Two months ago, China Daily reported that Chinese box office rose by 36% in 2014, to US$4.76b. 54.5% of that ticket revenue was spent on domestic Chinese films.
Of the top ten locally made films in 2014, only two were action fantasies based on special effects, one was a family documentary, all of them had young casts, five were rom-coms or comedies, and one of them was a 3D crime romp with slinky characters set in Shanghai in the 1920’s. Three of them were spinoffs from film and TV.
The best made US$188m, the tenth took US$82m. Together, they accounted for US$1.154b or 24% of the total.
In the same year, the US and Canadian domestic market saw 1.259b tickets sold, for a total box office of US$10.35b, down 5.2% on 2013. Of the top ten, only American Sniper is NOT a tentpole sci-fi, fantasy or animation picture; the ten added up to US$2723b, or 26.5% of the total. Box Office Mojo has the figures for 692 films released in the US for that year, so the remaining 75% is spread over the other 98% of the titles.
However, the US remains the single largest market in the world, and the rise in China to second place makes little difference to US studio bottom lines because the returns are pretty poor on the distribution deals.
Mathew Alderson, a key Australian lawyer in Beijing with Harris Moure PLLC, has looked beyond the box office to consider ancillaries, a loose term covering everything from action dolls to TV rights and remake contracts. On the assumption that the ancillary market in the US is worth approximately 80% of the total returns for a film, he suggests the national figure for ancillaries is ‘$41.2 billion, and the entire market was therefore worth $51.5 billion’. Which is a very different figure.
He also points out that the ancillary market for Chinese films is only worth approximately 25% of the whole market, which is therefore in the region of US$6b.
He argues that the true explosion in the Chinese film economy is in those ancillaries. Around one third of the total population has internet access, and the Chinese passion for online shopping is much higher than anywhere else.
And – to completely upset our conceptual applecarts – they are increasingly happy to pay for streamed content online. In two years, Chinese providers could be earning US$164m/year, and the rate of increase so far is 300%/year. Even here, we can see a potential explosion – figures suggest that maybe 5% of the Chinese population is prepared to pay; in Australia that figure is over 80%.
The situation enables Alderson to quote, once again, chapter and verse to point out that piracy is close to a dead issue in China.
‘The Chinese are now among the most IP litigious people in the world,’ he argues. ‘Chinese companies are suing each other over copyright all over the place.’
They are buying screen IP from overseas in significant quantities, and need to defend it. They are also creating their own IP, and will hunt down domestic thieves.
As Alderson points out, ‘Between 2009 and 2011, online license fees for some popular Chinese programs went from around $1,600 per episode to $300,000 per episode, according to a 2014 article in the Harvard Journal of Law & Technology.’
That article, fascinating in itself, is largely dedicated to exploring the thesis that lack of strict IP controls actually encourages creativity and diversity. The author, Eric Priest, is solidly opposed to that idea, comparing Chinese filmmakers and musicians who have survived without protection as extremophiles, life forms narrowly evolved to survive in marginal environments in which diversity is impossible. So, he says, ‘China’s inhospitable creative industry environment may support narrow strains of creative “life,” but with an effective regime of copyright norms and enforcement, China’s creative ecosystem could more closely resemble a lush, diverse rainforest.’
He argues that the music industry is in poor repair, but the screen sector is so robust it has enough revenue to grow despite the depredations of piracy. This explains why the ancillary sector is so small – the industry is forced back into the cinema experience, which is the hardest to pirate.
He also warns that the legal penalties attached to IP violations in China are not strong enough, but that internet providers respond to market pressure from their advertisers. The screen sector also has a powerful weapon which is not available to most areas of manufacturing where piracy is rife – the government maintains tight control over the sector for ideological reasons.
In such a landscape of control, the release of pirated material is not just more difficult, but also more dangerous.
There are many ironies here. Chinese pirates have not yet gone deep into torrenting and it will be interesting to see if a heavy-handed state can in fact win the whack-a-mole game with peer-to-peer downloads. And the censors don’t like horror, violence or – weirdly – time travel, which is an invitation to underground distribution.
According to Eric Priest, ‘Piracy is an important tool of free expression in China for its ability to deliver uncensored, unsanctioned works to a mass audience. However, the real aspiration of free speech proponents in China is expanding the boundaries of officially tolerated expression.’
It is difficult to imagine the Chinese government accepting the kind of unregulated internet which allows Western genre films to find an audience for confronting material. It. Just. Won’t.
On Wednesday March 18th, Mathew Alderson is chairing an event in Beijing for AmCham China’s Media & Entertainment Forum. Details here.
