(Featured Image Source: Economist)
We have covered the secret ingredients for successful blockbusters and box office manipulation in China’s movie industry. In this edition, we will talk about prospects of China overtaking US as the world’s largest film market. The article is originally written by Dianshi (点拾), a professional investment research firm based in Shanghai. It is translated by our beloved colleague, Ding Yonghong.
China’s box office hit record $ 560 million over the week-long spring festival holiday (8-14 Feb. 2016), outpacing the $ 530 million achieved in US during the Christmas week last year, when the showings were mainly Star Wars: The Force Awakens. Apparently China’s film market has a more powerful presence than that of US. Statistics show that North America (US and Canada) sets new record box office of $ 11.1 billion in 2015, while China sold only $ 6.8 billion. However, looking at the growth rate, one can find no obvious growth for North American box office, or even a 2% drop from 2012-2014. China’s box office, on the contrary, jumped 49% last year. At such a growth rate, China is on track to overtake US and become the world’s largest film market.
(Super-hero sequels with celebrities seem to be the killer box office machine in the US)
Since the film market in North America is extremely mature, as total box office typically fluctuates accordingly with blockbuster sales and overseas market performance. In reviewing returns of the North America box office in the past 20 years, one can discern the following: 1) returns are normally proportional to budgets. It becomes increasingly difficult to have big box office returns out of small productions, such as the Six Sense, which had a 15x+ return. Blockbusters tend to attract more box office receipts. Specifically, a movie with a budget of 10 to $ 40 million has average showings of 1600 in the cinema, whereas a $ 100 million-budget movie could reach up to 3500. 2) More and more movies have sequels. Under almost the same circumstances, a sequel grosses on average $ 35 million more than the non-sequels, simply because it bears fans’ support and enjoys profits of certainty. 3) Superhero movie is booming. From 1996 to 2000, there are in total 8 superhero movies, while in the last 5 years, 19. A superhero movie earns $ 58 million more than a non-superhero movie of equivalent budget. 4) Attractions of super stars, like Jennifer Lawrence or Leo DiCaprio, will normally enhance the ticket sales by $ 10 million. 5) Does the rating or critic review of a movie really matter? Not at all. Today plenty of the highest-grossed movies have bad reviews.
(Screen count increasing exponentially, source: Pacific Bridge Pictures)
In China, the case is rather different. The most important driver of growth is the increase of cinema screens. The compound annual growth rate (CAGR) of cinema screens (one screen per auditorium) reached 40.4% during 2010-2014. In 2010 there were 281 million total views but by the end of 2014, it soured to 830 million. Over these years, the CAGR of movie views was at 31.1%, which lagged behind that of the screen number. However, in 2015, the screen number increased to 31630, or 34% YoY, finally outpaced by 49% growth rate of gross box office.That said, box office growth in the past few years owed primarily to proliferation in screens, evidenced by many 2nd, 3rd or 4th tier cities, where mini-movie theaters have turned into cinemas.
(Going online has been instrumental to the growth of China’s box office)
Another huge factor that fuels China’s record box office is the increasing popularity of online movie ticket services. Thanks to online-ticketing portals, such as Wepiao.com, Maoyan and Gewala(merged with wepiao), one can easily book tickets in advance, setting people free from queuing up at the ticket booth; the ticket price is almost the same as it was 10 years ago. The convenience and high price-performance ratio largely improve user experience. In China, cinemas are usually located in shopping malls, where people can have their tickets print out after shopping or dining in the restaurants. This is quite different from US experience because most of the cinemas are in an isolated building. Thus, US audiences may have better experience of watching movies, but Chinese audiences definitely have better experience of ticket purchasing. Without online-ticketing vendors like Gewala and Maoyan, China would not see the record-high box office receipts.
(Comedy is the dominant genre in China)
In terms of genres, comedy is still the most popular movie genre among Chinese audiences. Many of the highest-grossing movies in the past few years, like Lost in Hongkong, Good-buy Mr. Loser, Monster Hunt, Mermaid, are in the category of comedy. If US box office is powered by superhero movies, then China’s would be dominated by the SUPER FUNNY, such as Mermaid which has totaled $500 million in receipts, equivalent to a blockbuster in US (given that Chinese movies have only domestic market, rather than a global one). It is very likely that in the future china will see a blockbuster with $1 billion ticket sales, driven purely from its domestic market.
It becomes a global phenomenon that production budget dictates box office. Low-budget movies, like Lost in Hongkong, are less likely to gross massively in the future years and Chinese movie budgets will by all means go up, consistently. Only expensive movies can enjoy more screenings in Wanda’s franchised cinema lines and hence marketing from Enlight Media Group (光线传媒), signifying more public attention. From a longer term perspective, China’s movie industry will likely be consolidated and might see giant companies monopolize the filmmaking industry.
- China’s box office will outpace US in two or three years’ time and overseas movies will likely incorporate Chinese elements in order to engage Chinese audiences.
- Box office of foreign movies in China declined from 49% to 32% over the years mainly due to restrictions of foreign movie imports, which contributes to the rise of Chinese movies. It’s still unknown whether the limitation will be eased in the future.
- The new global trend is that movies with deep pockets (budget) have better chances to win higher box office.
- The growth rate of US cinema market becomes steady thanks to the commercialization of super IPs.
- Increasing screens number and boom of Internet ticket services have propelled the astonishing growth of China film market.