Sino-U.S. Film Agreement Tests China's Film Industry

By staff reporter WANG XINYI

THE 2012 American science fiction action film John Carter hit China’s silver screen just one week after its U.S. debut. Chinese filmgoers now stand at the front of the queue for American cinematic successes since the signing during Chinese Vice President Xi Jinping’s February visit to the U.S. of the Memorandum of Understanding on WTO film-related issues.

The memorandum includes three main provisions. The first is that China will allow the entry of 14 3-D or large-screen IMAX movies in addition to the present 20 movies per year from the U.S. Second, American studios that produce movies screened in China will receive, after deducting costs, around 25 percent of the box-office proceeds, as compared to the present 13.5-17.5 percent share. Third, independent companies, rather than the current single, state-backed entity, will be licensed to distribute movies imported from the U.S.

Jeffrey Katzenberg, CEO of the U.S. DreamWorks Animation SKG, has signed an agreement with three Chinese partners, one of them the Shanghai Media Group, on establishing the Oriental DreamWorks joint venture, with total assets of US $330 million. The Chinese companies will hold a majority 55 percent stake in the venture and DreamWorks Animation will hold a 45 percent share.

Chinese film industry authorities have yet to release details of the agreement. Nor have the China Film Group Corporation and Huaxia Film Distribution Co., Ltd., who are responsible for distributing imported movies to Chinese cinemas, made any comment on the agreement. It has nonetheless generated ripples throughout China’s film industry.

A poster for John Carter.

More Hollywood Blockbusters, Bigger Box-office Proceeds

Statistics show that China’s total cinema box office receipts in 2011 hit RMB 13.115 billion, of which 37 percent, or RMB 4.91 billion, came from imported American movies. The agreement stipulates an increase in American exporters’ share of the takings to 25 percent. The greater number of imported overseas films, however, will undoubtedly generate higher revenues. The agreement states that China will increase its imports solely of 3-D and IMAX films. This means that domestic cinemas with the capacity to show such movies will be the second direct beneficiaries, after U.S. film studios, of the agreement.

Wanda Cinema Line Corp, China’s largest cinema operator, formed a close strategic cooperative partnership with Canada’s IMAX Corp in March of 2011. At that time China imported limited numbers of IMAX movies, so rendering most of Wanda’s IMAX theaters idle. The agreement is expected to invigorate their business.

There are now six cine-film IMAX theaters scattered among Beijing, Guangzhou, Dongguan, Chongqing and Taipei, and 33 digital IMAX theaters throughout the country. Statistics show that 3,030 cinemas installed these specialized movie screens in 2011, bringing the total to 9,200. The prospect of brisk business generated by U.S. imports will undoubtedly encourage more theaters to follow suit.

Chinese theaters are happy with the agreement. The expanded quota allows for the inclusion of more literary films and independent productions in addition to the inevitable blockbusters. “Up to now, managers of Chinese cinemas have been wary of importing films such as The King’s Speech and War Horse because they need their quota for more sure-fire commercial movies like 2012 and Transformers III,” film reviewer Zhou Liming said.

The agreement is also fine by Chinese audiences, because they can now enjoy more genres of imported film. But more big-budget, high-tech Hollywood imports poses great challenges to the Chinese film industry, and an imminent rough ride.

Tough Road Ahead

Rong Chao, strategic planning director of the Bona Film Group, is worried about the full implications of the agreement: “Importing 34 movies a year means that domestic films will have to compete with three from abroad each month.”

Director Feng Xiaogang takes a more optimistic view. He says on his blog, “This keen competition will stimulate the creation and production of better Chinese films. As the best will win through, there’s nothing to worry about.”

Fellow director Gao Qunshu is similarly upbeat: “Opening up China’s market signals the demise of shoddy domestic movies and Chinese filmmakers’ reliance on big-name actors and ‘black hand’ market manipulation. The agreement is good news for those who want to improve the quality of Chinese cinema. Although the road ahead will be tough to begin with, it’s bound to get on the right track in the long run.”

The fact is, domestic films made paltry profits in 2011. Many earned RMB 100 million or more in box office receipts, but still showed a loss due to their high investments. For instance, although Zhang Yimou’s The Flowers of War grossed a gratifying RMB 580 million, the figure was appreciably short of its RMB 600 million investment.

Opening up the Chinese market to American film studios is not the root cause of the present crisis in China’s film industry. While talking about the current situation and prospects for China’s film industry, President of the Beijing Film Academy Zhang Huijun said, “The industry faces certain problems. First, we don’t have enough cinemas. Many films have not appeared on the big screen simply because too few movie theaters are equipped to show them. Consequently they earn no revenues. Second, existing laws are inadequate. Strict measures should be formulated to protect films’ intellectual property rights. Various types of insurance applicable during the film production process should also be improved. Third, movie tickets are too expensive. Fourth, access threshold for personnel to enter the industry have yet to be defined.”

Battle for the Market

Relevant national supervisory departments have focused efforts on developing the industry through improving the quality of domestic films, enhancing international cooperation, exploring international markets and expanding the influence of Chinese films abroad.

The recently published national outline on cultural reform and development for the 2011-2015 period calls for investment of social capital in the cultural industry and transformation of China’s state-run commercial cultural businesses into market-based enterprises. It also specifies policy support through finance, taxation and land use.

Officials of the State Administration of Radio, Film and Television (SARFT) have pledged efforts over the next five years to producing films and TV series about modern life, revolutionary tales, children, ethnic minorities, industrial development and life in rural areas. The SARFT will earmark RMB 30 million annually to soliciting quality screenplays from around the country. Script remunerations will range from RMB 1 million to 3 million. To sharpen the competitive edge of Chinese films on the international market, the SARFT plans to select around 100 aspiring screenwriters and directors that display potential for systematic training.

The film industries of other Asian countries and regions, such as South Korea and Taiwan, have encountered similar difficulties in competing with Hollywood. Their movies have not only survived but also blazed a trail in the market. A large proportion of the romantic movies that Chinese audiences so enjoy are actually produced domestically. Love Is Not Blind, which in 2011 grossed RMB 350 million in box-office revenues, is one example.

Many industry insiders believe that the agreement will bring more opportunities than challenges to the Chinese film industry, and that it could trigger needed adjustments. External pressure and consequent stimulation are expected to promote a revamping of the industry and improve the quality of Chinese films. Domestic filmmakers must now focus on developing a distinctive artistic style that singles out Chinese films and on carving out a niche for them in the international market.