In the final half of 2014 the major news in the entertainment industry was China: the recent IPO of Alibaba (China’s local version of Amazon), the changes in leadership in the China’s film board, the rumours of acquisitions and sales in Hollywood and the potential for increased access to China’s vast distribution and exhibition potential. In the eyes of everyone with content and or content distribution rights, China equals Major Future Revenue Opportunities.
Here are some interesting things about the Chinese film market:
- China’s box office grew 36% last year reaching $4.7 billion, making it the 2nd largest box office market in the world and overtaking Japan
- China’s exhibition market is still relatively small relative to the population currently between 20,000 to 22,000 screens – if it had the equivalent ratio to the US it would have 133K screens
- China is also the 3rd largest film production country in the world after the US and India, the balance between local productions and foreign films is roughly equal.
- China’s import quota system only accepts 34 foreign films per year for display within its market, this is set to rise to 44 foreign films with the limitation that these increases will be for art house movies
- There are no rights to release in China, often meaning that foreign films receive little notice (a matter of weeks) before permission is granted – this obviously makes planning a nightmare
- China Film Group release 25% of the box office revenue to the film studios versus the 50% studios (roughly) earn in most other international markets
Co-production is a way to bypass this restriction but co-production projects must meet the following criteria (Source: Adam Rubins):
- 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
Given this background of facts it seems logical why Alibaba has been taking an interest in Hollywood recently with co production deals and rumours of acquisitions. All of this is rather neatly summarised by Andy Green from Distrify Media in a recent interview with Business Week:
“The opportunity that Alibaba is going to create is that they are not going to be in that Chinese quota system. It’s going be a Chinese, American, Hollywood hybrid type of content funded by China delivered in an American idiom to a huge audience in mainland China.”
Expect the industry focus to continue to swing out to the Far East over 2015, as interesting times are definitely ahead for those who control the content. As a quick aside one example of this could be Marco Polo the latest release from Netflix.