China-US Co-Produced Films Face Doom and Gloom

By Shen Yiqian

Instructed by Tom Wright

(Head Illustration by: Kevin Hong)

 

China’s film companies have found that tie-ups in movie production with Hollywood are not necessarily the key to success. A bunch of recent big-budget co-productions, from China Film Co., Ltd.’s The Great Wall to Huayi Brothers Media Corporation’s Rock Dog, have failed to do well at the box office, and the failures have executives looking for the right formula.

Since last year, 65 films targeting at China’s film market have been jointly developed by Chinese and overseas film companies. Among them, eight have been co-produced by Chinese and Hollywood studios. However, most of them have failed to woo the audience in China.

The Great Wall, co-produced by the state-owned China Film Co., privately owned Le Vision Pictures in China, and Hollywood giants Legendary Entertainment as well as Atlas Entertainment, is a typical example of films failing to meet the expected box office in the booming China-US co-production business in 2016.

The so-called biggest China-US co-production, with the highest budget ever in Chinese movie history, only earned $332 million globally, just doubling its huge costs of $150 million, which was far less than the expectation of the investors and co-producers across the ocean. The movie, directed by famous Chinese director Zhang Yimou and starring the well-known American actor Matt Damon, was once expected to gain around $300 million in the domestic film market, but only ended up with $171 million.

In China’s film market, 57% of the total box office of a movie flows to theaters and distributors. Companies who invest and produce the movie only take 43%, deducting 5% for a special fund helping the development of China’s film industry, 3.3% for tax and 1% to 3% as the distribution fee. This means The Great Wall should achieve over $400 million at the global box office in order to recover the costs. The Hollywood Reporter estimated that the film had lost over $75 million.

Christine Shi, a moviegoer who goes to cinemas almost every week, shared her dislike when talking about The Great Wall. “The film does not tell a good story at all,” the 27-year-old middle school teacher said. “I thought it was a Chinese story and would share some Chinese values, but the story was structured and developed actually in a western way. The two cultures are not well blended in this film.” She added that the movie also lacks emotional communication between Chinese and foreign actors, and she did not like the stereotype of Chinese people presented in the movie. “It just felt like having wasted two hours!” Shi complained.

The failure of The Great Wall is not an exception in the current China’s film market. “Most co-produced films are high-budget productions but without good stories—the core of a movie,” said Duo Wang, a Chinese film critic who is operating a public WeChat account on movie review with over two million followers. “Co-produced films such as The Great Wall are always the simple display of Chinese elements under Hollywood production, but fail to tell a good story which is deeply rooted in Chinese culture and can resonate among the Chinese audience. That’s why they are always under heavy criticism.” She also mentioned about the actors’ performance as another reason.

In 2016, the top five China-US co-productions made $502.4 million in China’s domestic film market, against costs of nearly $445 million, which was far lower than the expected $800 million.

There are many factors influencing the performance of China’s domestic box office last year, according to Nansun Shi, a famous Hong Kong film producer, saying in her speech at Hong Kong Baptist University. “The changes of moviegoers’ taste, fierce competition with foreign films, film distribution, promotion and screening schedule, etc., all have impact on the box office,” She said.

China-US co-production as a trend in China’s film market

The trend of co-producing films with other countries and regions outside mainland China started years ago, but for a long time, most co-produced films were the cooperation between China and Hong Kong or Taiwan. Only one or two movies were co-produced by China and US before 2016.

Number of China's Co-Produced Films

Nevertheless, there was a sudden increase in the total number of co-produced movies last year, especially the China-US cooperation which reached eight and ranked the second highest following China-Hong Kong co-productions. And the number is expected to even triple to 26 in and after 2017.

Undoubtedly, the fast-growing China-US film co-production has been driven by the mutual appetite for growing a larger presence in China’s film market. For many Hollywood motion picture producers, the huge China film market is very prosperous and alluring, but it is always difficult to bring foreign movies (usually US movies) into the market due to the quota limitation set by the Chinese government each year.

Before 2012, only 20 foreign films were allowed to be distributed in China every year, and foreign film companies could only take 13% to 17% cut of the total domestic box office. In 2012, China raised the quota to allow 14 more foreign films (but should be in 3D or IMAX format) into the China market, and US enterprises can get 25% of the box office. However, if US film companies co-produce movies with China, those movies will not take the quota and US corporations can gain 43% of the total box office like their Chinese partners.

China’s film market, with total domestic box office exceeding 45 billion Yuan ($6.6 billion) and viewers reaching 1.37 billion, has become the second largest film market in the world. It will surpass the North America film market, currently the biggest in the world, just within one or two years according to estimation. Therefore, with co-producing films across countries, US film companies can bring more movies into the China market and make more profits as they will enjoy a bigger piece of the cake.

Total Box Office

Viewers

Chinese film enterprises also want to cooperate with the US side in order to learn advanced techniques and mature storytelling as well as plot creation from the Hollywood blockbuster producers. Although China’s film market still continues expanding, the year-over-year growth rate dropped to 3.73% in 2016 compared with a double-digit fast pace growth since 2001. For the future development of China’s film market, the quality of the films will be as important as or more essential than the quantity of the films.

Among the top 50 films in 2016 in China, imported films, most from the US, achieved the highest rating compared to co-produced and domestic films, according to Douban Film, one of the most famous and influential movie review websites in China. The average rating of total 24 imported films was 7.21, while co-produced and domestic movies just got 6.07 and 5.56.

屏幕快照 2017-05-22 上午2.11.01

Quality instead of quantity in future China-US film co-production

Is it a win-win deal for Chinese and US film companies to co-produce films? It seems not that true based on current statistics. The unsuccessful The Great Wall, along with many other failed deals, has cast shadow on the cooperation and made the future look gloomy. What we see now is that Chinese film companies have invested large sums of money into Hollywood but have not brought back good stories to the Chinese audience at all.

The average rating of China-US co-produced films keeps declining and runs below total average since 2013 [*The average rating in 2016, reaching 5.3, was dragged higher by two high-score films, Kung Fu Panda 3 (7.7) and documentary Sky Ladder: The Art of Cai Guo-Qiang (8.7)].

屏幕快照 2017-05-22 上午2.24.18

“There is plenty of enthusiasm for co-productions but so far nobody has really successfully cracked the formula,” commented Fergus Ryan, a journalist from China Film Insider, a leading trade publication focusing on the relationship between China’s film industry, Hollywood and the rest of the world. “Cultural differences, especially in storytelling and story structures, as well as language barriers play a part.”

“Underlying all of the factors is, of course, censorship,” he added. Similar to domestic films, co-productions have to get both Film Production Permit and Film Release Permit issued by China’s State Administration of Press, Publication, Radio, Film and Television. “The film script should pass the review of SAPPRFT first,” Chen Chen, a young scriptwriter in Beijing, confirmed. “And both investors and directors may cast impact on script creation.”

Ryan said filmmakers will continue to be attracted to film co-production as long as China’s foreign film quota exists, but he believes US studios will continue to explore new ways to cooperate with Chinese companies to get an advantage in China’s market, and it may take some time for them to find out new solutions.

The fast-growing China’s film market has kept attracting large flow of investment, which has been generating a big market bubble. “The bubble can’t last forever,” Ryan said. “I think it will iron itself out. Quality will get people back into the cinemas. And more competition from overseas should help force the domestic industry to lift its game in terms of quality.”

“What China’s film market really needs now is not capital investment but talent,” Wang said. “We need outstanding scriptwriters, directors and actors to develop future film industry.”

As she mentioned, film co-production will definitely be a trend, no matter which country to cooperate with. However, how to tell Chinese stories, present Chinese values and blend Chinese culture with other countries’ in the co-produced films still remain unclear. “Audience, no matter domestic or overseas, prefer profound stories with culture and value deeply rooted in it rather than superficial and dazzling effects,” said Wang.

Chen, the 28-year-old scriptwriter, still holds confidence in the future of China’s film industry. “The market bubble has become much smaller now. It will drive away people who are not devoted to making good films and improving China’s film market environment.”

Gloomy period for Chinese film companies

China Film Co., Ltd., one of the co-producer of The Great Wall, is a leading Chinese state-owned corporation in film co-production with foreign countries. In 2016, China Film co-produced eight films in all, two with Hong Kong, two with Korea and another four with the United States. Cooperated with Hollywood giants, such as DreamWorks Animation, Columbia Pictures, Legendary Entertainment, and other US film enterprises, China Film produced and released Kung Fu Panda 3, The Great Wall, My Best Friend’s Wedding and Crouching Tiger, Hidden Dragon: Sword of Destiny last year, trying to make them blockbusters in China’s film market.

However, things did not go as well as China Film expected, as most China-US co-produced films failed to gain enough profits to meet the company’s expectation. Only Kung Fu Panda 3, with a budget of around $145 million, performed well to reach $521.2 million in global box office, but still less than the earnings of $631 million and $665 million achieved by its previous two series.

When Shanghai Stock Exchange opened for trading on May 2 after the Labor Day public holiday, China Film, the country’s largest state-owned film production and distribution corporation, saw a 1% fall of its stock price. The slump continued during the whole week until May 5, leading to a nearly 5% shrink of the company’s stock price.

stock price-china film

Stock charts of China Film Co., Ltd. (Apr. 28 – May 5)

The bad performance of China Film’s stock was inseparable with the company’s high costs and huge loss in co-produced films with overseas enterprises according to its 2016 annual report released on April 28, the last trading day before the Labor Day holiday.

Although China Film’s total net profit in 2016 increased 5.66% compared to the previous year, the company’s gross profit margin of the film & TV production sector had negative growth of 16.94%, decreasing 22.42% from 2015, and being the only one sectors among China Film’s four main business sectors which operating costs exceeded operating revenue, according to the statistics from the company’s 2016 annual report.

China Film Main Business Performance 2015-2016

China Film Main Business Gross Profit Margin 2015-2016

China Film explained in its annual report that the shockingly drop was mainly because of the big-budget co-produced films with overseas corporations or institutions, especially Hollywood companies, during last year. China Film invested a lot in those high-cost movies, but did not gain as much revenue as expected, the company said in the file.

China Film was not the only loser in film co-production business. Huayi Brothers Media Corporation, a famous Chinese private-owned entertainment company who also actively participates in film co-production, saw 5.2% drop of its stock price in four consecutive days after the company released its 2016 annual report on March 27, 2017.

huayi stock

Stock charts of Huayi Brothers Media Corp. (Mar. 27 – Mar. 30)

Huayi Brothers’ operating revenue of its film production and distribution business in 2016 also fell 9.56% compared to the year before. The company’s gross profit margin suffered 2.27% year over year decline, according to its 2016 annual report.

huayi brothers

Huayi Brothers said in the file that the nearly 10% drop was due to the unsatisfactory performance in domestic box office of the films invested, produced or distributed by the company, including the high-budget co-produced animation Rock Dog with Dream Factory Group. The film merely received $20.8 million in global box office regardless of huge production costs of about $60 million.

Future of China-US co-production in doubt

There will be a period of growing pain on each way of development and improvement. And both China Film and Huayi Brothers said they did not care about making profits from co-produced films at current stage. They are testing different co-production methods, but they definitely believe this is the trend to develop and further expand China’s film market.

However, audience are not as patient as those companies. What they want is good films with good stories but not lavishing money on the pieces of crap. After all, no one will be happy to waste two hours on a worthless rotten film.

Meanwhile, the policy of 34 foreign films importation quota per year between China and the United States under the memorandum signed by the two countries in 2012 will expire this year. It is difficult to tell whether the Chinese government will expand or cancel the limitation for imported films at current stage, adding another uncertainty towards China-US film co-productions.

Nevertheless, not all the news is bad for China-US film co-producing. China Film Industry Promotion Act, the first law to regulate the film industry in China, took effect from March 1, 2017, reflecting the Chinese government’s determination to protect domestic films and build the film industry into a pillar in national economy. This may leave some space for co-produced films, treated equally as domestic films, to survive and develop. Moreover, relaxing the regulations on film production and allowing foreign capital into China’s film market may provide more opportunities for film co-production, even though the strict censorship by the government on film content still exists.

 

 

Data Source:
State Administration of Press, Publication, Radio, Film and Television of The People’s Republic of China
China Yearly Box Office,  http://www.boxofficemojo.com/intl/china/yearly/?yr=2017&p=.htm
Douban Film, https://movie.douban.com
IMDb, http://www.imdb.com
China-International Film Co-Production Handbook
China Film Co., Ltd. 2016 Annual Report
Huayi Brothers Media Corporation 2016 Annual Report
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