05/05/2015 China: The Film Market
Adam Rubins, our CEO, shares his thoughts on his experiences in China…
After a whistle-stop tour to Shanghai and Beijing, I certainly have a long way to go in truly understanding Chinese culture and the way they do business. I have worked in International marketing for over 20 years and in that time, I have heard from many of the markets I have overseen that they’re different, that they have a unique culture (yes, I’m talking to you France). And in developing your skills as an international marketer you have to understand those local idiosyncrasies and truly engage with your client or team with a truly localised outlook. The key, I have found, is to search for the commonalities or universal truths and from a marketing perspective, that is often around audience, behaviours, driving awareness and converting awareness into a commercial output.
But when a client or team member in China says its different, it really is. Those universal truths become more challenging, not impossible, but ultimately very different from the way we work and think in the West. And those differences are founded in history, tradition and culture, something which has to be understood and respected in order to move forward. Social relationships are more formal, more hierarchical versus the more informal, egalitarian approach over here. There is a strong preference towards ‘saving face’ meaning you will never see people openly criticise others or actively seek out confrontation. That said, what is happening in China right now is very interesting. The market, over the past 5 years, has grown exponentially. This has mainly been driven by organic growth with more access to technology and greater investment in infrastructure. It remains to be seen whether some of these business cultures will remain the same over time. Simply, the more the market grows, the less the hierarchy and senior stakeholders will be able to own the decision making process.
The film market in China is also captivating. In my previous blog China: The Land Of Opportunity (http://www.waytoblue.com/blog/china-the-land-of-opportunity/), I talked through some of the growth patters in the market. To summarise:
- China’s box office is on track to hit $4.9 billion this year. To put that in perspective, last year the UK did $1.9bn and the US did $10.9bn. That makes China the 2nd largest box office market in the world, overtaking Japan
- 5,000 new screens opened in 2013 (in 900 new complexes) but the market is still heavily under-screened. If China had the equivalent screens per million head ratio to the US, the country would have over 133,000 screens. In fact, it has only 20,000
- China also leads the way in digital and 3D where is has digitised 92% of its screens. In 2013, the US retained its lead as the largest 3D box office market in the world with a total of $1.75bn. However, in the last 4 years, China’s market share has grown five-fold rising by 47% in 2013 to hit $1.5bn. This growth means China will become the largest 3D market worldwide by the end of this year
- China is also the 3rd largest film production country in the world after the US and India. Incredibly the market share between local productions and foreign films is around 50/50, amazing given not all foreign films get a release in China due to the import quota system. One way to bypass that is co-production and looking at the criteria, you can see why many Hollywood studios are focusing their attention in this market. A co-production project has to satisfy 4 main criteria:
- At least one third of the budget must come from a Chinese company
- A Chinese actor has to play one of the key roles
- Part of the film has to be shot in China
- China’s Film Bureau officials also reserve the right to approve the script and decide on final cut
In addition to all those points above, I learned that whilst the quota for the number of revenue sharing foreign films accepted for full distribution rights is still only 34 per year, there are blackout periods in December designed to protect the local industry effectively giving you 11 months to release 34 movies or 3 foreign movies per month. In addition, there is no such thing as a release schedule in China. You often don’t know whether your foreign movie will release until 5-6 weeks before it gets an official date, meaning it is very challenging to prepare a marketing campaign or know what your competition in market will be.
Lets not forget that releasing foreign product is less profitable as well with China Film Group releasing only 25% of the box office revenue to the film studios against the 50% (roughly) they earn overseas. But with movies like Transformers: Age Of Extinction garnering $320m in box office, thats still $80m (25% of $320m) versus $122m in the US (half of its $245m cume) with marketing costs spiralling out of control in the States.
And this is why everyone has their eye on China. With more screens going up every day (IMAX will open its 200th screen this year), more access to tier 1 and 2 audiences, more interest and equity in franchise product and more investment made in market towards converting pre-existing awareness, revenues and associated net is set to soar. I expect next year, we will see the following released: Avengers: Age of Ultron, Jurassic World, Minions, Bond 24, Furious 7, Ant-Man, The Fantastic Four and Terminator: Genisys and explode at the box office. Of course, the likes of Star Wars, Mission Impossible 5 and Kung Fu Panda 3 (a local co-production) will release in 2016.
The opportunities in China are explosive IF you can open your mind to a new culture and a new way of business practice. I will be going back in March next year to continue the very exciting conversations I have already started and we as a business will certainly be investing in a China operation very soon. But when we do, it will be about local talent, local activation and a layer of strategic and creative thinking that can currently be improved upon in market. The simple truth is that as the market increases in size, the marketing paradigm will change and there will be a requirement for more expertise and specialists on the ground. This is not a market with a grand heritage in film, especially foreign product, and as such there is a lack of experience in the market. Factor in digital platforms and new creative ways to reach national audiences, this is an investment that may work today, but will certainly work tomorrow.