Film market bubble grows as box office records soar

(Ecns.cn) – China's box office hit an all-time high in 2011, with total revenue reaching 13.115 billion yuan (US$2.077 billion), up 28.93 percent compared to that of 2010. With this figure growing rapidly over the past five years, capital from different sources has been pouring into the domestic film industry.

However, beneath the prosperous exterior, low profitability and high risks have deformed the film market, in which only about 20 percent of films make money, while 70 percent suffer losses.

Bank lending supports blockbusters

At the end of last year, Zhang Yimou's "The Flowers of War" made a great performance in theater chains. But few knew that before it was officially put on the screen, the film had already been approved for a copyright mortgage of 150 million yuan (US$23.7 million) from China Minsheng Banking Corp.

According to Beijing News, Mingsheng first advised Zhang Weiping, the film's producer, to choose innovative banking products to finance the film, but Zhang insisted on the simplest channels, even though it would mean a higher benchmark interest rate.

During the same period, "The Flying Swords of Dragon Gate" also obtained a backing credit loan of 100 million yuan (US$15.8 million) from the Bank of Beijing, which enabled the Beijing-based Bona Film Group, one of the largest privately-owned film distributors in China, to carry forward the shooting of three films and one TV serial as a way to diversify its risks.

The practice of lending money to the film industry in China is said to have emerged since 2007. In November of that year, the Bank of Beijing offered a copyright mortgage of 100 million yuan to Huayi Brothers Media for its 14 TV serials. In 2008, China Merchants Bank provided a sum of 50 million yuan (US$7.9 million) to the film "Assembly" directed by Feng Xiaogang as credit on an unsecured basis.

As the films and TV serials all proved successful, the banks' investments paid off in the end. Under such conditions, sources of venture capital, private equity and industrial capital also began showing interest in the domestic film industry. In 2009 for example, LETV invested in "Metallic Attraction: Kungfu Cyborg," while last year, IDG capital invested in the film "Snow Flower and the Secret Fan."

By November 2011, there were 83 culture industry investment funds in China, such as IDG New Media Investment and Tencent Film and Television Investment, worth over 133 billion yuan (US$21 billion), according to a Beijing-based culture industry club.

Yu Dong, CEO of Bona, predicted that the Chinese film industry will see an era of capital competition in the next three to five years, which will probably involve a total of 5 to 6 billion yuan, according to Beijing News.

Inevitable losses

With more and more capital flowing into the film market to seize profit opportunities, frequent negative returns continue to keep investors on guard. Statistics demonstrate that only 20 percent of films that hit theaters make money, while 10 percent of them clear their costs and the other 70 percent end up in the red.

An analyst revealed that the prosperity of the current film market has mainly resulted from the increasing number of new cinemas and projection screens, but that the profitability of films is on a downward trend.

In 2011, the output of domestic feature films exceeded 558. At the same time, a total of 803 new cinemas were built, with 3,030 new projection screens installed.

Wang Zhongjun, chairman of Huayi Brothers, said the domestic film market is not developing in a healthy way, because only about 160 to 170 films can successfully enter theaters – yet there were more than 500 films produced last year.

Meanwhile, of the total box office revenue in 2011, China-made films only accounted for 53.61 percent, and most saw no profits at all. Even Zhang Yimou's "The Flowers of War" must earn at least 1.3 billion yuan (US$205.4 million) in box office revenue to ensure profit, but currently the number is still below 1 billion.

Under such circumstances, scrambling for resources has become a common phenomenon, which is driving the film market to develop in an irrational way.

Risk control needed

With the bubble of the domestic market inflating, insiders suggest that China should set up a monitoring system to track and evaluate the returns of each film produced.

Blindness is the bottleneck of the film industry's development, said Zhao Haicheng, general assistant manager of China Film Group, who added that without rational planning, the industry will not be able to develop healthily and deeply.

Risk control is very important, especially at a time when foreign capital keeps rushing into the country. It is not only a protective shield for the investors but also for the whole film industry, said Zhao.

In 2012, the government plans to further improve the computer ticketing system and build an open, fair, efficient and transparent data publishing platform for the Chinese film market. It will also take measures to regulate advertisements before and during movies.