Chinese film libraries set for digital reboot

It’s been well documented that film libraries in the West have been losing value – or at least the difficulty of defining their value in an age of shifting distribution models, has inevitably led to their perceived decline.

In the Chinese-speaking world, it’s a no less confusing but perhaps slightly more hopeful picture. Content owners in Hong Kong and China have also been hit by a downturn in DVD revenues, but Asia’s TV market is still growing, and in the huge mainland market, the emergence of a range of new media platforms is giving the impression that there’s everything to play for.

The only problem is that – just like everywhere else in the world – new media in China is still undeveloped frontier territory, with no clear consensus on who the major players are or which business models will eventually shine through.

But that’s not stopping the major content owners from being proactive. In August, News Corp announced that it is selling a majority stake in three Chinese TV channels and its 757-title Fortune Star library to mainland private equity fund China Media Capital (CMC). Although the deal initially looked like a pull-back from the mainland market, News Corp described it as the most logical way to increase the value of the library and channels in the market where they have most potential.

“The agreement with CMC recognises the value we have created in Star China and enables us to continue to grow it for the future,” said News Corp chairman, Europe and Asia, James Murdoch. 

Meanwhile, Hong Kong-based Celestial Pictures is actively exploring ways to refresh its 760-title Shaw Brothers library by adding new productions and repurposing content for digital platforms. The company recently appointed former Apple and Microsoft executive Gillian Zhao Fang as managing director, China, with a remit to “develop partnerships with digital platforms and content creators in China to extend the reach of the library as well as create new IPs based on iconic Shaw Brothers films and characters.”

Growth in China’s film and media markets has lit a fire under both of these properties – but in the short-term they’re deriving more revenue from TV sales than new media. Broadband penetration is high in China – at around 28% or 364 million users – and venture capital has been flowing into legitimate online distribution platforms, which are buying movies despite initially relying on user-generated content (UGC). But if these companies are making any profits at all, it’s from online news and advertising, not movie subscription fees. It’s also unclear how these sites and their movie content will be regulated by the Chinese authorities.

All the major Chinese content owners say they’ve either concluded deals or are in active talks with major online players such as Sohu, Baidu, Tudou and Youku, although they’re reluctant to share details.

“The online platforms pay up-front, in addition to revenue-sharing deals, but you can’t expect much from revenue share,” says Ricky Tse, who handles sales of Media Asia’s 160-title library. “These companies aren’t making the money they expected, but they still need strong content, so they’re still buying. We’ll probably see that when licenses come up for renewal, they are much more picky about what they take.”

Certainly online revenues both in China and globally are not making up for losses from DVD. Although there are a few bright spots – remastered kung-fu titles are selling to Blu-ray in the UK and regular video in Eastern Europe – sales to most markets are significantly down. China had the beginnings of a DVD market in the early 2000s, but this quickly collapsed due to online piracy.

Much more encouraging in the short-term is the Asian television market. “Based on our sales performance, TV in mainland China is very strong as the major broadcasters are seeing a big increase in ad revenues and are willing to pay good prices,” says Fortune Star vice president, Program Syndication & Distribution, Alfred Ng. Meanwhile, pay-TV is booming in South-East Asian markets such as Indonesia and Vietnam, and new movie channels are being launched across the region. HBO teamed with Hong Kong’s Mei Ah to launch Asian movie channel Red in April this year, while Lionsgate-backed Tiger Gate has launched action channel KIX and horror-themed Thrill.

“We’re still seeing growth in markets like Indonesia, Hong Kong and Taiwan – there’s a lot more capacity and it’s quite a dynamic market,” says Celestial Pictures CEO Ross Pollack. “There’s huge interest in vernacular content in Asia. China’s TV market is also growing and with our new office in place we’re very optimistic.”

Both Celestial and Fortune Star are also in the process of converting their entire libraries to high definition (HD), which is expected to further drive sales.

However Pollack observes that no library is going to reach its full potential unless it’s refreshed: “If you take an active approach towards a library, then you can increase it’s value, but if you take a passive approach it’s value will decline. It has to be reimagined and added to – especially in this day and age when people expect content to be delivered exactly how and when they want it.”

The company is mining its library to find films and individual characters that can be remade in a range of formats from minisodes to movies and from merchandising to mobile games. However, developing theatrical remakes for a generation weaned on YouTube brings its own peculiar set of challenges.

“We have to reboot these films for young, hip audiences in China that didn’t grow up with the Shaw Brothers movies,” says Celestial senior vice president, theatrical distribution, Peter Poon. “The library has unbelievably rich stories, but story-telling back then was more simple, and today’s audience is way more demanding. A story that took one and a half hours to tell back then would be told in 20 minutes today.”

Although its early days for the News Corp-CMC joint venture, Fortune Star execs say they’re also looking at ways to rejuvenate the library – with remakes and original productions also on the cards. There’s also plenty of mileage left in the existing titles which include action classics starring Jet Li, Michelle Yeoh and Jackie Chan and most of the films of Bruce Lee.

News Corp won’t comment on specifics, but it certainly won’t hurt the library to have both the Chinese government and a major domestic media conglomerate behind it. Established in April last year, CMC was approved by China’s National Development and Reform Commission with assets of $737m (RMB5bn) and founding partners including Shanghai Media Group and China Development Bank.

However its unclear whether the joint venture will ease the library’s passage through China’s censorship and quota systems. The Fortune Star and Shaw Brothers films are Hong Kong productions – and while Hong Kong has certain privileges under the CEPA trade agreement – they’re still classed as foreign movies. More promising, say local execs, is the likelihood that China will eventually widen its quotas as per its WTO commitments:  

“At present we can’t sell the entire library in one year, but we anticipate a loosening of quotas in coming years, then we’ll have the opportunity to sell a lot more,” says Fortune Star’s Ng.