It’s a little over a year since the World changed forever. The Covid 19 pandemic, originating in China, would force the closure of all of their cinemas creating a domino effect that would see the cinema industry come to a standstill. It was on 23rd January 2020, on the eve of the Spring Festival (more commonly known as ‘Chinese New Year’) and the biggest cinema-going weekend of the year, that the country then entered “Lockdown”. It was a concept thoroughly unheard of by the Western World at the time, and no end was in sight.
In the last six months of the year, in sharp contrast to the first, China would earn the title of the biggest theatrical marketplace of the year, having accomplished a miraculous recovery. We take an in-depth look at the factors that led to this remarkable success story, and how the rest of the World can learn from their success.
Spring festival 2021: Back in Business?
Expectations are high for 2021’s Spring Festival. Falling on 12th February (the dates shift in line with the Lunar calendar) it comes off the back of a record of films released over the 2020/21 New Year: a record of 1.3 billion Yuan.
European and the US markets remain closed. For Hollywood studios with films in the Chinese marketplace and companies such as IMAX, China is the largest of the few remaining territories open (Gower Street estimates that only 56% of global theaters are currently open, being dominated by the Asia Pacific region).
The festival films typically account for between 15-20% of China’s annual box office and with no less than seven major titles being released, it is on course to be the biggest year ever – that’s if it isn’t affected by the pandemic.
Despite the overwhelming success of recent titles, it is important to stress that the market is still in the final stages of recovery. Cinemas are still capped at 7re5% occupancy in some places and on 16th January, less than a month before the Festival is due to begin, many theatres in the two high risk areas (at present in the North East of the country, mainly around the Hebei Province) closed for 14 days. Case numbers are on the rise once again, and as has been evidenced before, if they grow to levels the authorities deem alarming cinemas will be shut down, irrespective of the date or what is on screen.
This is uncomfortably familiar territory for the country. Health and safety measures are once again being reintroduced such as encouraging online booking, mask wearing, a ban on concessions and ‘checking in’ with your health code app – a practice now commonplace everywhere in the country. It is reportedly being considered that Shanghai cinemas will limit the number of performances on offer. Authorities anticipate pent up demand from audiences and are taking no chances. All cinemas now must implement the ‘Guidelines for the Prevention and Control of the Reopening of Movie Screening Places’ (the third edition).
The films themselves are as blockbuster as they come however. The three top titles: “Detective Chinatown 3”; “Hello, Li Huanying” and “The Crowd” are all from top distributors. IMAX has three films in the marketplace: “Detective Chinatown 3” as well as “Assassin In Red” and “Nezha, Reborn”. Two of the titles are sequels to two of the top 5 foreign language films of all time. Talent have by now become accustomed to supporting their films’ release online via short form video content rather than laborious press tours, also giving distributors a breadth of data and audiences at their fingertips.
Cinemas in tiers 1&2 (the key cities) tend to take a hit of around 15% during this period and provide an opportunity for growth for the more provincial areas: the 3rd tier areas’ contribution to the box office rose from 15-30% between 2014-2019. Traditionally, during Lunar New Year, people travel to their hometowns in what is seen as the biggest annual migration Worldwide. This year may be very different, however. With authorities encouraging people not to travel including offering financial incentives to stay at home, a redistribution of box office receipts is likely to occur. With fewer people spending time with their families it may even benefit the films, with audiences visiting in greater numbers with extra time on their hands. This would not be good news for the more provincial locations however, who would have been banking on this holiday to re-fill the hole that the prolonged closure of 2020 had on their bottom line.
Regardless of what actually comes to pass, there is little doubt that this time around the territory is better prepared from the countless lessons learned in 2020. During the year that has taken place between the two festivals, the international theatrical landscape has changed irreversibly and much of that has been down to the recovery success of the Chinese marketplace.
Despite being 66% down on 2019’s peak of $9.2bn, last year China finished 2020 as the number one marketplace, overtaking the domestic market for the first time in history. They contributed $3.1bn of the global tally of $12.2bn of box office, and for the first time a Chinese film – “The Eight Hundred” was the top performing film of the year Worldwide.
At the start of the pandemic, this was an outcome which no one would have anticipated.
A False Start and a Restart
When Chinese screens had first closed in 2020, the West didn’t initially take much notice. With the virus almost viewed a little arrogantly as a problem not directly affecting them, there was little regard for the impact that these measures would subsequently have on the domestic and rest of the international marketplace until it was too late.
For China however, they had lost a key trading period which would extend to the first half of the year.
As much of the West began locking down in Spring, the restrictions were starting to lift in China meaning that they also had the unfortunate responsibility of writing the blueprint for the road to recovery for much of the rest of the market. By the 20th March, more than 500 sites had re-opened although people were choosing to stay away. The now familiar combination of a lack of content, combined with audience nervousness over safety measures which had not yet been communicated effectively contributed to an underwhelming performance. None of the major chains had reopened, and it seemed for many citizens that a re-run of an old movie just wasn’t worth the risk.
Merely hours after the city of Shanghai announced that it would be re-opening its 205 locations a week later, exhibitors received an urgent memo from the China Film Administration advising them to close with immediate effect. No reason was offered for the U-Turn, although cases were low there were growing concerns around imported cases.
Content supply for any reopening territory was inevitably going to be a challenge with distributors reluctant to release new titles into a marketplace yet to re-establish itself. China has always been a particularly complex picture, with restrictions on Hollywood “imports” and quotas for non-Chinese film. This practice dates back just over 20 years. Prior to that, the Chinese government did not allow Western films whatsoever in the limited amount of cinemas they had. By the early 2000’s, there were reportedly only 2000 theatres for a population of 1.26 billion, and the majority of the content was still overwhelmingly local, with only the “top 10” (or, what the Government deemed the top 10) foreign films imported.
Over the next ten years this quota doubled, and the success of hits such as “Avatar”; “The Fast And The Furious” and “Transformers” started to shape the decision making of Hollywood, with studios and film makers alike realising the value of the Chinese marketplace. Action packed, big budget crowd pleasers would also be favoured as part of the quota by the Government, who understandably wanted to maximise their revenue (under the terms of the agreement, Hollywood is only entitled to 25% of the box office receipts).
By 2018, the official quota had risen once again to 34 foreign films although, in spite of this, 42 Hollywood movies (some co-productions) made it into Chinese theatres that year, though many bought as a minimum guarantee rather than a revenue share (the quota only applies to the latter).
Even with an ever-growing proportion of the box office coming from Hollywood blockbusters, the local content reigned supreme and majority of films that end up on screen were Chinese. A unique infrastructure exists in the country whereby some distribution companies and cinema chains are state owned. By the time the recovery from lockdown was underway, this provided a unique opportunity. With cinema operators struggling from a lack of revenue for months, the state-owned distributors could provide the films to exhibitors on a zero rental fee basis.
The strict quota system had also meant that several of the biggest films of all time had never made it to China. A 4k, 3D restoration of “Harry Potter and the Philosopher’s Stone” would be the title to entice audiences back once cinemas re-opened and the “Lord of the Rings” trilogy would make it to screens for the first time.
There were also several key 2020 Hollywood titles yet to be released in China. “Sonic The Hedgehog”; “1917” and “Bad Boys For Life” would now be able to feature in cinema schedules. These new titles would be the key to drawing audiences back in.
The Road To Recovery
The second reopening date for cinemas was set by the China Film Administration as 20th July 2020. This would also allow the Shanghai film festival to take place in person as well as online the following week. The safety protocols had now been established: tickets were to be sold online and capacity could not exceed 30%.
Box office would steadily increase over the next few weeks with more films being released into the marketplace and restrictions on capacity gradually being eased. It was on the 20th August however when the game changed completely. “The Eight Hundred” was already a controversial political film, having been mysteriously pulled from the 2019 edition of the Shanghai Film Festival under the pretext of ‘technical difficulties’. Shot entirely on IMAX cameras, this was exactly the big-screen action blockbuster audiences would return for.
Return they did, in big numbers. “The Eight Hundred” ended up being the highest grossing film of the year, taking over $472,000,000 to date. Chinese Valentine’s day release “Love You Forever”, released only days after “The Eight Hundred” scored the single largest opening day of any film of 2020, on $38.3m.
By comparison, Hollywood releases “Tenet” and the controversial “Mulan” failed to have the same impact. The Nolan pic received its Chinese release on September 4th and despite it amassing $66m – by far the highest grossing territory for the film and with a very strong IMAX performance – it took home little over an eighth of that of the local blockbuster. “Mulan” fared even worse, with a lifetime of just $40m. In an embarrassment to Disney, who had spared this market from a Disney+ release and allowing it to be released theatrically, star Liu Yifei waded into a political row with her comments regarding the Hong Kong riots, giving rise to a #boycottmulan hastag. Hollywood had made a miss-step: their take on Chinese blockbusters including “Crazy Rich Asians”, “Abominable” and “The Farewell” simply didn’t connect with audiences, who were already cautious of “Mulan”. A lacklustre performance ensued.
In total, just 16% of 2020’s box office came from foreign imports. Other strong performances in Q4 included “My People, My Homeland” (the second highest grossing Chinese film of the year at $422m) and “The Sacrifice” (which “The Eight Hundreds” director, Guan Hu, jointly directed).
The marketplace rounded off 2020 and saw in 2021 with another record breaking haul of films including “A Little Red Flower” ($198m and counting), “Shock Wave 2” ($176m and counting) and “Warm Hug” ($122m and counting). This weekend these films have been knocked off the top spot by a new release romantic comedy, “Big Red Envelope” scoring a debut of $8m over the weekend, but the over all market has dipped to a lowly $37.5m.
Whether this is a reflection on the film itself, the calm before the storm of the Spring Festival or an indication of growing audience concern over the pandemic, we will surely see in the next fortnight.
One thing remains certain however. The Chinese market bounced back in a way that the rest of the World could not even imagine. We know that the territories that have established audiences for their local films have mitigated their 2020 losses more than those who rely mainly on Hollywood content, and none more so than the Chinese market with their existing quota system. For audiences and distributors alike, it simply was ‘business as usual’ (albeit with additional safety measures) – a luxury not afforded to other markets in recovery.
For now, the industry watches and waits once more with interest for the outcome of the Spring Festival films. China may now be the dominant market in a global industry, but a global industry we are. Where one succeeds, we all succeed.