bros$514,178**
3.Kung Fu Dunk (Ch-HK-Tai) Scholar Films$475,184
4.Blue Brave: The Legend Of Formosa ... (Tai) 20th Century Fox$259,465**
5.Winds Of September (Tai) Atom Cinema$137,144
nt$1 = us$0.03 *To November 23 **Still on release
RankTitle (origin) DistributorGross (US$)
1.Cape No. 7 (Tai) Wdsmpi$6.9m**
2.The Mummy: Tomb Of The Dragon Emperor (US) UIP$3.3m
3.The Dark Knight (US) Warner Bros$3.3m
4.CJ7 (HK) Wdsmpi$2.6m
5.Iron Man (US) UIP$2.5m
6.Red Cliff: Part 1 (Ch) 20th Century Fox$2.4m
7.Hancock (US) Wdsmpi$2.2m
8.Indiana Jones And The Kingdom Of The Crystal Skull (US) UIP$2.1m
9.Wanted (US) UIP$1.7m
10.Kung Fu Panda (US) UIP$1.7m
*To November 23 **Still on release