April 22, 2013

Signs of the Times I: Don’t Forget About it, Jake. It’s China.


In an entertainment universe changing with bewildering speed, two stories today spoke to the difficulties and opportunities of old and new media.  First, let’s take a look at what’s happening to the traditional mode of seeing movies in theaters

Big-budget adventure-adventure spectacles have long been the bread and butter of the Hollywood studios, and their financial model over the last several years has been fairly straightforward.  For a tentpole to work, it had to at least hold its own in the US, and then do double or more that amount of business overseas.  The international overperformance is critical, and it’s led, among other things, to the appearance of Asian characters in franchises like Fast & the Furious (and attempted franchises like Battleship), as well as the run of 3D conversions for library titles and new ones (like GI Joe: Retaliation) shot in 2D, and a general preference for splashy visuals, whether action-oriented or animated (or both).  Although there are always flops in the movie biz, the model has worked splendidly for smash hits like Mission: Impossible – Ghost Protocol ($209M earned in the US, $485M overseas), Ice Age: Continental Drift ($161M/$716M), Skyfall ($304M/$804M) and Life of Pi ($125M/$484M).  Even a purely home-grown product like the final Twilight followed that pattern, with $292M in the US and $537M overseas.  

An increasingly critical part of this success has been reliant on China, the second-largest movie market in the world and the fastest-growing, due to a huge influx of new and better theaters.  (The total Chinese boxoffice is expected to surpass the US in just 5 years.)  Ghost Protocol made over $100M and Life of Pi around $90M in China alone, while the last Ice Age made $67M.  An article in today’s NY Times, however, has to strike fear into Hollywood’s heart, as the trend in China has begun to favor domestic productions over Hollywood blockbusters.  According to the article, in this year’s first quarter, the revenues for US movies fell by 65% compared to the same period in 2012, while those of Chinese productions more than doubled.  Part of this is the result of politics–the government film distribution authorities have at times pulled US movies off the schedule, delayed them or deliberately scheduled them against one another, and incentive bonuses go to theater-owners who boost the local titles–but it also seems to be the case that the Chinese audience, given a choice, prefers its own stars and stories over foreign tentpoles like The Hobbit or Oz the Great and Powerful.  These hugely expensive projects are risky enough as it is–what happens to them if they can’t count on foreign ticket sales?

We’ve likely to see fewer $150-250M budgets, for one thing.  This year, gigantic summer movies like Iron Man 3, World War Z, The Lone Ranger and Man of Steel are all in that range, and the latter 3, in particular, are at great risk, since they aren’t part of successful franchises (and in the case of Long Ranger and Man of Steel, are built around specifically American mythology).  In the big picture, this isn’t necessarily a bad thing.  If the studio model didn’t cater quite so much to non-English speaking audiences, action movies might have more substance than A Good Day to Die Hard and Jack the Giant Slayer have given us recently.  And if the studios weren’t looking to cash in on a disproportionate amount of international business, they might pay more attention to smaller, smarter hits like last fall’s Lincoln, Argo and Silver Linings Playbook that were extremely successful in the US but not likely to have the same kind of appeal overseas.  In addition, the burgeoning studio strategy of outsourcing production and postproduction from the US to China (part of Iron Man 3 was shot there, and LucasFilm has moved a share of its Industrial Light and Magic special effects unit to China for, among other things, the new Star Wars movies, while downsizing its US operations) might be scaled down.

In the way of Hollywood, though, these lessons are likely to take a while to penetrate, if they ever do (next summer’s blockbusters are already in production, and dates have been picked out for tentpole openings in 2015), and with many damaging failures along the way.  A business that’s never been particularly stable since it began seems likely to become that much more unpredictable.

About the Author

Mitch Salem
MITCH SALEM has worked on the business side of the entertainment industry for 20 years, as a senior business affairs executive and attorney for such companies as NBC, ABC, USA, Syfy, Bravo, and BermanBraun Productions, and before that, at the NY law firm of Weil, Gotshal & Manges. During all that, he has more or less constantly been going to the movies and watching TV, and writing about both since the 1980s. His film reviews also currently appear on and In addition, he is co-writer of an episode of the television series "Felicity."