China’s Film Industry Online, Part I

WUHAN, CHINA – JUNE 27: (CHINA OUT) The Audience watch the 3D film “Transformers – Age Of Extinction” through 3D glasses at a cinema on June 27, 2014 in Wuhan, Hubei Province of China. (Photo by VCG/VCG via Getty Images)

China’s theatrical box office market may be huge but the ancillary revenues (i.e. non-box office) are still relatively small in China. This is the first in a series of posts on developments in China’s digital ancillaries in a lead-up to the US-China Film Summit, which I will be attending along with a number of other lawyers from my firm and a talk I will be giving on China’s film industry before the Beverly Hills Bar Association on November 3. In this first post, I seek to provide a frame of reference for a discussion of ancillaries in China.

In recent years, a market-based Chinese film industry has started to emerge from the shadows of the older, centralized and state-funded model. As Professor Eric Priest pointed out recently in Copyright Extremophiles, this may even be contributing to an expansion of acceptable content for China’s censors. Censorship aside, we are seeing a growing foreign interest in developing Chinese programs intended predominantly or solely for the Chinese market. This desire to produce content for the Chinese market brings with it an appreciation of the need for intensive co-development of programs with Chinese creatives from the very outset; not, as is too often the case, using a script written in English and hastily translated into Chinese before a trip to Beijing. On the flip side, China is increasingly recognizing and coveting Hollywood’s expertise and finesse accumulated over more than 100 years. All of these things are driving co-development deals with a view to producing content with both Chinese domestic appeal and international flare.

Whether they are producing programs for the domestic market alone or Hollywood blockbusters to be imported under China’s 34-picture quota, copyright stakeholders, both foreign and Chinese, must keep an eye on all revenue streams available in China, not just the box office.

China’s ancillary revenues have been small by world standards. Just how small is hard to say. According to Liu Chi, in a recent and comprehensive paper entitled Challenges for the Chinese Film Industry after 2013, ancillaries made up only 10% of China’s total 2013 film business revenue, with 90% of revenue coming from box office. According to the MPAA, China’s 2013 box office was $3.6 billion. That would mean ancillaries were worth about 400 million out of a total Chinese market of about $4 billion.  Compare this to the US, where ancillaries account for most of a film’s revenue. Again, precise figures are hard to come by but ancillaries are sometimes taken as accounting for around 75% of revenue, with box office representing the remaining 25%. According to the MPAA, in 2013 the box office in the US and Canada was $10.9 billion. That would mean that ancillaries were worth $32.7 billion in a total North American market of around $43.6 billion. China’s 2013 box office grew 27% on the previous year while North America’s grew only 1%. There is vast scope for further growth in China’s box office and, with it, the ancillaries market.

Despite the dominance of China’s box office as a source of film revenue, some of the most interesting developments here in China are occurring in areas of ancillary exploitation, particularly digital home entertainment. These developments are even more striking given China’s woeful internet speeds — China’s average internet connection speed is ranked 79th globally and 10th in the Asia Pacific Region. See Make Way for the Mobile Shopper, by Devon LaBuik.

My next posts in this series will explore these developments.

-This article was first published on October 19th, 2014 by China Law Blog