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Coronavirus May Hurt China’s Long-Term Entertainment Industry Goals

Halting all film releases and closing cinemas over Chinese New Year was the most dramatic possible expression of the emergency response to the novel coronavirus threat that spread from the city of Wuhan in January. The movie distribution and exhibition sectors had been counting on a billion dollars of box office revenue over the 10-day holiday period, a peak season that determines the growth trajectory for the whole year.

Yet, bad as the virus impact is for the movie releasing sectors, there could be longer-term consequences for China’s film production and eventually for its emerging rights sales businesses. 

“This will reduce the number of productions in 2021. This will be bad for employees in this sector, from post-production or special effects or crew. Everyone,” says Tony Lu, a producer working on “The Wandering Earth” sequel at director Frant Gwo’s studio.

Two of the world’s newest and largest film studios — Qingdao and Hengdian — lie idle, shuttered since late January as a precaution against the spread of coronavirus in China. Hundreds of smaller facilities have similarly gone dark, as they follow government instructions that come with no return to work date.

One TV producer told Variety that the shut-down instructions came with little warning, and instantly threw his show into a fragile financial state. “We have 400 cast and crew holed up in a hotel in a closed-down resort near Chengdu. With food and accommodation costs, but no filming, we are losing money every day,” says Wang Haiyi of HiShow Entertainment. His “Game Changer” series had been using the same crew as delivered the hit costume drama “Yangtze Palace.” “Instead, we made a music video to keep our spirits up.”   

The most obvious problem is that nobody knows how long things will remain locked down. Some Chinese cities officially went back to work on Feb. 10 after being given an extra week of break. But schools are closed for a longer period.

“Nobody can be sure that the authorities truly have their arms around the virus crisis yet. Until then, there cannot be any let up for the production sector. I can’t see there being much real filming before April,” says Andre Morgan, veteran producer and head of Ruddy Morgan. “In the interim, is it possible for Chinese film crews to travel abroad and restart work there?” Others, including independent producer Shan Dongbing, don’t expect much production to happen before June.

The annual hiatus that Chinese New Year brings means that many productions aim to finish before, or start immediately after, the break. But not all fit that bill.

And who will pay for the immediate costs of incomplete, ongoing projects that are now shut down is also moot. The studios have indicated that they will be lenient with TV shows and films that have hired sets and equipment. But it is not clear that they will also waive the rental fees for the stages. And if so, how long will they be the ones willing to absorb the costs?

Few producers in China make use of the full range of insurance and completion guarantees that are available in the West. That means that production companies, and ultimately investors, public and private, will have to bear the costs. “Producers don’t have a bond company to cover this, that’s why the stock prices for these companies is just going down every day,” says Li Chi-an, an independent producer and screenwriter.

For projects that had started before the flu-induced shutdown, cast and crew may be retained as along as possible, but with their wages cut, as happened during the 2003 SARS epidemic. “Some crew may agree not to be paid in full, but if this goes on for two or three months, who knows?” says Li.

“People are afraid of the disease, but they’re also afraid that if they shoot a production and there’s an infection case, they’ll be punished by their higher-ups,” says Li Dan, a festival organizer.

Should the central and local governments’ anti-virus measures become prolonged — long enough for the currently halted projects to collide with the summer shooting season — reassembling cast, crews and (always skittish) financiers will be an ordeal that dozens of projects will not survive.

Many film investors in China are not especially sophisticated, or long-term players. They move in and out of the sector, and even in good times, many Chinese films rush into production to make use of a window of opportunity when the funding is available. 

The virus troubles follow a year and a half of turmoil in the Chinese industry, sparked by two major industry administrative changes. First, the new tax framework for producers and talent that was ushered in after the Fan Bingbing tax evasion scandal of 2018 meant that hundreds of companies scrambled to pay $1.7 billion of back taxes that they had not anticipated.

The shift of the film and TV industries into the regulatory orbit of the Communist Party’s propaganda department was announced in mid-2018, and took effect from the beginning of 2019. But its full impact was only understood some time later when films were ripped from festival and releasing schedules, and when producers started getting detailed instructions on how their work should follow socialist and patriotic narratives.

Those two factors, and the slowing of box office to only single-digit growth after a 15-year bull run, meant that much of the money available from such sectors as property developers had dried up.

Some folk suggest that bankruptcies, consolidations and the washing away of amateurish small-fry will in the long term improve the health of the Chinese entertainment business. But that scenario seems far away, and in the meantime, folks are scrambling to make the best of the current hiatus.

“If this were 30 years ago, the film industry would have been devastated. It’s so much easier with the internet to help us work. For development of a TV series this situation is actually not that bad,” says Li Chi-an. “We work on a shared document and write an episode as a team of six. We discuss and we edit it. Of course, it’s better to have the meetings and discussions in person, but it’s also doable viable conference call.”

“We just finished shooting a film in Japan before the spring festival. We are supposed to do the post-production now, but it was interrupted by the virus,” says Cao Liuying, co-founder of production and film sales company Midnight Blur (aka Parallax Films).

“The editor and director couldn’t work at the same place and the delivery of raw files in hard disks also became a problem. So we came up with a plan B of doing post-production in Taiwan,” Cao adds.

With travel restrictions now in place that may not work. But expect the Chinese industry to find creative solutions.

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