While China serves as a huge and lucrative potential market for foreign films and studios, the Asian giant?s existing policy and regulation of the overall entertainment ecosystem is a frustrating deterrent for serious investments by international content providers. Issues like heavy censorship, disregard for intellectual property rights and formats, and harsh limits on volume of foreign productions allowed inside the country have been major concerns in the media fraternity, both in China as well as internationally. However, China adopted an important World Trade Organisation (WTO) resolution in February 2010, stating that the Chinese monopoly system in the importation and distribution of foreign films breached China?s trading rights commitments. In effect, it implies that the Chinese state must amend related regulations in accordance with WTO?s rulings. This process, which kicked in last year, has raised hopes across China and even across the Pacific, in the United States.
The Chinese Entertainment Industry: Overcoming Barriers to Entry, a White Paper recently released by global media consultancy Attentional goes into the nitty-gritty of the existing framework regarding the subject and the market and industry potential once the country makes its policies WTO-compliant. It states that ?the Chinese government has carried out a licensing policy in production, importation, distribution and exhibition because movies are considered an entertainment product and an ideological machine?. The four major aspects of film production and distribution are fraught with severe restrictions. While filmmakers are required to apply for government licences, importing films remains a state monopoly business exclusively managed by the China Film Group (CFG), apart from foreign movies being subject to strict government censorship and an import quote system that doesn’t allow more than 20 films through box office split deals and around 50 that are imported through buying outright rights. Distribution and exhibition are again problem areas, with the former being handled again by the CFG and one other distribution company, while the latter for foreign films being subject to a maximum limit of one-third of the total screening time. However, the popularity of foreign films, primarily from Hollywood, is also evident. The paper quotes that foreign movies have, despite restrictions, managed to maintain over 40% of the market share in the past six years, giving much reason to look forward to an imminent toning down in stance by the state in a country that ?will exceed the US within 10 years, becoming the world’s biggest theatrical market?. Add to that the fact that annual box office revenue hit its peak of $1.6 billion in 2010, increasing ten times the amount in 2000, and you have a seemingly beautiful story in the making.
But problems, as listed out in the document, also include high print and advertising (P&A) costs, lack of multiple and effective distribution windows, issues of intellectual property and narrow supply chain. At the centre of most of these contentious issues is the thrust on theatre as the most vital distribution window in China. By revenue, 64.7% of the industrial income in films comes through box office receipts, effectively meaning relatively small revenue streams from auxiliary windows. It states, ?the revenue of home videos for a Chinese film comprises less than 1% of the box office receipts. Without robust multiple distribution windows, it is hard for a movie to reduce the risks and expand revenues.? Coupled with a huge lack of theatres, the problem assumes a greater denomination. The paper quotes that in terms of screen density, 10 million moviegoers share just 7.3 screens in China, while the same number shares 129.8 screens in the US. This creates severe competition among films as they slug it out for theatre space, which, in turn, means that the smaller and mid-budget films lose out on getting any screen space. The paper draws a parallel between the industrial operation in films in China prevalent today with the ?pre-1950 Hollywood, where televisions had not been introduced to the mass market, so the revenue totally relied on box office receipts?.
However, talking of the immense potential of China as a market for content providers, it further throws light on possible changes and potential opportunities, stating, ?An ideal prospect for foreign companies is that they can set up joint venture distribution organisations with private Chinese institutions.? While the White Paper concludes that WTO’s ruling will accelerate the deregulation on the film importation and distribution system in China, it also throws caution to the wind by stating that while the WTO panel required China to amend its policies in this regard by no later than March 19, 2011, the country hasn’t done so yet. However, it forecasts that it’s only a matter of time and deregulation is imminent. However, one contentious bone still sticks out, something which has been an international concern with China?censorship. The concluding lines of the document, too, make it amply clear: ?Regardless of the openness in the import and distribution system, the Chinese government still retains the right to censor content, which remains the ultimate barrier for all content owners.? So while a media revolution, at least in the sphere of cinema and film content, might well be on its way, it is not expected to be that smooth a ride.