Archive

Posts Tagged ‘Vertical Integration’

Hollywood & China – “To fight monsters we created monsters”

pacific-rim-poster-banner

“The film market in China is like an experimental supermarket – with more and more racks but only one product… The viewers don’t care what they see as long as it’s a film. They’ll watch whatever is put in front of them.”

- Zhang Xiaobei, CCTV

LA is “a favourite place for Chinese businessmen to do business”, according to the objective opinion of China’s general counsel to Los Angeles. And that was back in 2011, before China extended its annual quota of foreign films allowed to be exhibited on the mainland. We’ve written before about the relationship between Hollywood and China, which in the two years since we wrote that piece has only deepened. It’s little wonder; EY has predicted China will be the largest film market in the world by 2020. Revenue is being squeezed in the film industry as millennials hang out on their smartphones and games consoles. When they do pay for movies, it’s more likely to be streamed rather than owned. Worse, that stream may be hosted by someone like Netflix, whose burgeoning clout makes negotiations for license fees increasingly difficult. So China provides a timely cash cow; an antidote to Western media fragmentation and fatigue. But at what cost?

China’s economic rise to superpower status has logically meant a rise in its viability as a place to invest in. From infrastructure, where cinemas screens have been springing up at the unbelievable rate of seven a day (as of May this year), to co-productions between Hollywood and homegrown Chinese outfits. These collaborations have resulted in overt references to China in storylines, such as that seen in The Mummy: Tomb of the Dragon Emperor, The Karate Kid and the Kung Fu Panda franchise, or the additional scenes filmed for Iron Man 3. This also includes the more recent Transformers: Age of Extinction, which saw not only a large part of the film take place in Hong Kong, but also included local talent and featured a mind-boggling amount of inappropriate product placement from Sino brands. The few production companies in China are also expanding, looking beyond more traditional propaganda fare, as well as to foreign markets, as is the case with China Film Group.

chinafilms

But the film industry in China is not quite as rosy as it appears. Interestingly, there have been few efforts at US talent getting involved in Chinese productions. This may be partly due to the mess that was The Flowers of War, starring Christian Bale, which was reportedly little more than a propaganda piece. And from a content point of view, caution has been the watchword for studios; The producers of World War Z removed a discussion over whether the zombie apocalypse started in China; Chinese villains were edited out of Pirates of the Caribbean: At World’s End and Men in Black 3. Is that really necessary? And while scripts are edited to appear more appealing to China, so are balance sheets. For while Transformers 4 is now China’s highest-grossing movie of all time, according to The Hollywood Reporter, what THR don’t mention was the way the gross is measured. For, says Julie Makinen, a China correspondent for the Los Angeles Times, box office revenue is arbitrarily inflated. She elaborates,

“I think everyone agrees there’s some fudging that goes on… It’s fairly common to go into a theater, say, ‘Hi, I’d like to buy a ticket for Transformers,’ and they say, ‘Great,’ and they print out your ticket for a local romantic comedy. So I’m pretty sure the 20 bucks I just handed over is being counted in someone else’s basket. Things like that happen; a lot of statistics in China are suspect.”

Moviegoers aren’t being particularly discriminating yet because the act of going to the cinema as an event or experience is still a relatively new phenomenon for many. Product placement, which we referred to earlier, while an opportunity for some synergy between film and brands, risks being too commercial and overt if done without context. A recent article in the Financial Times said such promotions in Transformers 4 quickly “start flying faster than bullets from an Autobot’s wrist-mounted Gatling gun”. Apart from bringing viewers out of the fictional narrative into reality, creating a disappointing experience, inappropriate product placement can also cause ire between businesses. (We’ve written several times over the years about product placement, here.) Such an occurrence took place at the end of July when a tourism group in China sued Paramount Pictures for failing to show a logo of the park that the company had paid to be prominently displayed in the movie. The implementation of co-productions between the two countries evidently needs work too. Scenes added exclusively for a Chinese version of Iron Man 3 added little except some questionable product placement as well as the dubious plotline of Tony Stark heading to China, of all places, for medical convalescence. Lastly, the current quota of films to be exhibited in China means that many good-quality US films fail to be seen in the country. Much like bans on US games consoles and the Android app store, Google Play, the result of this has been an explosion of home-grown imitators. In this case, films in China are made that precisely mimic the formula and set-up of popular American franchises like The Hangover, which was never seen by Chinese audiences, thus the extent of emulation isn’t evident. Assuming that eventually the quota will be entirely relaxed, this type of tactic can only ever be a short-term measure.

One of the greatest opportunities the film industry in China has is in part due to one of its greatest weaknesses. Because of historically protracted release windows, and a narrow selection of films making it to cinemas, piracy has been rampant. Indeed, infringement has been widespread enough that the industry has had seemingly no choice but to innovate. We reported back in April how China has relaxed its embargo on foreign games consoles, and, more to the point, how Tencent, in partnership with Warner Bros., were making the latest 300 film available to rent, while the film was still in cinemas in the US. Such forward-thinking is welcome. As well as offsetting any losses from piracy, it also hopefully points the way to a more open business environment in China, at least for TMT companies. Such innovative thinking will need to be extended, however, to the structure of China’s film industry itself, which is reportedly a vertically integrated engine driven almost entirely at the whim of the state.

Just as China’s tastes have held increasing sway over the production of art and wine in recent years, so with film. The middling global box office performance of Pacific Rim found salvation in Asia, and that was all the justification needed for a franchise to be developed. There is certainly much to be gained from investment and co-productions in China’s films industry, especially while it is still relatively nascent, not least of which are the financial returns. How such relationships impact the content itself is another matter. Hopefully some of the approaches China is taking with regard to multi-platform releases might even trickle over to Western markets. Studios should also be wary about putting all their eggs in one basket; CNBC reports that growth in ticket sales for Hollywood films in mainland China hit a five-year low in 2013. Only three US movies made the top ten highest-grossing films in China last year, down from seven in 2012. One reason for the slowdown is a lack of variety. And yet don’t expect the blockbuster formula to change anytime soon; as much as it was born in the USA, it is also what audiences in the worldwide market love to gobble up. (Michael Bay’s films – expertly dissected in the above video – prove that point no end, and it has been particularly driven home recently as Bay himself as well as sometime employee Megan Fox have expressed nonchalance about any negative press from critics, knowing their products make millions despite nasty reviews. Specifically, actress Fox told naysayers to “F*ck off”.) There is a certain amount of momentum behind the two industries’ relationship with one another, but recent productions have shown that future projects should perhaps be treated with a little more caution, particularly as Chinese audiences tastes mature. Last month the film historian Neal Gabler was quoted in the Financial Times, in a point that usefully sums up this piece,

“The overseas market has changed the DNA of American movies… The bigger-faster-louder aesthetic is very deeply embedded in the American psyche. No one else can do it. It’s one of the reason they export so well. It’s so much a part of who we are. But we have been victims of our own success. It’s a Catch-22. The things that make our movies so popular overseas are now larger than the American market can support by itself.”

UPDATE (30/8/14): The production side of the industry continues to evolve, as China’s largest video website Youku Tudou demonstrated on Friday when it promised to produce 8 films for cinema release and 9 to premiere on the internet. Chairman and Chief Exec Victor Koo pointed out to the Financial Times that there was a gap in the market left by Hollywood, “The US film industry is highly developed. It tends to be either blockbusters or franchise films. But in China you’re talking about small to mid to large budgets…”. The logistics of creating a film for online release – more than likely to be consumed on a smartphone – must consider important limiting factors such as, according to Heyi Film chief exec Allen Zhu, smartphones in China running films get “very hot after 20 mins”. Youku Tudou’s plans may seem ambitious – particularly given it reported a $26m loss for the second quarter – but when 18 screens are erected in China every day (last year more cinema screens were added in China than the total in France), it seems a risk some are willing to take.

On movie release windows – I love the sound of breaking glass

December 1, 2012 5 comments

nyerPhone

It’s fair to say that in the past ten years, the pace of technology has evolved at an ever-increasing rate. The way in which devices have changed, and with it our use of them, was humourously summed up in the above cartoon from The New Yorker. Digital trends have affected the way we communicate, the way we consume media, and indeed the way we consume goods and services, i.e. shop.

So it is a little surprising to many – your humble correspondent included – that we still have to put up with a film being released in one country one day, and in another months later. That we still have to wait a certain number of months for a film to amble its way from the cinema screens to our home, whether on Blu-ray / DVD or on VOD. It’s interesting to note that vertical integration isn’t a key issue; Disney recently launched the second subscription video on demand (SVOD) service in Europe, with a library of constantly refreshed titles that can be viewed on platforms ranging from TVs to Xbox to iPads. Indeed, Disney’s CEO Bob Iger announced way back in 2005 in an interview with The Wall Street Journal that he foresaw a day of collapsed release windows, when a film came out the same day at the cinema as it was available to watch in the home:

We’d be better off as a company and an industry if we compressed that window. We could spend less money pushing the box office and get to the next window sooner where a movie has more perceived value to the consumer because it’s more fresh.

So there is money to be saved in such an exercise. Yet seven years later, such a situation is still mostly a fantasy for major films. Studios have undoubtedly dipped their toe in the water, and some moderate success has been seen on the indie scene, specifically with recent films like Margin Call, Melancholia and Arbitrage. The former film was released simultaneously in the cinema and on VOD (seemingly only in the US, however), eventually recording strong results, months after its initial release at Sundance Film Festival. Again, what is the justification for such a change in platform release timings? Not meeting consumer desires and addressing piracy, but simple cost savings. Variety reports:

“We’re a star-driven culture, and on a crowded (VOD) menu, what are you going to be drawn to?” posits WME Global head Graham Taylor, who adds that with marketing budgets skyrocketing, the ability to use a single campaign across closely spaced bows on multiple platforms is an important cost savings.

The whole situation is quite frustrating for any fan of film or television. It is a frustration shared by Frederic Filloux, co-author of the excellent blog Monday Note, which Zeitgeist strongly recommends to anyone with an interest in insightful thoughts and reasoning on media industry goings-on.

256-shortened-1

Their most recent post also happened to detail the author’s frustrations with such seemingly arbitrary release windows. One of the most pertinent charts displays the achingly slow rate of change in platform release changes, that is so at odds with the pace of change in other media (above). The content of the post has rational recommendations, which at first glance seem eminently appropriate and overdue for implementation. Some of the recommendations though fail to account for the fact that the film industry and its machinations are often governed by winds of irrationality.

To summarise, Filloux recommends a global day-and date, shorter, more flexible window of time between cinema and home release. There are a number of obstacles to these ideas though. Firstly, exhibitors must be placated. They hold such a sway over studios that they cannot easily be ignored. Bob Iger, in the interview mentioned earlier, mentions exhibitors as being a key obstacle. Think about it, why on earth would a cinema want their film to be available in the comfort of their audience’s home any sooner than it already is? It wants to enforce scarcity, so that when the film’s marketing machine is at its height, the cinema is the only place you can see it. As already mentioned, indie films have had some success with multi-platform releases, but even these have met with consternation from exhibitors, as a recent example in Canada shows. The consternation becomes outright war for larger films. Zetigeist reported when, in 2010, many exhibitors refused to show Tim Burton’s Alice in Wonderland when the studio, Disney, flirted with releasing the film to home release less than four months after its theatrical debut. After much back and forth, exhibitors eventually relented, and the film went on to gross over a billion dollars at the global box office. Exhibitors are not going to be convinced about flat release windows anytime soon. They are perhaps the largest roadblock to such a move, and the largest point of advocating a return to vertical integration of production, distribution and exhibition that was the case until the Paramount Decree in 1948.

alice-in-wonderland-alice-in-wonderland-32577824-500-323

Studios can only flatter exhibitors for so long

Moreover, while the argument about having flexible, shifting window releases depending upon a film’s success is logical, it does not acknowledge the existence of sleeper hits, films which do not open to huge returns but gradually accrue it over months of release (as illustrated by Margin Call, mentioned earlier). It would also be hard to define when a movie “succeeds” or “bombs”. You could use box office as a figure, but would this be without context, as a ratio of the film’s budget, or against its current peers? Using box office fails to take awards – principally Oscar – coverage into consideration, which invariably adds its own box office bump to a movie when it is nominated or wins.

The recommendation for simultaneous worldwide release is also a valid point. Zeitgeist has written before on the ridiculous prices pirated films go for in markets that have no access to the official product. To their credit, studios are moving further toward a “day and date” system. However, doing so exclusively would be dangerous. Releasing some films market by market allows the studio to gauge audience reaction, and if necessary tinker with the marketing or the film itself. Staggering release dates is also necessary for cultural events, such as the World Cup, which may be more relevant to some countries than others.

It is the last point made in the article, that of making TV shows “universally available from the day when they are aired on TV” that Zeitgeist could not agree more with. Apart from audience frustration – and recent technological development such as DVR show how the opportunity can shape viewer habits – such a move would also surely divert people from resorting to illegal downloading.

To conclude, while there are caveats and significant roadbumps to be addressed, and some progress has been made over the years, the film industry has a long way to go in a short time if it wants to catch up with consumer habits. Flat release windows should be an inevitability, and a priority. Moreover, they should not be seen purely as cost-saving measure, but as an important way of keeping an increasingly technologically and globally savvy customer base happy.

Hollywood and China

We have reported before on the quota China imposes on Hollywood films coming into the country.

Zeitgeist remembers being in a meeting while doing at stint at 20th Century Fox back in 2004, when presentations were optimistically suffixed with the potential for China to drop said limit. It was always an inevitability, and when last month DreamWorks Animation announced a pact with Shanghai Media Group and China Media Capital, it was clear something bigger was on the cards. This has been the case for a while though, as US production companies have sought to get into China’s goodbooks with relevant films (witness Kung Fu Panda and the most recent iteration of The Mummy franchise).

Good news finally came to studio heads and cinema exhibitors. While the quota hasn’t been dropped, it has been dramatically extended to allow another 14 films into the market each year (from the current 20). This can only be good news for Hollywood, coming at a time when DVD and Blu-Ray revenue is slowing; Bloomberg recently reported that more films will be streamed than watched on disc this year. In China, however, views are mixed. Variety summarises,

“Theater owners are very upbeat, filmmakers are split — will this mean unnecessary competition, or a boost to moviegoing habits? — and Hong Kong industryites are watching things closely.”

The country already means big business for Hollywood, with the piece of rubbish that was Transformers 3taking in  $170mn, and Avatar making $210mn. Year on year, the number of screens in the country increased 33%. 803 cinemas opened in the past 12 months there. So the supply-demand ratio is currently extremely favourable (with Hong Kong hopefully not being a harbinger). One would have to be very naiive however not to consider the political landscape of China, which is inscrutable to say the least. Whether dealing with the electoral process in Hong Kong, or the media landscape – from TV to social media – it can be difficult to know where you sit at any time. Variety again,

“Filmmakers face… rigid – and opaque – standards of control and censorship [in China]… [I]f a filmmaker doesn’t meet those sometimes abstruse rules, it won’t be admitted.”

What the Chinese government will have some difficulty in regulating though is the black market, which should hopefully see film piracy diminish as a source of revenue. With an assumed lowering of cost per purchase of pirated film, it should mean even more Chinese get to see Hollywood product (though admittedly without compensating the studios for it, at least initially).

As well as receiving net net more money from China from its films, the deal made also allows Hollywood to receive 25% of the Chinese box office back on imported films, previously at 13%. What should be a lucrative influx of revenue for the film studios comes at a welcome time. Not only is the business shifting from discs to digital delivery – which currently is proving harder to monetise – it is also under increasing pressure to collapse its sacred windows – the time period between when a film is released in cinema, DVD, POV, TV, etc. A few weeks ago, Netflix, an increasingly powerful player in the mix as it broadens its availability to the UK, and becomes a content creator, called the windows structure “pretty archaic”.

While releasing films on multiple platforms simulataneously might produce a spike in opening weekend returns, it comes at the cost of angering a lot of cinema owners, who would not take kindly to the idea of their film being available to watch at home at the same time they are trying to charge you £12 to watch it in a big dark room with a bunch of strangers. Zeitgeist’s radical solution is to allow the windows to collapse, and then for the government to allow the film studios to vertically integrate with the exhibitors again, like in the old days. But that’s another article…

Follow

Get every new post delivered to your Inbox.

Join 68 other followers