Page 328 - 2019 White Paper on the Business Environment in China
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9 White Paper on the Business Environment in China
receive per project. The announcement came around ill-timed investments will probably evaporate. The good
the same time as a tax evasion scandal involving China’s news is that regulators have curbed some of the most
highest-paid actress Fan Bingbing was making headlines irrational film-industry practices of recent years - such as
in China. The actress reportedly received a total payment ticket subsidies (Minter).
of 60 million yuan (US$9.3 million) for just four days work
on the film Cell Phone 2, but she allegedly only declared a Of course, there has been winners and losers. China’s
10-million-yuan salary to authorities (Koetse). leading animation streaming platform Bilibili has filed for
U.S. IPO and aims to raise US$400 million in capital. It plans
Many of the highest-grossing Chinese films of the past to list on the NYSE under the symbol BILI. Established in
year may have featured star-studded casts, but most of 2009, Bilibili has become the largest video, gaming, and
the films shown in mainland screens still use relatively streaming platform in China, with 72 million monthly active
unknowns to round out the acting budget. Furthermore, users in the fourth quarter of 2017, 82 percent of whom
it is clear that Chinese films are becoming more content- are young users born between 1990 and 2000. Although
driven rather than star driven. Operation Red Sea quickly currently loss-making, Bilibili is growing very fast, with an
topped the box office because of its action-packed theme average annual growth of over 300 percent in revenue
and high production quality. Featuring fewer highly in the last three years (TMTpost). And Jebsen & Co Ltd, a
popular celebrities also helps films be cost-effective, which company that has invested in Operation Red Sea, made
has long been a challenge in the Chinese film industry. 1.25 billion yuan in profit in 2017, more than Enlight Media
and Huayi brothers. The movie earned more than 3 billion
There could be other reasons these TV, streaming, yuan in box office ($472 million). Jebsen was also behind
and film studios are cutting back on actor wages. On the the production of Never Say Die and Wolf Warrior 2, both
surface, China’s movie market is healthy and growing. of which did exceptionally well at the box office. Jebsen,
Ticket revenue is and on track to surpass that of the US in a privately-held company, has only been involved in film
the next few years. Beneath the surface, though, misguided and TV for the last five years, but has already contributed
policy and excessive capital have been setting the stage 7 billion yuan in investments. Roughly 63 percent of the
for disaster. The Chinese government for years has wanted company’s revenue come from film and TV works. Original
to rival Hollywood’s “soft power” in global theatres by content and licensing deals are also in Jebsen’s plans in the
propping up China’s homegrown movie-makers. Foreign future (entgroup.cn).
competition is strictly limited by quotas, while the local
industry receives generous support including cheap real Ultimately, the China’s 2019 entertainment industry
estate for studios and subsidies for theatres that show depends on how the current trade disputes pans out
Chinese films. As these efforts have intensified, investors with the US. The status quo favors China’s local players.
have been quick to invest. The number of film-focused Behind a protectionist wall, Chinese movies are soaring.
private-equity funds in China increased from five to 160 The government in Beijing can also make it harder for US
between 2005 and 2015. Inevitably, all that capital led to multinationals to operate in China. The Chinese Ministry
far too much content. In 2015, only 372 of 686 domestically of Commerce requires notification of all deals where the
produced films ever made it into theatres. Those that did companies have combined global turnover exceeding
get released were helped along by rich ticket subsidies US$1.45 billion or their combined China income exceeds
that artificially boosted their box-office hauls. All that US$290 million. China previously examined Comcast’s
investment produced is a race to the bottom rather than an takeover of Dreamworks. It remains an outside possibility
encouragement to filmmakers to produce better movies. that Disney’s planned takeover of Fox’s entertainment
In 2016, second-quarter box office revenue dropped by 5 assets could yet be affected (Frater).
percent over the previous year. Regulators hoped to aid the
ailing theaters by quietly raised the quota on foreign films,
allowing four additional Hollywood imports to screen, but
it did not help much - total 2016 revenue grew a mere 3.7
percent, compared with 49 per cent in 2015. The worst
may be one big flop away. Alibaba Pictures can survive
by restructuring; small studios, bereft of new investment,
cannot. A wave of production companies and studios
are likely to fold or consolidate in 2019, while plenty of
328
receive per project. The announcement came around ill-timed investments will probably evaporate. The good
the same time as a tax evasion scandal involving China’s news is that regulators have curbed some of the most
highest-paid actress Fan Bingbing was making headlines irrational film-industry practices of recent years - such as
in China. The actress reportedly received a total payment ticket subsidies (Minter).
of 60 million yuan (US$9.3 million) for just four days work
on the film Cell Phone 2, but she allegedly only declared a Of course, there has been winners and losers. China’s
10-million-yuan salary to authorities (Koetse). leading animation streaming platform Bilibili has filed for
U.S. IPO and aims to raise US$400 million in capital. It plans
Many of the highest-grossing Chinese films of the past to list on the NYSE under the symbol BILI. Established in
year may have featured star-studded casts, but most of 2009, Bilibili has become the largest video, gaming, and
the films shown in mainland screens still use relatively streaming platform in China, with 72 million monthly active
unknowns to round out the acting budget. Furthermore, users in the fourth quarter of 2017, 82 percent of whom
it is clear that Chinese films are becoming more content- are young users born between 1990 and 2000. Although
driven rather than star driven. Operation Red Sea quickly currently loss-making, Bilibili is growing very fast, with an
topped the box office because of its action-packed theme average annual growth of over 300 percent in revenue
and high production quality. Featuring fewer highly in the last three years (TMTpost). And Jebsen & Co Ltd, a
popular celebrities also helps films be cost-effective, which company that has invested in Operation Red Sea, made
has long been a challenge in the Chinese film industry. 1.25 billion yuan in profit in 2017, more than Enlight Media
and Huayi brothers. The movie earned more than 3 billion
There could be other reasons these TV, streaming, yuan in box office ($472 million). Jebsen was also behind
and film studios are cutting back on actor wages. On the the production of Never Say Die and Wolf Warrior 2, both
surface, China’s movie market is healthy and growing. of which did exceptionally well at the box office. Jebsen,
Ticket revenue is and on track to surpass that of the US in a privately-held company, has only been involved in film
the next few years. Beneath the surface, though, misguided and TV for the last five years, but has already contributed
policy and excessive capital have been setting the stage 7 billion yuan in investments. Roughly 63 percent of the
for disaster. The Chinese government for years has wanted company’s revenue come from film and TV works. Original
to rival Hollywood’s “soft power” in global theatres by content and licensing deals are also in Jebsen’s plans in the
propping up China’s homegrown movie-makers. Foreign future (entgroup.cn).
competition is strictly limited by quotas, while the local
industry receives generous support including cheap real Ultimately, the China’s 2019 entertainment industry
estate for studios and subsidies for theatres that show depends on how the current trade disputes pans out
Chinese films. As these efforts have intensified, investors with the US. The status quo favors China’s local players.
have been quick to invest. The number of film-focused Behind a protectionist wall, Chinese movies are soaring.
private-equity funds in China increased from five to 160 The government in Beijing can also make it harder for US
between 2005 and 2015. Inevitably, all that capital led to multinationals to operate in China. The Chinese Ministry
far too much content. In 2015, only 372 of 686 domestically of Commerce requires notification of all deals where the
produced films ever made it into theatres. Those that did companies have combined global turnover exceeding
get released were helped along by rich ticket subsidies US$1.45 billion or their combined China income exceeds
that artificially boosted their box-office hauls. All that US$290 million. China previously examined Comcast’s
investment produced is a race to the bottom rather than an takeover of Dreamworks. It remains an outside possibility
encouragement to filmmakers to produce better movies. that Disney’s planned takeover of Fox’s entertainment
In 2016, second-quarter box office revenue dropped by 5 assets could yet be affected (Frater).
percent over the previous year. Regulators hoped to aid the
ailing theaters by quietly raised the quota on foreign films,
allowing four additional Hollywood imports to screen, but
it did not help much - total 2016 revenue grew a mere 3.7
percent, compared with 49 per cent in 2015. The worst
may be one big flop away. Alibaba Pictures can survive
by restructuring; small studios, bereft of new investment,
cannot. A wave of production companies and studios
are likely to fold or consolidate in 2019, while plenty of
328
