The recent agreement between China and the US to widen the revenue-sharing quota has been met with enthusiasm by all parties and has been driven by consumer demand.
It rarely happens that when the relaxation of an import quota is announced, both sides believe they have come out on top. But this would appear to be the case with the recent agreement between the US and China to widen the revenue-sharing quota by an additional 14 enhanced-format films a year, and increase the foreign distributor share to 25%. While some Chinese companies and film-makers are reacting cautiously to the news, there are many — particularly the larger private and state-owned companies — who are saying “bring it on”.
Yu Dong, CEO of Chinese studio Bona Film Group, recently told a roomful of finance analysts that it was great news for Chinese companies, especially private outfits with distribution and exhibition capabilities. “Companies with a vertically integrated business model, including cinema ownership, will benefit directly from the distribution of Hollywood blockbusters,” Yu said.
Hong Kong film-maker Peter Ho-sun Chan, who has worked extensively in China, says he remembers when Taiwan’s quotas were removed and the market share of Taiwanese and Hong Kong films in that territory collapsed overnight. “I don’t think anything as drastic would ever happen in China, not only because of state control, but also because of the taste of the Chinese audience,” says Chan. “When you look at what is making money in China, only a few exceptional titles such as Transformers and Kung Fu Panda are as big as we think.”
Indeed, many believe the widening of the quota is a necessary step in the evolution of the market and could even have a positive impact on the local industry. The real issue is that a market which is adding eight new screens a day needs a lot more product, and while the local industry is growing quickly, its bigger films such as Bona’s Flying Swords Of Dragon Gate tend to cluster around just two major holiday periods: October’s National Day, and Christmas to January/February’s Chinese New Year. Though the agreement followed years of US lobbying and World Trade Organisation wrangling, Motion Picture Association of America (MPAA) chairman Chris Dodd says it was this “bottom-up pressure for content” that convinced China the time was right.
But the devil is in the detail, and more important than quota numbers and percentages is how the agreement is interpreted and its knock-on effects. Certainly it has the potential to shake up China’s domestic distribution sector, which remains heavily monopolised and under state control.
Though it is not included in the agreement, there is great hope among private Chinese studios that they will get a stab at distributing some of the additional revenue-sharing films. Currently, state-owned China Film Group and Huaxia Film Distribution are the only companies allowed to distribute foreign movies and their dominance is not likely to end any time soon.
But it is understood the Film Bureau under the State Administration of Radio, Film and Television (SARFT) is already asking some private players to submit their credentials, and will favour companies with a strong track record in distributing Chinese films both locally and overseas. As always, the authorities are likely to experiment with new distributors before proclaiming their entry as official policy (even before the US-China trade agreement, a handful of 3D films such as Rio and Green Lanternwere being imported each year outside the quota), but the fact they are already fielding submissions is seen as a positive step.
The promise of reciprocal market access should also lead to a stronger working relationship between the US and Chinese film industries — indeed, between the Chinese and all international film industries, as the trade agreement is not limited to the US. As China tends to learn quickly and adapt Western business models, rather than being overwhelmed by them, this is not necessarily a bad thing. Again, Dodd says it is this desire to learn and engage on an international level that is encouraging China to open up.
“They have a tremendous desire to have a strong domestic industry and the offer is there of working with them in developing this,” says Dodd, speaking to Screen in Hong Kong after visiting film officials in Beijing. “They are also looking to be a player in the global market. The real benefits of this [agreement] are the effects of a growing relationship between the US and Chinese film industries, which will be tremendous for China and good for us as well.”
Certainly there is a need in China for tracking systems and a deeper understanding of the complicated matrix between budget levels, promotional spend and release dates, which is uncharted territory in China — but which has grown into a science in the US. At present, there are too many big films that fail and sleeper hits, such as Love Is Not Blind which took $52.3m (rmb330m), that take everyone by surprise.
Dodd also believes a closer working relationship will help rather than hinder co-production, which remains the other major method of accessing the China market: “My view is why would you not want to do co-production if they are limiting [the additional quota] to Imax and 3D?”
Co-production is important to China as it enables local producers to create English-language movies for global consumption at a time when foreign-language product is facing its toughest challenges yet. US and other Western independents such as Relativity, Legendary and Village Roadshow are particularly active in this area and their interest is only likely to increase.
Though the expanded quota in theory gives indies a better chance of securing a revenue-sharing slot, as a co-producer their share of profits from the Chinese box office is based on their equity contribution so can exceed 25%. The previous lack of Chinese co-production partners is also becoming less of a problem. Until recently there were only the state-owned companies and two private players — Bona and Huayi Brothers — to work with, but there is now a tide of Chinese heavyweights including Wanda, Le Vision Pictures, Galloping Horse and Stellar Group.
It is also hoped the increased transparency understood to be a tacit part of the trade agreement could help the three other methods of accessing the Chinese market: flat-fee distribution and sales to internet platforms and TV. Though Chinese buyers are paying up to 10 times as much for product as they did a few years ago, these deals can be scuppered if the movies do not pass censorship, which remains the most vigilant barrier against foreign films. It is hoped the trade agreement will result in greater clarity on censorship decisions and that the increasing demand for content will eventually broaden the censors’ definition of an acceptable film.
Beyond film distribution, the relaxed quota could potentially also spur investment between US and Chinese film companies as they jockey for footholds in each other’s markets. This would help reinforce China’s influence at an international level, in the same way CJ Entertainment and Sony’s investments did for Korea and Japan.
With its huge consumer base and financing muscle, China has the potential to overtake both its Asian neighbours in terms of influence in the global film marketplace. The only question is in what form will this giant emerge: as a consumer, financier or supplier of global product?
If the new ranks of Chinese studios get their own way, it is likely to be a combination of all three.