Censorship, quota restrictions hold back market

BEIJING — China is a market still growing by leaps and bounds, rich with opportunity for Hollywood films and investors alike. But in order to take the next step into what will soon become the world’s biggest territory, U.S. studios may need to see the local competition become less constrained.

Yu Dong, prexy of Nasdaq-listed private shingle Bona, believes censorship remains a major impediment to maximizing the money-making possibilities of the Chinese film market.

“The authorities controlling the film business should be determined to open up, to allow us to lift the status of the Chinese film industry to world class,” he told a forum at the ScreenSingapore film festival in December.

The anti-censorship chorus is one Hollywood has been singing for a long time, as China offers the promise of tantalizing treasures at the same time it places limits on their realization.

Has there ever been richer fare on offer in Chinese movie theaters?

In the run-up to the holiday season, Chinese auds could choose from Feng Xiaogang’s disaster epic “Back to 1942″ (which took in $21.3 million at the local box office), Lu Chuan’s historical drama “The Last Supper” ($21.3 million) or Ang Lee’s “Life of Pi” ($90 million).

Over the increasingly important Christmas period, filmgoers also were offered Jackie Chan’s hotly anticipated “CZ12″ ($34.6 million in its first week), Zheng Xu’s “Hangover”-esque “Lost in Thailand” (a startling $106.8 million in two weeks, the best-performing local film of all time) and Chow Yun-fat toplining “The Last Tycoon” ($3.6 million in its first few days.)

This is a market growing in maturity, says Albert Lee, CEO of the Hong Kong shingle Emperor Films.

“There is indeed a shared belief among Chinese producers and distributors that the market is sufficiently large enough that it can accommodate two or even three major releases at the same time,” he says.

Chinese box office revenues reached $2.3 billion in the first 11 months of 2012, up more than 40%, making it the second biggest film market in the world. Exhibs added 4,000 screens in 2012, and within five years there could be 25,000 screens in China, while B.O. is on track to rise to 30 billion yuan ($4.8 billion) — and to $10 billion within the next 10 years.

The Beijing government has relaxed rules to allow more overseas films into China. Competition has intensified as the quota of foreign films in Chinese theaters has increased from around 20 to 34, including Imax and 3D movies. As a result of the rise in imports, the share for local pics fell to 41%, from around 60%.

“The market is growing, there are more and more screens, more and more films, and the size of box office is on the rise, but it’s still a bit of a muddle,” says Lee. “It is still in a transitional phase, and there are a lot of uncertainties.”

Big issues for local filmmakers include escalating costs of production and talent, as well as Hollywood competish.

“We will take baby steps, whereas a year or two ago, we were taking giant steps,” Lee says. “A couple of years ago, we were all saying we were heading toward a booming time. Events have set things back a little.”

China B.O. will become the biggest in the world by 2020, according to a report by Ernst & Young, as the nation aims to boost the domestic economy by growing what the government likes to call the “cultural sector.”

But because the goal of domestic growth is so intertwined with the overall growth of the film biz, it is likely that China will continue to place limits on the success of foreign films — including blackout periods during which only domestic movies are shown, and B.O.-limiting concurrent release dates of tentpoles — until it feels the domestic sector is more established.

The next five years will be crucial for the development of China’s biz, with a renewed focus on improving domestic movies, Dong said.

Many filmmakers here feel censorship means Chinese films do not have a level playing field with their Hollywood counterparts. Regular blackout periods do not improve the quality of homegrown movies, filmmakers maintain, adding that they need clearer guidelines on what content is permissible. The lack of a film classification system has been a constraint on China’s development, as is the control of the distribution of foreign films by the central government, Yu says.

China dominated proceedings at ScreenSingapore, a sign of how important the market is becoming. Despite the fact that it is a six-hour flight from Beijing, nearly 3,000 miles — further than New York and Los Angeles — Singapore is hitching its star to the irresistible rise of the China market.

Much is made of the importance of co-productions. Earlier this month, leading Chinese thesp Wang Xueqi (“Sacrifice,” “Bodyguards & Assassins”) was cast in the role of Dr. Wu in the third installment of the “Iron Man” franchise, which is lensing in part in Beijing.

Marvel is producing the pic with Beijing-based DMG Entertainment, and the inclusion of a bona fide Chinese star and the decision to shoot in China will help with its bid to gain co-production status.

There are indisputable advantages to such status. Full co-productions are treated as domestic films, do not fall under the import quota, and usually involve local investment in exchange for local distribution rights. They stand a much stronger chance of getting released on the mainland, having immunity from blackout periods and generating a greater revenue share for producers.

However, the co-production route can also be problematic.

There has been a crackdown on what Chinese bizzers see as attempts to take advantage of the benefits of “co-production” by paying lip service to the requirements.

“We see lots of opportunities in this market, but co-production isn’t the way to go, unless you find something that really resonates with the China market,” says Greg Basser, CEO of Village Roadshow Entertainment Group/Village Roadshow Pictures Group, whose company has been working in Asia for the past 40 years, starting with distribution of the Bruce Lee movies in the 1970s. “We have been building multiplexes in the region,” Basser says. “We have a partnership approach wherever we go.”

Village Roadshow has Keanu Reeves’ “Man of Tai Chi” slated to screen in late April. “That’s the first foreign co-production (with China Film and Dalian Wanda Group) to get a completion bond,” says Basser, who describes China as being like Hollywood after World War II — lots of talent, but little infrastructure. “We’re bringing those sorts of disciplines,” he adds.

Hong Kong shingles have long dominated co-productions, because CEPA (the Closer Economic Partnership Agreement), effectively gives Hong Kong movies domestic status in China.

Hong Kong’s Lee says he considers China to be Emperor’s biggest market. “It’s our domestic market, and where we focus most of our efforts,” he says. But he cautions that co-productions are difficult.

“It’s not easy to strike the right balance,” he explains. “It’s not just a question of getting a few stars in. We’ve had China and Hong Kong co-productions; now we have China and U.S. co-productions. We need to find the right project and the right vehicle.”

But just like in the movies themselves, many in China are holding out for a hero — possibly in the guise of a Chinese superhero, which would be box office gold. Indian helmer Shekhar Kapur believes it’s only a matter of time before such casting is realized.

“Spiderman Six, when he takes his mask off, he will have a Chinese face,” Kapur predicts. “And he won’t be swinging through New York, he’ll be in Shanghai.” What: China targets growth hurdles for film market.

The takeaway: Less censorship, fewer restrictions could lift all productions in a market that continues to build.

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