If a "Chinese-Style Hollywood" Really Exists, Will It Be Built on These 9 "Characteristics"?

One thing is certain: China will not copy Hollywood's path, and it has no need to.

"Given China's environment right now, I think China sits in a very unusual position — one where it could build what you might call a Chinese-style Hollywood."

Those were the words of Iain Smith, producer of Cold Mountain and Mad Max: Fury Road (the fourth Mad Max film), at an official forum during the 2016 Beijing International Film Festival. They came with context: Smith was speaking alongside James Schamus, producer of Crouching Tiger, Hidden Dragon, and the two were arguing that Hollywood is "not a place" but "an idea," "a brand." Given where China's film industry stands, they said, it may have the potential to develop an idea or a brand of its own.

In the past, the word "Hollywood" stood for a highly mature industrial system, and moving toward it always carried approval. But read Smith's remark closely and what he and Schamus saw was difference — no judgment of better or worse, simply "not the same."

China's film market is indeed growing fast, from 2.62 billion yuan in total box office a decade ago to 44 billion yuan last year. Many people in the industry think this year's total will pass 60 billion yuan. Overtaking the United States' US$11 billion in 2016 may still take some luck, but by 2017 there is little suspense left.

That expansion came from a constant rise in the number of screens and cinemas. As property developers like Wanda joined the cinema-building wave, the screen count went from fewer than 10,000 to more than 30,000 in the past five years alone. In 2016, China sold 1.2 billion admissions and produced 686 films, 334 of which reached theaters. That last figure is twice what it was in 2011.

Numbers like these get repeated over and over at events like film festivals. In China, film festivals are an awkward thing to have around. They were meant to be places where filmmakers talk shop and distributors, investors, and studios close deals. They end up as occasions for small and mid-sized companies to hand out business cards and for ordinary fans to fight over tickets.

Ask why the two purposes drifted apart and the main answer is censorship. A project signed at a festival is no guarantee of a mainland release, so exhibitors go looking for opportunities elsewhere.

The Beijing International Film Festival closed on April 23. Nowhere on its official schedule could you find a single film or TV company that has already built real influence in the industry. Of the "Big Five" private film companies, only Enlight Media turned up, to promote Big Fish & Begonia. Of the video sites that were so busy last year, only iQiyi came back — and its sole contribution was a poster taped up at the venue's security checkpoint.

In a sense the Beijing festival is itself a "Chinese characteristic": the conversations and deals that actually decide where the industry goes happen somewhere else, yet the event still looks thoroughly "mainstream." At forums large and small you can hear every fashionable term the film business has to offer, from finance to internet movies, with nothing left out.

Counting from 2003, when China's film industry began its industrialization reforms and Zhang Yimou's Hero became the first domestic commercial blockbuster, Chinese cinema has now been on this road for 13 years. If it is really true, as Iain Smith put it, that China "could build what you might call a Chinese-style Hollywood," what would actually make it distinctive? And where would those distinctive traits lead? We have a few conclusions of our own, and we would like you to think it through with us.

Big Tech as Investor, Producer, and Distribution Channel

In 2014, Bona Film Group chairman Yu Dong said something that became the entertainment press's favorite headline for the whole of the following year: "In the future, the content industry will be working for BAT." A year later he revised himself: "[Content companies] only need to perfect their content, and they will naturally become an indispensable link in BAT's ecosystem."

What that BAT ecosystem actually looks like, no one can yet say.

Filmmaking is a specialist's business. A company that did not start out in film finds it hard to win any real say in it — Silicon Valley firms still play bit parts in Hollywood, and even Netflix, the best of them, is a long way from becoming the HBO it wants to be.

But in China, the big tech companies came in first as capital, then worked their way into every link of the film and TV chain. Behind each of the so-called "Big Five" private film companies today stands a tech company. Huayi Brothers, the old hand, took investment from both Tencent and Alibaba in 2014. Enlight Media received a 2.4-billion-yuan investment from Alibaba in 2015. Bona Film Group completed its privatization earlier this year, with Alibaba Pictures becoming a major shareholder. LeVision Pictures was part of the "LeEco ecosystem" from the start. Only deep-pocketed Wanda Pictures has no need of tech money.

After that, the tech companies set up film studios of their own, one after another. Alibaba formed Alibaba Pictures by acquiring China Vision Media; Youku Tudou has Heyi Pictures; iQiyi has iQiyi Pictures. Tencent went further and built two separate studios, one under Tencent Interactive Entertainment and one under Tencent Video.

In marketing and distribution, the companies that began in online movie ticketing pushed just as hard. Maoyan Movies helped market and distribute Forever Young; Taobao Movie partnered on Mission: Impossible – Rogue Nation. Weying Time, the company behind WeChat Movie Tickets, says it has handled marketing or distribution on close to 100 films.

This stacking of roles may be the biggest difference between the Chinese film industry and Hollywood. On one hand, big companies concentrate capital. On the other, they are more inclined to treat a film as one part of a larger combined product. Push the idea of an "ecosystem" too far and content becomes a tool rather than the point.

A Channel With No Loyalty, Moving Into Content Production

If there is anything on the internet where China beats the United States, online movie ticketing is surely one.

In the United States, Fandango and Movietickets.com have been around for a decade, yet together they hold only about 20% of the ticketing market. In China, Maoyan, Weipiao, Gewara, Taobao Movie, Baidu Nuomi and the rest together hold more than 70%.

As a comparison of numbers, that might not matter much. But these apps have a deeper effect on the whole industry.

First, they have wrecked the way traditional theaters make money. A theater's membership program used to be one of its main profit engines, a way to build up a stable base of users. As more people bought online and compared showtimes and prices across theaters, they became Maoyan's users, or Gewara's users, not the theater's. The theater became the last stop where the service is handed over, nothing more.

On top of that, presale figures and the "want to see" marks users leave in the apps tell the platforms how popular a film is before it opens, which lets them shape how theaters schedule screenings — a still bigger blow to the job traditional theater managers used to do.

Because the apps now hold more leverage over theaters, they are using it to move upstream in the film business.

Beyond the marketing and distribution already mentioned, they want to use the user data in their hands to influence a film's subject matter and casting at the greenlight stage. Weying Time has moved fastest here: besides setting up several cultural-industry funds, it has invested in production companies such as Huaqiang Culture and Original Force Animation.

In China, the spread of online ticketing apps has put more moviegoer data in their hands. That has bought them a bigger voice in the film industry, and made them ground that big tech companies like BAT cannot afford to lose.

Moviegoing Enthusiasm, Manufactured by Subsidies

The ticketing apps grew popular on the back of heavy early subsidies. Tickets at 9.9 yuan and 18.8 yuan turned up everywhere; Baidu Nuomi even sold 6.6-yuan tickets during this year's Spring Festival season. That built the apps' position, and it also shaped Chinese moviegoers into an unusually price-sensitive crowd.

In some ways this is a good thing. Huge subsidies pulled more and more people into cinemas, and subsidy-driven box office is one important reason China's film industry grew as large as it did. But subsidies are no long-term plan, and the subsidy war among the major apps already shows signs of cooling — 9.9-yuan and 18.8-yuan tickets are getting harder to find.

Consolidation has begun as well. Gewara, with no large company behind it, could not keep subsidizing and eventually merged with Weying Time. The logic is the same as the Didi-Kuaidi merger in ride-hailing and the Meituan-Dianping merger in food delivery.

China's fast-growing screen count, together with ticket subsidies, will keep producing a bigger market. To serve moviegoers in cities of every size — above all the smaller tier-4 and tier-5 cities — cinemas have spread quickly down to the county level. That growth will bring structural change to China's filmmaking teams, and the clearest change will be a growing reliance on homegrown culture and homegrown work.

Small Companies Carry More Weight and More Say

In Hollywood, the Big Six hold something close to a monopoly over the American film industry. Open Hollywood's 2015 annual box-office chart and only one film in the top 20 — Lionsgate's The Hunger Games: Mockingjay – Part 2 — came from outside the Big Six.

In China, small companies show far more visible life. Take the three top-grossing films of 2015. Behind Monster Hunt was Edko Films, experienced but nowhere near a major. Lost in Hong Kong took investment from Enlight, but most of the work was done by Zhenledao, formerly the Xu Zheng and Tao Hong Studio. And Goodbye Mr. Loser was the first film from Mahua FunAge, a company that started out in stage comedy.

At the Beijing festival that just closed, plenty of small companies were busy announcing their slates. Hairun Pictures lined up long-established directors such as Johnnie To, Wong Jing, and Sylvia Chang.

Jujiao Pictures, which built its business on film marketing, drew the most attention with Brain Terminal (《端脑》), a science-fiction film adapted from the comic of the same name, alongside A Complete Guide for Boys (《完全男生手册》), starring Dong Zijian and Chun Xia. Some companies brought in big-name Hollywood directors to sign letters of intent. Yaolai Pictures announced deals with The Lives of Others director Florian Henckel von Donnersmarck and Spider-Man director Sam Raimi to set up a production company called Allegory. The Russo brothers, who directed Captain America: The Winter Soldier and Captain America: Civil War, announced a deal with Beijing Culture, a company that entered the film and TV business by acquiring Motianlun Pictures, whose credits include My Old Classmate and Breakup Buddies.

All these deals say the same thing: compared with Hollywood's small production houses, China's have much more say, and they can land plenty of projects that look genuinely promising.

Small and Mid-Budget Films Are the Market's Mainstream

What gives these small companies room to live is a simple fact: in China's domestic film industry, small and mid-budget films are what dominate the market.

This, too, is nothing like Hollywood. Look at the box-office structure there and it belongs entirely to effects-driven blockbusters — from Star Wars to Jurassic World, films with budgets of hundreds of millions of dollars take up most of the market. Last year's best-performing small-to-mid-budget film, Pitch Perfect 2, ranked only 12th at the North American box office.

In China, by contrast, you can find plenty of films that turned a small stake into a big win. Breakup Buddies, the top-grossing domestic film of 2014, cost only 35 million yuan and grossed more than 1.1 billion. Last year's Goodbye Mr. Loser cost no more than 50 million yuan including marketing and distribution, and grossed more than 1.4 billion.

This has to do with the particular shape of the Chinese market. Policy restrictions give domestic films a comfortable space to live in, and China has not yet built a film industry mature enough to make Hollywood-style effects blockbusters. Besides, the films that turn a small budget into a big hit are mostly comedies. Of all the genres in China, comedy is arguably the most mature — from the early Feng Xiaogang–Ge You pairing to Ning Hao and Xu Zheng today, Chinese comedy has worked out formulas of its own, and beyond the jokes it says something about how people are living and feeling now.

At the Beijing festival, Yu Dong said: "Behind the breakneck growth of China's film and TV industry are investors and bosses who are all entrepreneurs, all young teams with strong ability to innovate. Hollywood's major studios don't have bosses anymore. They have professional managers, and what they do is make more and more sequels. They don't make mistakes, but they've lost their capacity to innovate."

Small and mid-budget films may be the best way in for these young people to test new ideas.

Film, an Investment Product Whose Financial Risk Goes Unmeasured

A mature film industry is a vast industrial system. Investments that routinely run into hundreds of millions of dollars mean the business has to lean on a wide range of financial instruments to hedge the risk in what it does. That is why Hollywood and Wall Street have always been inseparable.

But where Hollywood uses Wall Street to finance films, in China financial firms have begun using films to make money in the secondary market. The Ip Man 3 affair is one example: its investor, Kuailu Group, used a string of complicated financial maneuvers to turn Ip Man 3 into a speculative instrument, then profited in the secondary market through tactics such as buying up box-office tickets.

The tactic is called film securitization — taking a film's expected future earnings and putting them to work in the capital markets. In fact, long before Ip Man 3, Chinese cinema had plenty of cases like it.

Before Lost in Hong Kong opened, Xu Zheng sold his rights to the film's box-office earnings for 150 million yuan to the Hong Kong-listed company 21 Holdings. 21 Holdings then announced that Ning Hao and Xu Zheng had each subscribed for 175 million Hong Kong dollars' worth of shares, taking 19% each of the company's enlarged share capital and becoming joint second-largest shareholders. Once Lost in Hong Kong became a hit, it pulled up 21 Holdings' share price; by one estimate, Xu Zheng's personal wealth jumped by 2 billion yuan.

Using financial tools the Hollywood way, to help finance films, would not necessarily be bad for Chinese cinema — capital brings resources, and resources can grow the market. But when a film itself becomes a vehicle for speculation and profit-taking, as Ip Man 3 did, it is nothing but a film-industry Ponzi scheme, and the damage reaches far more people in the business, because audiences stop trusting these products.

For now, China's film market has no ability to police the abuse of such financial products.

An Influx of Capital That Could Bring More Varied Content

There is no question that a great deal of financial capital is inflating China's film industry. But the country's production capacity does not match the scale of that money. One result is that funding is not especially hard to get, whether or not a film's content is any good.

A second result is that Chinese capital's hunger for projects will slowly reach into independent production. In recent years Chinese companies have bought a growing share of the Big Six's slates, and once the Big Six alone no longer satisfy them, that money will flow into independent film as well. Which means overseas independent productions may come to be shaped by Chinese investment, and may eventually be adjusted to suit screenings in the Chinese market, or even the wider Asian market.

At the same time, young directors in Hollywood who cannot get the backing of the majors or their professional managers — young Asian directors among them — will turn to the Chinese market. In looking for money, they will bring ideas and craft with them. The end result may point toward a broader kind of internationalization.

Everyone Wants to Be Disney

Ever since "IP" became a hot concept, Disney — the company that has done the best job of developing IP — became the target every film and TV company in China aimed at. From giants like Huayi Brothers and Enlight Media down to smaller players like Alpha Group and Youzu Interactive, all of them have at some point raised the banner of becoming "China's Disney."

Take Alpha Group. It seems to think it already holds some decent IP — Pleasant Goat and Big Big Wolf, Balala the Fairies and the like — much as Disney holds Snow White and the Marvel superheroes. So Alpha Group made becoming the next-generation Disney its goal.

Having a goal is a good thing. But it has missed one problem: IP alone cannot build a Disney.

We have written before about why Rovio, the company behind a hit IP like Angry Birds, never became the Disney of Finland it imagined. It over-exploited the IP and neglected its original business, which brought financial trouble, and it failed to keep developing Angry Birds itself, which let the game's popularity fade. Those were among the reasons Rovio fell short.

Alpha Group has no particular advantage here. The IP in its hands is no bigger a hit than Angry Birds, and the pull of cartoon characters like Pleasant Goat and Big Big Wolf is already fading.

Nor does a company like Alpha Group, which started out making toys, have enough experience running an IP. Developing one into films, games, novels and consumer products the way Disney does would be a huge challenge for Alpha too.

In fact, when Chinese film companies talk about IP, they all overlook that an IP is at bottom a good story that draws people in. At Disney, every mature IP begins with one excellent film. And that is exactly what China's film and TV industry lacks most.

In China, the story stage — the screenwriting business — is still a workshop operation: each writer writes their own script. In Hollywood it has long since become a system.

At Pixar and Walt Disney Animation Studios, directors and writers write their own scripts, but they also invite every employee to offer opinions and ideas, with a brain trust of people like John Lasseter behind them vetting the script.

Independent screenwriters, meanwhile, can lean on a site called The Black List. They upload their scripts; producers can see the ideas in them and buy the ones they like. The producer then passes the script to other writers for further revision and polish, and only after a studio committee signs off does the project officially get greenlit.

These elaborate, sprawling mechanisms are what let Hollywood turn out good stories. In China, without them, script quality is all over the place, and IP development built on a genuinely good story is out of the question.

What Exactly Is "Chinese Cinema"?

Chinese filmmaking has been broken twice.

The first break came in the early 1990s, when Tian Zhuangzhuang was banned from filmmaking for a decade over The Blue Kite, a heavy blow to Chinese filmmaking as a whole. The second came in 2003, when China launched its industrialization reforms and commercial blockbusters became the main theme. At that point the continuous creative tradition built up jointly by the Fifth and Sixth Generation directors was broken for good.

To this day, censorship and the absence of a ratings system still put many limits on China's film market. Film is treated as something that ought to serve an ideology, not as art in its own right. At the same time the market has boomed, and audiences now reach information through more channels than ever. So, to earn better returns, filmmakers look for ways to please their target audience even within the existing limits. Handle a sensitive subject well, for instance, and audiences will read the veiled reference as a "meme," pass it around happily, and no one breaks a rule.

Assessing the creativity of Chinese cinema, James Schamus said: "I think in the Chinese film industry people have a strong sense of self-respect and a strong sense of pride, and at the same time they feel their way of telling stories isn't very mature. But I think it is simply a different way of telling stories — and in fact that difference lets global audiences understand the Chinese way of storytelling all the better. That is the most important thing, that different way of perceiving, and it's what makes me genuinely excited."

That may be too generous. For global audiences to understand Chinese stories, they first need to understand the cultural background behind them, and that background may travel only so far, given the heavier restrictions on it. Part of why Hollywood has conquered the world is the reach of the American culture behind it, which should not be underestimated. On that count, how much influence Chinese cinema can have is still an unknown.