First steps of a box-office giant

In less than a decade, it has grown from being smaller than the $140m Hong Kong market to reaping $617m in 2008. By the end of this year, it’s expected to enter the top 10 of box-office markets worldwide with a total gross of $730m-$805m.

“Big numbers don’t necessarily mean a healthy market, and there’s still much development needed to ensure growth can be sustained”

The growth is due to rapid multiplex development and the rising spending power of the middle class, which has been only marginally affected by the global financial downturn. This, in turn, helped Transformers 2 to become China’s biggest ever box-office hit, out-grossing Titanic which took rmb360m - around $43m at the time - in 1998. Just a few weeks later, Harry Potter And The Half-Blood Prince is giving the robots a run for their money, with an impressive $13m opening weekend.

In previous years, Chinese authorities have tried to limit the success of US blockbusters to ensure local product maintains at least a 50% market share.

But they’ve allowed them to run wild this summer because they’re so confident about the line-up of Chinese movies towards year-end. A big-budget propaganda film, The Great Cause Of China’s Foundation, will open in September to coincide with the 60th anniversary of the People’s Republic of China. Then around 16 big-ticket films are scheduled for release during the high season from December until Chinese New Year (February 2010).

But big numbers don’t necessarily mean a healthy market, and there’s still much development needed to ensure growth can be sustained. Externally, there have long been calls for China to ease its censorship restrictions, or at least introduce a ratings system, and widen its annual import quota of 20 revenue-sharing foreign films. Internally, there are some urgent structural issues that need to be addressed.

One area that requires attention is the weakness of the country’s distribution infrastructure, in which just a handful of companies handle Chinese product, and only two companies - China Film Group and Huaxia Film Distribution, which is part-owned by China Film - are allowed to handle foreign films.

While there’s a limited number of releases, any film that’s thrown at enough screens will make money. But as the amount of product increases, there will be a need for more sophisticated marketing techniques. Distributors such as Polybona and Huayi Brothers have elevated the marketing of Chinese movies to an art form, but the industry has limited experience in releasing foreign films. And there are not enough companies like Polybona, so around two-thirds of local movies fail to secure a theatrical release. Equally as pressing is the country’s lack of reliable box-office figures.

The authorities issue figures from time to time, and the US studios do their own research and tracking, but many cinemas don’t report sales and the country still doesn’t produce a weekly top 10. The lack of accurate sales information could deter local investors, and is certainly an issue for overseas companies which want to co-produce with or sell movies to this fast-expanding market.

The authorities have made some efforts to strengthen distribution - Hong Kong companies can part-own mainland distributors, and some local companies have been allowed to ‘assist’ China Film in the distribution of foreign titles that are imported on a flat-fee basis outside the revenue-sharing quota. But these are small steps for a territory that is capable of a $62m hit. If the market doesn’t introduce the basic elements of competition and transparency, it will soon experience growing pains.