Huayi's Big-Director Bet Could Earn at Least 6 Billion Yuan at the Box Office. So What?

The number looks respectable, but in today's market it won't put Huayi back in the number-one spot it once held.

Don't put all your eggs in one basket. Huayi has been burned by its "big director" strategy before. When it works, the rewards are spectacular; when it doesn't, one film can do serious damage, as Devils on the Doorstep, The Emperor and the Assassin and Back to 1942 did. The days when a studio could ride one or two famous directors are clearly over.

Huayi spent years recovering from those losses. Now it has learned to use its financial muscle to spread the risk. It has signed up nearly every established director in Chinese-language film, and some from abroad as well.

On the filmmaking side, the success of Mr. Six gave Huayi Brothers the confidence to regroup. It then hired Ye Ning away from Wanda, an executive with 15 years of experience in production, distribution and cinema management, and made him vice president of Huayi Brothers Media Corporation and CEO of Huayi Brothers Pictures. Soon after, Huayi rushed out a new strategy, ready for a major push.

At a press conference on March 20, Huayi unveiled the latest round of its "H Plan": a slate of 22 new films for 2016 and 2017. The 2016 titles had already been announced in January; the most eye-catching additions on the new 2017 list are sequels to established franchises, such as the third film in Tian Yusheng's "Ex-Files" series and the third in Tsui Hark's "Detective Dee" series.

The slate itself is minor news. What matters more is who turned up that day to show support: Feng Xiaogang, Tsui Hark, Nansun Shi, Manfred Wong, Guan Hu, Cheng Er, Tian Yusheng and others, 10 directors and producers in all. Their presence signaled that Huayi is reviving its big-director strategy.

And it isn't only those 10. Huayi also announced that over the next two years it will work with Stanley Tong, Zhang Yibai, Zhang Meng, Teng Huatao, Gao Qunshu, William Brent Bell, Shane Black, Duncan Jones, Ash Brannon, Peter Segal and others: 27 well-known directors and producers from China and abroad in total.

Using stars and famous directors to draw audiences is what Huayi has always done best, and probably what has worked best for it. Stars were once the one thing Huayi never lacked. But in recent years, as the company pursued its slogan of moving away from film and shifted the focus of its business, many stars and directors left to set up their own companies, among them Fan Bingbing, Huang Xiaoming and Chen Kuo-fu. Feng Xiaogang left too, then came back. Now Huayi is trying to win them back one by one, promising to stick with its formula of pairing big directors with big stars.

What is different this time is that Huayi is bringing in more capital, hoping to use financial arrangements to give itself firmer protection against the risk of any single film. Last year, for example, Huayi Brothers paid 1.05 billion yuan for Dongyang Meila, a company 99% owned by Feng Xiaogang. (The company was founded on September 2, 2015, with registered capital of just 5 million yuan; Feng held 99% and Lu Guoqiang 1%.) Its main business is investing in and producing film and TV projects, plus writing, developing and trading scripts. Projects in preparation include the films Cell Phone 2, Never Forget, If You Are the One 3 and Beauties on the Road, the TV series 12 Love Letters, and variety shows. After the acquisition, Feng will provide resources to the company's new directors, even serve as their producer, and help them develop film projects.

The deal, however, came with a profit guarantee in the form of a performance-based agreement. Under the share transfer agreement, Feng Xiaogang and the other shareholder must deliver profit of at least 100 million yuan a year, rising 15% each year. If they fall short, Feng and his fellow former shareholder must pay Huayi the gap between that year's target and the actual result, in cash or in another form Huayi accepts.

Clearly, Huayi now holds its directors to stricter terms.

At the March 20 event, Feng Xiaogang appeared for the first time as the face of Meila Pictures. He introduced the company's core team, promoted several new projects, and assured his old employer of his commitment: "Rest assured, Meila will be a film company that makes high-quality films and delivers high returns." His next film as director, I Am Not Madame Bovary, opens soon; it is the first film Meila Pictures has invested in and distributed.

The Chinese film market has changed a great deal and is growing fast, but even so, a profit of 100 million yuan a year will not be easy to reach.

Feng Xiaogang's commercial peak dates back to A World Without Thieves in 2004, which took 120 million yuan at the box office. For several years after that he released one big film after another: Assembly (2007) eventually grossed 260 million yuan, and If You Are the One (2008) 250 million.

In those years, Feng's box office kept Huayi at the top of the charts. According to the prospectus for Huayi Brothers' 2009 listing, Assembly and If You Are the One accounted for 40% of the company's film revenue and 18% of its total operating revenue at the time.

Some of Feng's films flopped. The Banquet (2006) took only 130 million yuan, and Back to 1942 (2012) cost Huayi dearly. Over the past 20-plus years, films carrying Feng's name have grossed more than 3 billion yuan in total, but his pull with audiences today is nothing like it was. (We covered this in an earlier article.) So what looks like Huayi handing Feng a fat red envelope is also a risk agreement, written for one of its own, that says bluntly: you have our support and our trust, but the box-office risk is yours.

Huayi Brothers was probably at its height around 2010, and Feng Xiaogang contributed more to that than anyone. Aftershock, released that year, earned 650 million yuan at the box office and brought Huayi 172 million yuan in revenue (box office plus rights), and it lifted the company's share price for days in a row. If You Are the One 2 sent Huayi's stock to its daily limit before the film had even opened, making it the top performer on the ChiNext board. Huayi's film revenue that year roughly tripled, up 209.39% from the year before. Yet even in that productive and profitable period, Huayi Brothers' net profit barely topped 100 million yuan. According to Huayi's 2010 annual report, operating revenue for the year was 1.072 billion yuan, up 77.4%, and net profit was 149 million yuan, up 76.46%.

From 2011, Huayi began to slide. After the blockbuster year of 2010, its mid-budget films of 2011, including Snow Flower and the Secret Fan and Magic to Win, all ended with poor box office.

In 2012 Huayi came back. Painted Skin: The Resurrection and Chinese Zodiac did well, but the failure of Back to 1942 turned things around. The film's first-week (four-day) gross was only 140 million yuan, far below Huayi's expectations, and the result dragged down Huayi Brothers' share price. News reports at the time said 1.3 billion yuan was wiped off Huayi's market value. The film finished with 360 million yuan; if its budget really was the officially stated 210 million yuan, it cost Huayi at least 100 million yuan. It also showed up in Huayi's 2012 results: net profit grew just 20% that year, the weakest growth since the company listed in 2009. That year's biggest winner among private film companies was Enlight Media, which released Lost in Thailand.

From 2014, Huayi gave up its place as the private film company with the highest box office (Enlight led with a 19% market share).

Film is no longer Huayi's most profitable business. Games have taken its place, mainly thanks to Huayi's acquisitions of Ourpalm and Yinhan Technology. Compared with film, the steady growth of games gives Huayi far fewer headaches. So moving away from film became the shared goal of everyone at Huayi.

Now that it is facing the film market again, Huayi is setting demands on the box office and on the big directors who produce it: if you can't guarantee a hit, at least keep costs under control. That job falls to Feng Xiaogang, and to the other directors and producers in the H Plan.

Huayi has come back to film not as a company in love with cinema but as a cool-headed capitalist. The figures and terms of the new deals have not been disclosed, but the box office these big directors will bring in can be estimated with some confidence.

Look at their pull in recent years. Feng Xiaogang's 2014 New Year film Personal Tailor was poorly reviewed but still grossed 700 million yuan, and last year's Mr. Six, in which he starred, took 900 million. In today's market, Feng's films should draw at least around 800 million yuan each.

Next up, Feng will release I Am Not Madame Bovary in 2016, followed by sequels to two of his best-known films, Cell Phone 2 and If You Are the One 3, and The Songs Fading Away from Me, a film drawn from his own youth. Add two more Meila Pictures productions, Never Forget and Beauties on the Road, and a rough estimate puts the box office that Feng and his company bring Huayi over the next two years at 3.5 billion yuan or more.

Guan Hu, whose standing at Huayi rose sharply after he directed Mr. Six, will produce for the first time in 2017, on The Young Master, a spin-off of Mr. Six. His 2013 film as director, The Chef, the Actor, the Scoundrel, grossed 270 million yuan. Assuming 400 million yuan per film for now, Guan Hu should bring Huayi around 500 million yuan at the box office.

Jackie Chan is no longer just a kung fu star. He started directing and producing long ago, and Chinese Zodiac, which he directed in 2013, took 880 million yuan. This year he will team up with Stanley Tong on Kung Fu Yoga, due over the 2017 Lunar New Year holiday. A second film, working title Long Zhen Tian Xia, made with GoldenEye director Martin Campbell and actor Pierce Brosnan, is also due in 2017. As for his record: Dragon Blade, which he starred in in 2015, grossed 740 million yuan, and Police Story 2013 took 530 million. A conservative estimate puts his drawing power at around 600 million yuan per film, which means he could bring Huayi more than 1.2 billion yuan at the box office over the next two years.

Among the new H Plan titles, Tsui Hark's "Detective Dee" series has drawn the most attention. The first film, Detective Dee and the Mystery of the Phantom Flame (2010), was a surprise hit of that year's National Day holiday, taking 286 million yuan. The second, Young Detective Dee: Rise of the Sea Dragon (2013), grossed 590 million yuan; two years on, Tsui's pull had not weakened at all. In 2014 his New Year film The Taking of Tiger Mountain earned more than 800 million yuan. On that trend, the third Detective Dee film should gross at least 500 million yuan.

Another series director to watch is Tian Yusheng, who specializes in low-budget romantic comedies. His Ex-Files took 128 million yuan over the 2014 Lunar New Year holiday, and Ex-Files 2 (2015) brought in nearly 250 million. By that rough measure, the third film should gross at least 200 million yuan.

Counting conservatively, and only on the drawing power of Feng Xiaogang, Jackie Chan, Guan Hu and Tsui Hark, these directors should deliver close to 6 billion yuan at the box office for Huayi over the next two years (box office, not Huayi's final share of it). That is before counting any foreign directors.

Six billion yuan looks like a good number. But consider Huayi in its golden age. The total box office its films earned then was only 1 to 2 billion yuan, yet that was about 30% of China's box office, and it ranked first in market share among all private film distributors. From 2014, as Huayi pursued its goal of moving away from film, the box office of the films it distributed fell to 7% of the yearly box office of all domestic films.

Today, and perhaps for years to come, Huayi may no longer be the company that stands above the rest, the first production company people think of when Chinese film comes up.

Image credit: Huayi Brothers' official WeChat account