The Managing Director of the PRC’s sovereign wealth fund says, “Data to the next generation digital economy is like oil to the machine, or bullets to a gun.”
China Film Insiders is an ongoing series featuring significant creators, producers, funders and behind-the-scenes members of the ever-expanding China-Hollywood entertainment universe.
An investment bank that goes by the mild-mannered sobriquet, China Investment Corporation functions as the sovereign wealth fund of the People’s Republic of China. The influential managing director of its North American office, Winston Ma is more than just an i-banker—he’s an influential observer and theorist as well as the author of two books, the recently published China’s Mobile Economy: Opportunities in the Largest and Fastest Information Consumption Boom; and Investing in China: New Opportunities in Transforming a Stock Market, published in 2006.
Prior to joining CIC, Ma was deputy head of equity capital markets at Barclays Bank, vice president of investment banking at J.P. Morgan, and practiced corporate law with the firms of Davis, Polk & Wardwell, and Freshfields. In 2013, he was a Young Global Leader at the World Economic Forum in Davos. Last week, Ma spoke with China Film Insider about China’s ever-shifting and highly controlled media marketplace, where filmed entertainment competes to reach the 700 million Chinese citizens now online.
In what ways are China’s mobile and Internet economies affecting the broader Chinese entertainment landscape?
My book title includes the term “information consumption.” This is a term coined by the State Council in 2013 to describe the development of a new growth engine for China’s economy. Information consumption encompasses two kinds of consumption. One is to use information technology to stimulate more consumption in general: for example, turning e-commerce into mobile e-commerce or turning traditional retail into mobile retailing. Another side of information consumption is the consumption of information products: for example, streaming video content, such as the use of the Internet to distribute traditional movies.
The interesting thing about China’s mobile economy is that the new growth model of China at the turn of the century has moved in a new direction. It’s becoming more sustainable, more innovative, and in some way, you can describe it as more cutting edge.
What’s the biggest change between when you first used the Internet and now in how you think about China’s future?
Internet penetration in the last fifteen or twenty years was massive. My first time using the Internet was in 1997, when I was applying to university in the US. I checked emails twice a day, in the morning and the evening, that was it. Now, in 2017, twenty years later, if you go to really small towns, you see young kids using their smartphones almost every second. They use them not just to check emails or find information, they use it to chat with people, to find restaurants and order movie tickets. Every time they have a few seconds, they pull it out to read a few sentences of an online novel for entertainment. To them, mobile devices and mobile Internet are not just tools, they are indispensable parts of their lives.
What do you make of Chinese studio executives who think it’s a good idea to use big data to shape movies?
The mobile Internet and social network have definitely changed the way content is created. In the past, content producers and content consumers were separate. Consumers were very passive. But in the mobile Internet context, consumers are not satisfied. They would like to be part of the production of content and we have seen that with the film Tiny Times. The important part of mobile Internet involvement is actually right at the origination of the content. Because of big data, content producers can have a much better understanding of the preference of the consumers.
For example, from time to time we have seen popular novels get turned into movies. If you think about it, the term popular is very hard to define. What does that mean, something is “popular?” But in the mobile Internet context, it’s quite quantifiable because people can vote on it, people can Like it and, most importantly, people go where they spend money. In the case of online novels, if people like the story, they will send actual rewards to the online novelist. You can follow the cash flow to find where popular is. That’s the power of big data on the Internet.
Mimicry is a form of flattery, but doesn’t big data over-encourage it, and discourage individual expression?
We have definitely seen a herd mentality in recent years. But what’s really encouraging is that consumers are getting more sophisticated every year. There is a clear trend that the audiences are looking for more distinguishable content of different varieties.
For example, in last couple years the Chinese box office had a tremendous run. But in 2016, the pace slowed down. On the one hand, it’s quite alarming to the industry to think twice about its tremendous growth, because it is not a given. On the flipside, it’s quite encouraging—because the slowdown shows that consumers are seeking more high-quality content. They are not satisfied with just the copycat content, or normal stories decorated by a few stars.
As we go forward, the Internet promises to cover every variety of demand. And when consumers become more mature, there will be demand for a wide variety of content, more room for high-quality content, and individual artists coming up with individual content.
What do you tell people who say: “China’s Internet is monitored, why should we believe that this is a healthy marketplace?”
Obviously, there is a lot of sensitivity around big data. Clearly there will be a lot of regulation. Let me give you two sides of the analysis, one side, very much to the point of sensitivity around security of big data, in the context of Internet finance: the Chinese Internet giants have set up Internet banks that aim to have no branches, to allow consumers to do everything online in the most time efficient and cost effective way. Even though they have created the technology of facial recognition to the accuracy level of more than 99.999%, the Central Banks requires that in order to open an account people still need to go to a physical branch and meet the loan officer in person before they can proceed.
That is an example where heavy regulation is still needed in terms of collecting people’s data and using people’s data, because in some areas the security of the data and the user is far more important than the convenience of the app.
The flipside is, people have much less concern about their personal data in every way when they would like their preferences to be known. An extreme example is something called bullet screen. In some movie theaters, the theater is set up so people watching the movie can pull out their phones and type messages, about anything and everything, and those messages show up on the movie screen.
Moviegoers actually want their preferences heard, they want to express their opinions. The industry is taking notes so that they can make better, more suitable movies next time. It was created in the context of video streaming. When people watch at home they can put their comments on the screen and though they are watching solo they feel like they are in a social context. But in movie theaters it’s a little funny because people are already in a social context—but clearly some guys still feel that’s not enough. They still want to pull out their phones and type a message and let everyone read their comments on the bullet screen.
Is someone censoring the material before the ‘bullets’ hit the screen? How real-time is it?
I don’t exactly know how real-time it is, and I don’t think there is a lot to actually regulate because it is such a fun moment. There are sometimes inappropriate messages on screen, messages not related to the movies. Maybe someone says, “Hi: girl three rows ahead of me, can I buy you a coffee after the movie?” Sometimes people comment on the plot, and some people find the comments helpful in understanding the plot.
How do Baidu, Alibaba and Tencent evaluate a movie project? Are their calculations different that those performed by their peers and partners in Hollywood?
In terms of film funding and distribution there is a lot of leapfrogging in China compared to Hollywood in recent decades. In film funding, crowdfunding is more popular in China than in Hollywood, thanks very much to the spread of the mobile Internet. Of course these are very high-risk projects, so for these, crowdfunding investment products cleverly set a limit on the maximum amount people can invest. For many movie projects, people can invest as much as RMB 10 to be part of a movie whose budget is less than RMB 1.5 million. They get to tell people, “I’m a co-producer of a major movie.”
Another leapfrogging example is in the use of the social network. Production companies are making a lot of effort to look for good scripts in social networks and on the special websites for online novels. I don’t think Hollywood has spent that much time focusing on that source of new content.
Third, in terms of film distribution, earlier I mentioned Tiny Times, because it was a property viewed as Chinese version of Sex In the City: the audience of the films in this series was mostly young college and high school students. So, for distribution, the production company focused on social networks for young people. Doing that, they reduced the advertising and promotion budgets tremendously and got a much more accurate picture of the box office forecast than by traditional means, because advertising on social networks, or on any other mobile platforms, offers a lot better tracking of attention paid by the potential audience.
Finally, in terms of the difference between the film models of the two countries I want to highlight the difference in the concept of windowing. In Hollywood, because there is clear separation of different markets, they believe there should be different windows for distribution onto different screens: a film is released in cinemas, and then after a certain window it comes out on DVD, then you get the time for the release of the movie to TV channels.
In China, multiple screens come into play much faster. Chinese audiences are looking for seamless transition between different screens, no matter where they watch. At home, they can watch it on Internet TV. When they have to rush to the office, on the way to work, they can still continue watching on the subway. During lunch break, they can continue watching on the PC screen. Finally, if they need to go to the movie theater to watch the latest sequel, they will do so very quickly.
Companies such as LeEco have made a lot of pronouncements about that short lapse between one screen and another. Why might that work in China but not here?
The multiscreen model is risky for established industries. The idea is that if you distribute content across different screens, the revenue per person, per view, gets diluted or reduced. If you distribute content simultaneously, then people will probably go to the cheapest way to watch it. So if they can pay a small fee to watch on a streaming site, or get it as part of their overall subscription, maybe they won’t go to the cinema to buy tickets, popcorn, Coke, and everything else over the same 90 minutes. There was concern about this. But in China, there’s one unique feature of cinema that may change this dynamic, because in less-developed cities, in smaller cities or rural areas, the cinema actually serves a social purpose, like bullet screen phenomenon I mentioned.
Even when people sit in a cinema, they want to have more social engagement with other people. As you can imagine, in rural areas, the cinema may be the best party place for young people. So in that context, even though the content is distributed to different screens at much shorter lapse, there’s no clear indication, or it’s too early to say that consumption on electronic devices will reduces revenue from cinemas.
Can you talk about Google, or more generally about the barriers China puts in front of our content industry’s entry into its mobile Internet economy? How do foreign stakeholders need to adapt?
It is very important for U.S. companies like Google or Yahoo or Facebook or a Hollywood studio to rethink their business models when they enter the Chinese market in the new mobile Internet era. I think the most important aspect of this process is to understand new customers. Not only the middle-class, which is already the size of the U.S. population at three hundred million. They’re digitally connected, they are sophisticated buyers, so certainly they have the impact on foreign brands, such as P&G or Coke, for their next-phase growth in China. That part is clearly there.
But the more important part is the big base of the Internet user population, more than seven hundred million, bigger than the European population. What’s important with the size and number of mobile users is that they generate a huge amount of data. Data to the next generation digital economy is like oil to the machine, or bullets to a gun. With that data system, there are a lot of mobile applications that will be created and tested, and that’s very important because it’s important for companies to rise. The Chinese market may be the largest market in the world, but at the same time, it is also the most important lab for mobile innovation because you have the size and you have the data.
If you think about the fact that a lot of mobile apps can grow to large-scale and receive substantial feedback from the market much faster in China than elsewhere, it is very important for US technology companies to go into that market. Think about the latest need of that group, to test their mobile apps in that context. It’s important for US tech companies to realize it is not only a market, but also a source for new products, features, and business models.
How does language feature in the challenges and opportunities facing Chinese and American companies in the mobile Internet space?
The language question is profound in every aspect. In the context of movies, co-production has been challenging partly because of the language barrier. Every time a movie travels to another market, a lot of the humor may be lost in translation. That’s very clear. In terms of innovation, it is also quite clear that the language, or more broadly, the culture, is critical to the spread of innovation.
In the case of Chinese mobile applications, the first-generation apps that were successful in overseas markets are apps that are used as tools. For example, the mobile tool that can help clean up trash that occupies digital memory—there’s no cultural relevance there, and those apps got downloaded a lot. On the other side, WeChat is a social networking framework, it’s an instant messaging tool, and also it is the platform Chinese people use to share their every day life. It works very well in the Chinese market, but in many other markets, that cultural thing has been a very big barrier for overseas consumers to accept it as a day-to-day integral part of their lives.
I think, going forward, we probably will see more of the convergence on those apps, because with regard to many issues, both sides—Silicon Valley and China—are looking for video-based social network. That may be the feature that joins the cultures, because when things are based on videos, people can actually rely a lot on body language, facial expression, and so forth. So there’s still hope that new technology developments will allow us to cross the cultural and language barrier.