Le Vision Pictures Has Grossed Over 6 Billion Yuan, but Its Foundations Are Still Thin

Judged by box-office growth alone, Le Vision Pictures has done well in recent years. But if it wants to become a truly big company, its current playbook won't last.

On December 7, Letv announced that,

to round out Letv's entertainment ecosystem,

Le Vision Pictures, which had been preparing for its own listing, would be injected into Letv. Trading in the listed company's shares was halted immediately.

Le Vision Pictures may be the most successful company Letv has built in the past few years. In four years it has distributed 34 films with a combined box office of more than 6 billion yuan. According to EntGroup's 2014 data on box-office performance of domestic films distributed by private film and television companies, Le Vision Pictures held an 11% share of the box-office market in 2014, third behind Enlight and Bona, and even ahead of the veteran Huayi Brothers. After its Series B round last year, it was valued at nearly 5 billion yuan.

As its box office kept growing,

Le Vision Pictures also brought the internet industry's swagger and love of buzzwords into film. "The PGC+O2O Butterfly Model," "the One-Positioning, Three-Guides market system," "Year One of the web-native generation": Letv has rolled out a new concept every year, yet few people can work out what any of them mean.

"Internet" is the label Letv uses to package itself in public and in the media. What it actually does is what traditional film companies do: build a distribution team, fight over talent and projects, and negotiate box-office guarantees.

Across all its films, Le Vision Pictures still leans on the promising-looking "film people" and "film projects" it has secured. The first group includes Zhang Yimou and Lu Chuan; partnerships with them gave Le Vision Pictures investment and distribution rights to films such as Coming Home and Chronicles of the Ghostly Tribe. The second includes The Expendables, Tiny Times and Boonie Bears. Its own original projects, meanwhile, have rarely made a mark.

Letv also inevitably hypes it as the "content" link in its ecosystem. Letv hopes the films Le Vision Pictures develops will drive more advertising, memberships and TV sales for Letv. The "ecosystem" idea has made it much easier for Le Vision Pictures to land projects, raise money and inflate its valuation. But when the market turns, protecting the "ecosystem" makes Le Vision Pictures the first thing worth sacrificing.

Waving the Internet Flag While Doing What Traditional Film Companies Do

Whenever Letv enters a new field, it strikes the pose of a disruptor. When Le Vision Pictures was founded, it too was eager to raise the internet banner, casting itself as a film company for the internet age that would remake the industry the internet way.

Since 2012, Le Vision Pictures CEO Zhang Zhao has put forward a new concept every year. At the company's first strategy launch in 2012, he unveiled the PGC+O2O Butterfly Model. In 2013 the "Butterfly Theory" was upgraded into the "One-Positioning, Three-Guides" market system (positioning, navigation, traffic-driving, purchase-guiding). In early 2014 he declared "Year One of the web-native generation" and announced that within three years the company would complete its transformation from a film company into an internet company.

Next to the "release windows," "box office" and "content is king" that other studio bosses like to talk about, these fashionable ideas sounded far more interesting. Illustrated with hits such as Tiny Times and The Expendables, they turned Zhang Zhao into what many media outlets called "the film boss who understands the internet best."

In fact, Le Vision Pictures entered the industry the same way Bona and Enlight once did: by distributing other companies' films.

What Le Vision Pictures has always done is traditional on-the-ground distribution. Zhang Zhao was once president of Enlight Pictures in charge of distribution, and the team he led invested in and distributed more than 20 films, including Confession of Pain, Flash Point and Witness. After founding Le Vision Pictures, he transplanted what he had done at Enlight, starting with an on-the-ground distribution team. In a 2014 interview, Zhang Zhao said the studio's field promotion team had reached 300 people. "Offline staff make up 50% of our headcount. Le Vision Pictures relies mainly on offline support," he told the media earlier.

Take Boonie Bears: To the Rescue. While it was in theaters, Letv organized 5,000 volunteers so that "every cinema had two bears and a Logger Vick." Or The Expendables 2: during its run, the company printed piles of temporary tattoo stickers for girls to wear on their chests or arms, handed out bandanas, and staged an event called "Heroism Passed Down Through the Generations." And every Tiny Times film came with large-scale preview screenings that worked hard to create the feel of a "fans' festival."

Letv calls all this O2O, online to offline: using online marketing to steer people into cinemas. But domestic film companies had long been doing the same thing. Jiang Ai, released around the time Le Vision Pictures was founded, used viral videos, and Love Is Not Blind ran its "Breakup Stories" campaign. There is little difference; Letv has simply wrapped the old method in a trendier name.

Zhang Zhao and Zhang Yimou

Le Vision Pictures first drew wide attention when it signed star director Zhang Yimou. It went on to strike similar deals with Lu Chuan and Tsui Hark. The model is old in the film industry; the classic case is Huayi Brothers' long partnership with Feng Xiaogang. But Huayi takes part in the investment, planning, production and promotion of every Feng Xiaogang project, whereas most of Le Vision Pictures' director deals give it only a right of first investment in projects those directors lead over a set number of years.

Whether it is on-the-ground distribution, signing big-name directors or snapping up well-known IP (such as Tiny Times, Boonie Bears and Silent Separation), Le Vision Pictures is doing exactly what it considers any traditional film company would do.

It grew fast because it met new needs in the film industry

Judged by box-office growth alone, Le Vision Pictures has done well in recent years.

Over the past four years, it has distributed 34 films with a cumulative box office of more than 6 billion yuan. According to EntGroup's 2014 data on domestic films distributed by private film and television companies, Le Vision Pictures' market share in 2014 reached 11%, third behind Enlight and Bona and ahead of Huayi Brothers and Wanda.

Market share of private film and television distribution companies, 2014

Although it was doing what traditional film companies do, Le Vision Pictures arrived just as the mainland film industry took off. In the year before it was founded, mainland box office had only just passed 10 billion yuan for the year. By 2015 the figure exceeded 40 billion yuan, at least quadrupling in four years.

The most visible change was that big stars set up their own studios and small production companies sprang up in large numbers, all busy developing new projects. These small companies often had strengths in one or more areas, such as star connections, production or promotion. The one thing they could not do was distribution, so they needed to team up with larger distributors.

Le Vision Pictures seized exactly this opportunity. Projects kept multiplying, while only a handful of companies could distribute nationwide. There was another problem: clients would require a distributor to handle only one film at a time, and in key release windows such as National Day and the New Year season, several big films often open together. At such moments the large distributors hold the bargaining power, and everyone else must either grit their teeth and distribute on their own or give up some profit to find a partner.

Le Vision Pictures' box office by year

Le Vision Pictures gave producers one more option. The classic example is the Tiny Times series. Guo Jingming and his team did more than half the work themselves, from production to promotion. But as noted above, building relationships with theater chains, running on-the-ground events and fighting for more screenings required a professional distributor like Letv.

Before Tiny Times, what made Le Vision Pictures' name was a Hollywood action film, The Expendables.

In 2010, The Expendables opened on the mainland and, with few expecting much of it, took in more than 200 million yuan. What made it special was that it was a "buyout film": rather than going through the revenue-sharing system for imported films, the distributor bought the rights outright, for just US$500,000.

Because of the annual quota on imported revenue-sharing films, 34 a year (20 before 2012), many foreign films could not be brought into the mainland. The success of The Expendables showed film companies a new market in "buyout films."

Letv was among the fastest to move. Zhang Zhao earned a master's degree in filmmaking from New York University, and when Le Vision Pictures was founded, The Hollywood Reporter ran a long, glowing story about it. That background helped Letv compete for Hollywood projects. Letv went on to distribute The Expendables 2 and The Expendables 3 the same way; together they grossed 800 million yuan.

Playing the "Hollywood" card was also a big reason Letv could sign Zhang Yimou: it offered to help him make a commercial blockbuster in Hollywood. That co-production, The Great Wall, is now shooting. With a total budget of US$100 million, it is the most expensive film in Chinese film history.

The films that sell are all "IP"; original projects flop

Of Le Vision Pictures' more than 6 billion yuan in box office over the past four years, the Tiny Times, Expendables and Boonie Bears series, plus this year's Silent Separation and Chronicles of the Ghostly Tribe, contributed 4.1 billion yuan, more than two-thirds.

What these projects share is that they were already bestsellers before they became films, which is what the film industry calls IP. Tiny Times, Silent Separation and Chronicles of the Ghostly Tribe are all adaptations of hit novels; the big-name actors in The Expendables have a combined box office of more than 10 billion yuan; and Boonie Bears had been on television for several years.

Zhang Zhao has admitted in past interviews that what they make are film products for the internet age, that each IP has its own business model, and that the studio acts mostly as a "distributor." Put more bluntly, Le Vision Pictures was "adding flowers to brocade," improving on things that were already good; had another film company run these projects, the results might not have been much worse.

Its own original projects, by contrast, have disappointed. Somewhat ironically, for a studio that stresses IP and focuses on commercial films, its highest-grossing original film is Zhang Yimou's art-house drama Coming Home, whose 290 million yuan almost nobody would remember today.

Le Vision Pictures put a lot of effort into romance and suspense films, but not one has reached 100 million yuan. The best performer was I Want to Do Right by You, starring Feng Shaofeng and Ni Ni, at 87 million yuan. The Missing Killer, now in theaters, has made only 70 million yuan, less than half the total of The Bullet Vanishes three years ago.

Original projects developed by Le Vision Pictures

Ready-made IP has now largely been carved up among film companies, and some of it is hard to develop further. No audience will be foolish enough to let Silent Separation trick them into a cinema a second time. As for IP that can keep producing, such as Guo Jingming, he may not want to keep working with Letv forever: the initiative lies with Guo Jingming, not Letv.

This is Le Vision Pictures' biggest problem. Whatever era a film company belongs to, if it cannot build its own ability to develop and produce projects, no number of concepts will give it a lasting competitive advantage.

Its distribution edge is gone, and under capital pressure it takes bigger risks to win projects

Film distribution has changed in two big ways over the past few years. First, internet channels have become more and more important. Ticketing platforms that connect consumers directly to theater chains, such as Maoyan, Gewara, Taobao Movies and WeChat movie tickets, have growing influence over how cinemas schedule screenings, and they are easier to use and give faster feedback than traditional offline distribution. Next to them, Letv's most important asset, its on-the-ground distribution network, matters much less.

The shift shows in how the Tiny Times series was distributed. Le Vision Pictures led distribution of the first three films; with the fourth, Taobao Movies stepped in. It began pre-selling ticket redemption codes for Tiny Times 4 20 days ahead and opened online seat selection 10 days ahead. Taobao Movies then claimed it had locked in 50 million yuan of opening-day box office with more than 800 cinemas, pushing the film's opening-day screening share to a record 46%. Set against Taobao Movies' hefty online pre-sale guarantees, Le Vision Pictures' role in the film looked very limited.

Beyond ticketing platforms, stronger competitors have appeared in distribution, both online and offline.

Online, iQiyi, Youku Tudou and Penguin Pictures have moved into distribution on the back of their own video sites. Letv, apart from the story it can tell about its "great Letv ecosystem," is far less competitive. Look at where new trailers are released: apart from films it distributes itself, very few films choose Letv to debut their trailers.

Offline, there are more rivals too. Wanda, with its deep pockets, set up Wuzhou Film Distribution, backed by Wanda Cinema Line, the largest theater chain in China (though Wanda still says it does not favor its own projects). Super-projects such as Gone with the Bullets and Mojin: The Lost Legend were distributed by Wuzhou. Hengye, with years of distribution experience in second- and third-tier cities, and Huace, which started in TV dramas and is already listed, have also chased good projects more aggressively over the past two years. Against these distributors, Le Vision Pictures has no particular advantage.

With too many players chasing too few projects, Le Vision Pictures, eager to grow its business ahead of a listing, had to compete the way other companies do: by offering films high box-office guarantees (for example, promising the producer revenue equal to 500 million yuan in box office, regardless of how the film actually performs).

That turns the business into a gamble, and the defining feature of gambling is that sooner or later you lose.

Unfortunately, Le Vision Pictures' biggest bet, an 800 million yuan guarantee for John Woo's The Crossing, went badly wrong. The film was released in two parts and grossed only 250 million yuan in total. Under the current revenue-sharing system, the producer would receive less than 100 million yuan of that; measured against the 800 million yuan guarantee, Le Vision Pictures would have to pay at least 250 million yuan.

Failed projects distributed by Le Vision Pictures

The flop hit the studio's results for all of 2014 and put more obstacles in the way of its planned standalone listing. Not long after The Crossing (Part 1) opened, Letv announced that Le Vision Pictures would no longer list separately but would be merged into Letv.

This was plainly a case of giving up a rook to save the king. What Letv cares about most is the capital market, or more precisely its share price. At the time, Letv's stock was at a low and badly needed fresh "good news" to lift it.

"Letv's share price was very low then, and Mr. Jia (Letv CEO Jia Yueting) made shareholders two promises. One was injecting Le Vision Pictures; the other was Plan C, for cars," a Letv insider told QDaily. "It worked very clearly. The share price went from 20-something to over 100."

Early this year, Letv reorganized, and Zhang Zhao went from head of the film studio to head of the content internet business group, while also taking charge of Letv's development. For Letv, it was another successful maneuver. For Le Vision Pictures and Zhang Zhao, it may not be the outcome they wanted.

Cover image sources: donews, pchome, letv, csytv, wzaobao, jiemian