Hollywood Looks More and More Like the Chinese Market: Blockbusters Decide Everything, and Creativity Runs Thin

Yet the truth is that blockbusters do not decide everything. The big-budget, big-return blockbuster model has done Hollywood more and more harm, and its 2015 results show it best.

After a slump in 2014, Hollywood seemed to regain some of its touch in 2015.

The box office is the best evidence. North American box office reached US$11.126 billion in 2015, an all-time high. And of the ten highest-grossing films in global box-office history, four were new releases from 2015: Star Wars: The Force Awakens, Jurassic World, Furious 7 and Avengers: Age of Ultron.

But bright numbers cannot hide Hollywood's fatigue. Measured by tickets sold, North American cinemas sold 13.3 billion tickets in 2015, a good deal fewer than in the years just after 2000. What carried the North American box office to a record was nothing more than pricier tickets.

Another common complaint is Hollywood's thinning supply of ideas and creative ability. The plainest sign is that the 2015 Academy Awards were widely judged the worst in years. Blockbusters, big productions, cinematic universes and sequels seem to have become Hollywood's mainstream, while films that tried something new in subject or form mostly flopped.

After so many years of easy growth, Hollywood has finally hit its ceiling. The North American market cannot grow any larger, and the mature model of genre films and blockbusters has turned into a constraint on new ideas.

To break through that ceiling, Hollywood has started doing many things. International markets matter more and more to it, above all the fast-growing Chinese market. To win Chinese audiences, Hollywood casts and creative teams now routinely come to China for premieres, and the marketing stunts keep multiplying.

Hollywood is also moving closer to Silicon Valley. Netflix, Amazon and even Apple have become its partners. Through distribution licensing, joint content and new technology, Silicon Valley is starting to step into Hollywood and try to change it.

Even though Hollywood has hit its ceiling, we have to admit it is still the most developed film industry in the world. A well-established agent system, a mature studio production system, an advanced visual-effects industry and deep pools of financing give Hollywood advantages no one else can match.

Hollywood is the film industry's great success, and that is exactly why it needs to stay alert. It needs to spot early the forces that could eat away at the industry from within, and make itself more energetic and younger.

The blockbuster is a double-edged sword

Universal Pictures was Hollywood's biggest winner in 2015. Its share of the North American box office rose from 10.3% in 2014 to 21.3%, making it the fastest-growing Hollywood studio of the year. It released 23 films in North America that year, and half its box office came from just three of them: Jurassic World, Furious 7 and Minions.

But blockbusters are not everything.

Disney's Tomorrowland cost US$190 million to make and earned only US$210 million worldwide. After the cinemas' share and the cost of marketing and distribution, Disney lost more than US$150 million on it. Warner Bros.' Pan fared even worse: its global box office of US$130 million did not even cover its US$150 million budget. Even with a release in China, it took in less than US$30 million there.

To this list of box-office disasters we could probably add Fantastic Four, Pixels and Terminator Genisys. The studios behind them, 20th Century Fox, Sony Pictures and Paramount, paid a heavy price too.

To limit blockbuster risk, make more films

One way to limit the risk of blockbusters is to make more films. That sounds contradictory, but compare Disney and Paramount.

Disney has been the steadiest Hollywood studio of the past two years, holding first or second place in the studio rankings. Look at Disney's slate and you will find no shortage of blockbusters. In 2015 alone it ran from Avengers: Age of Ultron to Ant-Man, and from Tomorrowland to Star Wars: The Force Awakens.

Some of them failed, Tomorrowland among them. But Disney had other blockbusters to offset the losses on Tomorrowland. In the end Disney had a very good 2015: US$2.28 billion at the North American box office, 19.8% of the whole market.

Paramount, by comparison, had a bleak year. Its two blockbusters, Mission: Impossible – Rogue Nation and Terminator Genisys, both did reasonably well, yet Paramount's financial results still showed a clear decline from 2014.

The main reason is that Paramount made far too few films in 2015: just 12 in total. That meant it could keep its usual revenue and profit only if every film succeeded, and making sure every film succeeds is close to impossible. So Paramount sank into a trough in 2015.

Looking back on Paramount's mistakes, Philippe Dauman, chief executive of its parent company Viacom, said: "We did not put out enough films this year... but we believe Paramount will bounce back. In 2016, Paramount will make and release 15 films. That will go a long way toward improving Paramount's financial performance."

More and more sequels, an ever more cautious Hollywood

Hard as it is to believe, only one of the top ten films at the 2015 North American box office was wholly original: Pixar's Inside Out. Sadly, even Pixar, long known for its originality, is now turning to sequels: Incredibles 2, Finding Dory, Toy Story 4, Cars 3...

Sequels... as for the safety they offer, Hollywood has long since proved that over time.

But sequels, spin-offs and adaptations also took off in 2015 in another form: the cinematic universe. Paramount plans a Transformers universe built on Transformers; DC Comics, Marvel's old rival, has launched its DC superhero universe; Warner Bros. plans to put Godzilla and King Kong together in a monster universe; even Hollywood's remake of Power Rangers wants a universe of its own.

Could there be any duller news?

Hollywood and Silicon Valley grow closer

Both industries are in California, but Hollywood is in Los Angeles and Silicon Valley is near San Francisco. The 600 kilometers between them has not stopped the two from growing closer over the past two years.

Netflix, which started out in video streaming, moved into production early. It began working with Hollywood with House of Cards, and later signed a deal with Disney to make five Marvel superhero TV series together. Two of them, Daredevil and Jessica Jones, have already aired, and both were fairly well received.

A still from Daredevil

If Netflix had countless ties to Hollywood even before it made its own series, Amazon and Apple had almost nothing to do with Hollywood at first.

Amazon first worked with Hollywood because it wanted to give its members more services. It decided video streaming was a good idea, so it began signing deals with Hollywood, picking good films and TV series from the big studios' libraries to show its members.

Apple, for its part, works with Hollywood to sell its own hardware. Just as Apple sold countless iPods on the strength of the music in the iTunes Store, it wants to sell Apple TV on the appeal of Hollywood films and TV series. Steve Jobs once saw the device as a way to bring together the DVD player, cable channels, users' other devices and iCloud. It needs more good content to lift its sales.

Hollywood's feelings about all this are probably mixed. Disney is a typical case. On one hand it worries that as more people watch films and videos online, its own TV business will suffer; on the other, it works with Silicon Valley, hoping to use the reach of the internet to sell its products to more people.

There is no way around it: the internet has changed how people watch. Fortunately, as Richard S. Tedlow's well-known prediction has it, if Hollywood understands that it is in the entertainment business, there is still hope.

How much does the Chinese market really matter?

China's film market has grown fast over the past two years and looks like a very tempting cake. But how big a slice can Hollywood get?

Furious 7, released in April 2015, was a shot in the arm for Hollywood: its 2.4 billion yuan box office in China even beat its US$350 million in North America. Surprised by that figure, Hollywood also sped up its push into China.

But in the second half of 2015, no Hollywood blockbuster repeated the success of Furious 7. The best performer, Mission: Impossible – Rogue Nation, finished at 870 million yuan, while The Martian and Spectre did not even reach 600 million yuan. Given the scale of these films, and next to the success of Furious 7, those numbers are hard for Hollywood to be happy with.

In quality these films were not necessarily weaker than Furious 7, and the studios put plenty of effort into marketing. So what went wrong?

Part of the reason, naturally, is policy. The cap on imported films, together with shifts in release dates, produced what is called "protection of domestic films." Mission: Impossible – Rogue Nation, Minions and Pixels in September, and The Martian, Maze Runner: The Scorch Trials and The Hunger Games: Mockingjay – Part 2 in November, all opened close together, which left each of them less room to grow.

The bigger reason lies with Hollywood itself. As we noted earlier, Hollywood has grown more cautious over the past two years, and its films look more and more alike. As Chinese moviegoers grow familiar with Hollywood's bag of tricks, they start to build up some immunity.

Remember that as a market grows, its consumers grow more sophisticated too. Try to fool audiences with the same old tricks, and they will not buy it.

Perhaps the way into the Chinese market is through Chinese capital

On January 12, Wanda Group announced it would buy the American studio Legendary Pictures for no more than US$3.5 billion in cash (about 23 billion yuan). It is the largest Chinese investment in Hollywood to date.

As we explained in detail in our earlier Hollywood Report series, money of course matters to Hollywood. What matters more is that once Chinese capital is involved, a Hollywood film can enter the Chinese market openly as a co-production and so get around the policy limits on imported films. One more film that can open in China, one more market a film can open in: that is never a bad thing.

So in recent years you see more and more tie-ups between Hollywood and Chinese capital: Legendary East, set up by China Film Group and Legendary Pictures; Fosun Group's investment in Studio 8; the partnership between Huayi Brothers and STX Entertainment. More and more Hollywood companies have Chinese backing.

But that does not guarantee success either. In the end, a film succeeds mainly because it is good, and whether the money behind it is Chinese or American has little to do with it.