Until recently, the government’s strategy included the tacit encouragement of active investment in Hollywood entities by Chinese film companies in hopes of shaping China’s image and developing international business acumen. However, with China’s economy slowing and cumulative lending debt increasing, in 2016 government regulators announced that they would monitor what they deemed “irrational” overseas investments referring to several areas including film, sports, and real estate. Additionally, China has cracked down by imposing quotas on imported entertainment for linear television and online platforms.
The 2017 Chinese box office totaled U.S.$8.04 billion, a 15.7% increase from the previous year. While the growth in box office and screen count in China continues to rise, the market share for independents continues to shrink. In 2017, independent U.S. titles had the lowest share of box office revenue in the last eight years - just 1.3%. Non-English language films, however, can sometimes find more success in the Chinese market than in the U.S. with films from India, Southeast Asia, and Europe seeing stronger theatrical revenues. For U.S. films, Action genre films perform best in China, with The Fate of the Furious, Transformers: The Last Knight, and Pirates of the Caribbean: Dead Men Tell No Tales (all major studio films) making it into the top ten for gross earnings in the China box office.
In an effort to support arthouse films, Huaxia established the National Alliance of Arthouse Cinemas (NAAC) in partnership with a number of exhibitors in 2016. The Alliance aims to ensure that certain cinemas dedicate at least three screenings per day and ten per evening/weekend to both local and imported arthouse films. Reportedly, Manchester By the Sea was brought to the Chinese audiences this way. However, the number of screens available is limited (compared to the 10,000 to 20,000 screen releases common to major theatricals) and the process of selection of titles and remuneration are not well understood in the marketplace.
China has strict censorship guidelines by which a film must be deemed suitable for all audiences by Chinese censors. Additionally, import quotas and unofficial blackout dates limiting release of foreign films continue to limit the ability of foreign films to gain traction in the Chinese market.
With respect to independent films, only the two state-owned distribution companies, China Film Group and Huaxia Film Distribution, are allowed to import films into China. Private distributors are allowed to license foreign films on a non-revenue sharing basis and engage in the business of national distribution but they must work with China Film Group or Huaxia to receive an import permit and release date and rely on them to provide cinemas with digital keys and collect box office revenues.
China Film Group also administers China’s bifurcated import quota system. Under the formal quota portion, just 34 films are allowed to be imported into the country each year on a “revenue sharing” basis with 14 of these required to be “enhanced format” films (IMAX or 3D). Box office share for the foreign distributor is capped at 25%. Generally, high-grossing major studio blockbusters are given these quota slots. When independents occasionally do crack this group, it is for one or two high profile films with revenue potential. The “34” number is somewhat malleable in that should the yearly Chinese box office be lagging, additional rev-share films will be released. This occurred in 2016 when 37 films were given a rev-share release as the total Chinese box office fell by 1% that year. In addition to the formal quota, there is an unacknowledged “informal” quota whereby some 30 – 40 foreign films are allowed into China each year on a non-revenue sharing basis. The overall goal seems to be to limit theatrical film imports to around 60 with a box office share of under 50%.
China is one of the largest television markets with 427 million households as of 2018. The television landscape in China is characterized by significant levels of state ownership as foreign investment in Pay TV and OTT TV is prohibited. Only a handful of U.S. TV series have major followings on the mainland, including The Big Bang Theory and Game of Thrones. While the most popular imported programming by far is South Korean drama, audiences much prefer locally produced, original programming.
The government has made it clear that it feels there are too many imported shows on TV and too many reality programs adapted from international formats. Foreign content is capped at 30% of daily programming on domestic TV channels. Foreign programming is also prohibited during prime time (defined as 5-10PM).
China Central Television (CCTV) is the leading broadcaster with over 50 channels. Much of its programming is local, sometimes produced in house or through co-productions. There are also a number of regional Free TV channels across the mainland; however, they typically only sublicense from CCTV.
By mid-2018, China had 772 million internet users with 98% of them accessing the web via their smartphone. This gives the emerging VOD market a huge potential. However, the regulatory environment and Chinese government’s conservative approach to media reform halted the launch of Netflix and Amazon on the mainland. The internet giants in China are Baidu, Alibaba, and Tencent. These companies account for the vast majority of the online market with each offering a freemium service: iQiyi (Baidu), Yoku Todou (Alibaba), and Tencent Video. The freemium model includes both an SVOD and AVOD component.
These major VOD platforms do acquire foreign films and TV series, often through package deals. However, this is most often U.S. major studio product. While censorship for VOD is laxer, it is still a challenge for foreign titles to be approved for VOD release.
Popular titles can close VOD deals but most license for a flat fee. The platforms have started to produce their own content to relieve themselves from high acquisition costs. Often made-for-online productions are then sold in the second TV window for additional revenue.
While the Chinese market for film and television continues to grow, the limitations placed on imported content for linear television and online platforms, as well as foreign film imports are nonetheless increasing. But despite program and film quotas, strict censorship, and prohibition of foreign investment, China remains an important market for all film and TV companies, both now and in the years to come.