Diversification into theme parks and live entertainment may be a wise move for Chinese film studios.
Despite huge box office success, high levels of risk within the film industry and the rise of internet giants such as Alibaba are causing Chinese studios to rethink their growth strategy.
A sense of urgency has permeated the 21st Shanghai International Film Festival. On first sight, China’s film industry couldn’t be in a better position. The country’s first-quarter box office receipts have overtaken those of North America and experts believe China is on track to become the largest global film market.
The Xinhua News Agency says that box office revenue in 2017 increased to a massive 55.91 billion yuan (8.59 billion US dollars), up 13.45 percent from the year before.
However, behind the ebullient figures, concern rumbles. “The crisis now is a slowdown of capital inflow,” warned Wang Changtian, CEO of Enlight Media. “Banks and stock markets are getting nervous about film companies, making loans harder to obtain, and secondary share issues harder to launch.” He also pointed out that Chinese film companies rely heavily, probably too heavily, on the government and its tax policies. “Government is cancelling tax breaks for film, and exhibitors have lowest rentals in the world,” he said.
Is diversification the key?
“We need to have a sense of crisis, challenges are coming,” said James Wang, co-head of Huayi Brothers Media Corp. The multinational entertainment company is keeping its options wide open with a broad span of interest. Aside from its film studio, it owns a TV production company, talent agency, record label and cinema chain. It is also diversifying further into theme parks, live entertainment and music. The company signed a $4.7 billion deal in 2015 to develop 20 theme parks.
However other companies believe consolidation is the way forward. “Large companies will be the ones which are best able to withstand the high levels of risk in the film industry,” said Ren Zhonglun, CEO of the state-backed Shanghai Film Group.
Rise of the tech giants
Another concern echoing through the festival is the ever-increasing influence of China’s tech giants. Many think they will dominate the film industry via the combination of powerful online ecosystems (connecting directly with customers), data access, and vast financial resources. Alibaba, the e-commerce giant, is now an equity shareholder in Enlight, Bona and Huayi.
At present Alibaba is playing down its involvement, placing itself as a facilitator rather than a competitor in the film industry.
“We are a platform company,” insisted Fan Luyuan, head of Alibaba Digital Entertainment Group. However he followed this up by saying that Alibaba’s Yulebao money market fund is a “powerful finance tool for the film industry” and that the group’s wide range of streaming, ticketing and marketing companies form a “powerhouse of film distribution.”
Whatever happens, the Chinese film industry is certainly one to watch – a veritable blockbuster promising as many twists and turns as any Hollywood smash.