China Film Group Corp. has been so closely involved with the development of the Chinese film industry throughout the past 15 years that it is difficult to separate the company from the actions of the government.
The distinction may become a degree or two clearer when the company, which is a wholly state-owned enterprise, finally floats its shares on the stock market. It will then become a private company, albeit one that is likely to still count the government as its majority owner.
The date for the planned IPO still remains uncertain but last week CFG filed a prospectus saying it is seeking to raise $740 million. The IPO will symbolically mark the end of a period when the state not only set the policy framework for the Chinese film industry, but also felt it necessary to lead it by example.
CFG had a predecessor, China Film Corp., that was established in the heat of revolutionary fervor in 1949. CFG itself was formed in 1999 through a process of consolidation and incorporation, in what was one of the first acts in the government-orchestrated process of film industry reform, modernization and privatization that accelerated through 2000-01.
CFG’s main stated roles are to be in development and distribution. But in fact, it spans the whole industry chain from film production, distribution and exhibition through to technology development, operation of a movie channel (CCTV6) and facilitating overseas relations.
In 2012 CFG released 158 films, which is more than the next four distributors combined.
CFG has stakes (some majority, some minority) in six different cinema exhibition companies, giving it approximately 40% of China’s theatrical B.O.
Through one subsidiary, CFG is the only company licensed to import foreign films, while through another it is required to be involved with all the country’s co-productions. Most important, and sometimes controversially, CFG holds the sole license for theatrical release of films that enjoy revenue-sharing distribution deals.
That makes CFG the business partner of, and de facto sub licensee for, all the Hollywood studios. Quite simply, CFG is the locomotive that the Hollywood majors must hitch on to if they are to release movies into the massive and fast-expanding Chinese market.
Last year was also the year when CFG’s relations with Hollywood distributors were tested by a dispute that saw CFG withhold the newly expanded share of box office revenues owed to the studios. CFG temporarily queried the application of a value added tax introduced as part of China’s tax code and eventually agreed to make full payments. But the incident led to a curious business and political dance, in which the studios sought to pressure CFG for their missing millions, but had to do so gently and through diplomatic channels for fear of skirmishing with the country’s monopoly revenue share distributor.
CFG by the Numbers – The digits swirling around China’s biz grow exponentially every year: $3.57b box office in China in 2013; 158 films released by CFG in 2012; 71% Market share in 2013 of local films. Illustration by Raul Arias for Variety
For all that evident muscle, and the estimated 40% contribution that distribution makes to CFG’s revenues, Han Sanping, the company’s long-time chairman, often maintained that CFG’s strength was more to be found in production.
Where previously the roles of many Chinese film studios was to produce propaganda films and create employment, CFG under Yang Buting and later Han was to lead a modernization process.
As a producer, CFG has been part of John Woo’s two-part historical epic “Red Cliff,” as well as Stephen Chow’s effects-driven hit “CJ7.” It was also the producer of “The Founding of a Republic” (2009) and “Beginning of the Great Revival” (2011), two patriotic films that were remarkable for being a throwback to propaganda, while also being genuinely popular with audiences. Han produced and directed the films as well.
Some in the industry question CFG’s innate strength as a production company. They suggest that development is ad hoc, rather than systematic, and that its production slate is arrived at by relying on its partners to fuel its progress.
But time and again the company has proved adept at finding partners that allow it to keep moving forward.
In 2004, CFG launched Warner China Film HG Corp., the first Sino-foreign joint venture filmmaking company, in partnership with Warner Bros., and the massive studios operator Hengdian Group.
Through that outfit, CFG boarded Ning Hao’s black comedy “Crazy Stone” as well as 2006’s “The Painted Veil,” a cross-cultural drama starring Edward Norton.
As the connections with Hollywood have tightened, CFG has co-produced “Karate Kid” (2010) with Sony Pictures, co-produced “Man of Tai Chi,” above, with Universal and last year announced “The Tibet Code” with DreamWorks Animation.
“Man of Tai Chi” was substantially shot at Huairou, where in 2008 CFG built arguably China’s most modern production base, complete with 16 soundstages, about 25 miles from downtown Beijing.
In 2014, CFG announced that it will board as co-producer of Paramount’s “Marco Polo” project, and it will be a minority financial investor, putting up at least $10 million in a pair of fantasy features, “Warcraft” and “Seventh Son,” hatched by Legendary Pictures. It is the first time that CFG’s China Film Co. subsidiary has invested directly in Hollywood movies and gives the company a piece of the films’ equity, to be recouped on a worldwide basis.
Legendary and CFG have been in talks since at least last year, when CFG agreed to work on with Legendary on its Legendary East slate of Chinese movies. But the 2014 agreement was signed by La Peikang, who stepped in as CFG’s head shortly after Chinese New Year.
La, who was deputy director at industry regulator the Film Bureau, is viewed as a safe pair of hands for the modern environment, rather than a repeat of Han’s patriotic strongman act.
La arrives at CFG with a lot on his agenda; getting the company through the on-off IPO, and facing up to the challenge of a second licensed distributor.
This year there has been much talk of another state-owned company being granted a license, and plenty of resistance to it from some official quarters. But even if it does not happen this time around, the expanding market makes the erosion of CFG’s quasi monopoly likely at some time in the near to medium term.
And as someone who spent nine years in Paris, La’s more international outlook is expected to be more in tune with what could be the next phase in CFG’s evolution: expanding China’s role in the global film industry in a way that matches its economic might.
“We will be a $5 billion industry next year and in three to five years overtake the U.S. We can’t afford to be only looking inward,” says one CFG insider, who spoke on condition of anonymity. In addition to the expanded Hollywood role, he is looking at alliances in Europe and Russia.