It wasn’t just “Star Wars: The Rise of Skywalker” — with its dismal $12 million opening weekend — that was a Middle Kingdom misfire for Hollywood in 2019. When year-end figures for the China box office are confirmed next week, it’s likely that only two Hollywood titles will be among the 10 top-grossing titles of 2019, compared to five out of 10 last year and overwhelming market domination not so long before that.
“This has to be the worst performance for Hollywood in China since 2008,” said Chris Fenton, previously China-based head of motion pictures at DMG and now senior advisor to IDW Media Holdings and a trustee of the U.S.-Asia Institute. As recently as 2012 and 2013, Fenton recalls, there were weekends “when 90% of the box office in China was from foreign films… China used to tax its exhibitors if they generated more than 50% box office from foreign films. That’s not needed anymore.”
Instead, locally produced blockbusters such as sci-fi epic “The Wandering Earth” and animated hit “Nezha” are luring far more moviegoers into Chinese theaters ￼than foreign-made films.
Whether Hollywood will actually record a net decrease in earnings from China for the first time in possibly a decade is still unclear. The overall year-on-year growth of the Chinese box office has often masked the softening appeal of Hollywood movies. But that expansion has slowed to a single-digit percentage, and the Chinese yuan has weakened against the U.S. greenback, ￼shrinking Hollywood’s earnings in dollars.
Exhibition and distribution consultancy Artisan Gateway is forecasting that the overall Chinese market will reach RMB63.5 billion ($9.06 billion) this year, a gain of 4.1% in local currency terms. But that is likely to be more than offset by the 6% fall of the yuan from RMB6.58 to the dollar a year ago, to RMB7.01 today.
Artisan Gateway data already show the market share of Chinese films rising from 62% in 2018 to 65% in 2019. That has come largely at the expense of Hollywood titles, which are down to 31% so far this year, compared to 34% last year. The figure could drop below 30% in the final calculation.
The tumble is even more discouraging given that 2019 was actually supposed to offer an opportunity for Hollywood to make up the lost ground. The Fan Bingbing tax scandal had led to a production slowdown from mid-2018, and caused severe financial difficulties for many Chinese movie studios.
In the end, however, only “Avengers: Endgame” and “Fast and Furious: Hobbs and Shaw” made this year’s top 10 list. China can no longer be expected to lap up American duds and act as a box-office safety net for tired franchises, which had been the case in recent years. Raymond Zhou, a China-based industry consultant, describes that as a “growing maturity of Chinese audiences.”
Both Zhou and Artisan Gateway chief Rance Pow say that Chinese box office is particularly top heavy, or hit-driven. “Only about 3% of titles gross RMB1 billion or more, an observation we’ve made since 2017,” said Pow. “Those titles grossing RMB1 billion are also accounting for an increasing share of China’s annual box office: 43% in 2017; 54% in 2018; and an estimated 55% in 2019.”
The locally made hits are now coming in a variety of genres, in a reflection of growing Chinese creativity.
“Forecasts at the beginning of 2019 did not take into account the dark horses such as ‘Nezha,’ which is arguably the best Chinese animation film ever; ‘The Wandering Earth,’ which is a milestone for Chinese sci-fi; ‘Better Days,’ the best teenage movie in a long, long time; and even ‘My People, My Country,’ the best anthology film and a government-encouraged [patriotic] film that most resonated with the public,” says Zhou. “There is not a single Chinese franchise movie in the year’s top 10 box-office list.”
Another structural change is likely to make it hard for Hollywood to quickly reverse its declining market share: a shift in audience demographics thanks to China’s cinema-building spree. According to Artisan Gateway, nearly 20,000 new screens opened in China this year, pushing the total to about 80,000. The majority of the new screens are in small towns and rural areas, often described as Tier 4 or Tier 5 cities, where audiences are less well-traveled, less affluent and more attuned to local rather than foreign content.
“The more screens China builds, the more the public taste will be skewed towards domestic fare, percentage-wise,” says Zhou.
The only upside for Hollywood in that scenario is that Chinese authorities may feel less need to shore up local market share by excluding U.S. films through import quotas. “As Chinese-language films generally over-index in rural markets, pressure limiting foreign-title importation could relax,” says Pow.
However, Hollywood titles are not necessarily the only beneficiaries of that scenario. In 2018, Indian films made notable inroads in China. In 2019, it was the turn of Japanese films (with a 2.9% share) and Italian ones.
“China could probably do away with the quotas,” said Fenton. “More Hollywood movies in the market would probably still generate roughly the same box office result. The extra films would probably just cannibalize each other.”
He added: “In a way, it seems like the Communist Party’s master plan – of using protectionist policies to develop their homegrown product for their own film industry – worked out pretty well.”