China Is About to Become the World's Biggest Film Market. So Why the Sudden Talk of "Love Each Other, Don't Kill Each Other"?

At the Shanghai Film Festival's discussion of film and capital, "love each other, don't kill each other" was a major theme. What is everyone worried about? What is the love, and what is the killing?

China often produces organizations that are obviously enormously powerful and yet insist they are a vulnerable group. The Chinese film industry is now telling the same story.

At a forum during the Shanghai Film Festival, Zhang Qiang, CEO of Alibaba Pictures — a company that stands for the formidable power of capital — used a scrap of conversation to put himself among the vulnerable.

"A few days ago I was chatting with Boss Jiang (Note: Jiang Zhiqiang, president of Edko Films), and he said that when he goes to the US to look for a director, he sits down in his hotel and the director comes to him. In China you can't land a big-name director even with your arms full of cash. The most powerful people in China are the big directors and the big stars; they are the ones with a say. He said he has never been able to manage a big director — if he can get one to show up at all, he should count himself lucky."

But at the same forum, Bona Film Group chairman Yu Dong disagreed to Zhang Qiang's face. "If you have really joined this industry, your relationship with the people who create the work is a matter of shared blood. There is no such thing as not being able to get a director. A lot of projects, I think, come out of banging ideas around with directors, producers and screenwriters. They are part of our lives."

Another guest, the director Huang Jianxin, spoke for directors and put it more plainly: "The worst case is capital coming in that understands nothing about film, because capital carries power with it, and it brings all sorts of cross-industry demands. So the more professional people in the film business now refuse to talk to non-professionals. It is not a question of how much money is on the table."

The forum, titled "Film and Capital: Love Each Other, Don't Kill Each Other," was one of the more substantial sessions at this year's festival.

By the account of Yang Xianghua, senior vice president of iQiyi, the capital going into Chinese film each year has already passed 100 billion yuan. China is also making more and more big-budget, big-production films. Spending on production and marketing has supercharged the market: China's total box office in 2015 was 44 billion yuan, close to 30 times the 1.6 billion of a decade earlier. Capital has become the most important part of the film business.

Now that China is the world's second-largest film market and is visibly about to become the largest, why has the phrase "love each other, don't kill each other" come up? What problem does it point to?

Question One: What Makes the Best Film?

"The best films in the world are never the ones that make the most money. Genre films — middling films that cover every base — make the most money. That is a feature of the market itself." That is what Huang Jianxin said when asked about the relationship between capital and filmmaking.

Clearly, as Huang Jianxin and the China Film Association, where he is a vice chairman, see it, the films now sweeping the box office do not count as good films. What worries them is that profit-seeking capital, once inside the film industry, will turn out more and more films that are mediocre and yet sell — and that is not good for the industry as a whole.

The worry has always been there, but some warped results have blurred a lot of people's standards. In China's young film market, the top box-office showings of Switch and Tiny Times bred an opportunist's view that any cat that catches mice is a good cat. Word of mouth and box office came apart — a film could be made for profit alone.

Lately Warcraft seems to have pushed the question of what makes a good film back to the front of the stage. Its word of mouth was driven by gamers. What many people went to watch was not a film but their own youth. That kind of projection has reopened the argument over how the public judges films: if a film satisfies one particular need, can it be called a good film?

It took 156 million yuan in its opening week in China, but Warcraft looked more like "an American Hollywood film pushed along by Chinese capital"; in the US its opening week barely cleared US$24 million.

In capital circles the film was treated as a new benchmark, and what people talked about had nothing to do with quality. It was that "a Hollywood blockbuster carried the presence of five Chinese companies for the first time ever," or "how Tencent Pictures used internet big data in marketing and distributing Warcraft," or "how Warcraft set off China's merchandise market."

In North America there was only one reason for the weak box office: word of mouth. Rotten Tomatoes gave it a 26 percent freshness rating, and critics' review sites scored it just 32. Reported back to China, the gap set off a shouting match among moviegoers, which seemed to confirm that Huang Jianxin's worry was not idle.

How to solve the problem? The answer from Ye Ning, CEO of Huayi Brothers, was — of all things — still capital: "Any force we can bring in that strengthens our ability to make high-quality Chinese films, or world films, is a good force… If our capital can get hold of the substance of film industrialization itself, I think that is of great benefit to Chinese cinema."

Plenty of companies are in fact doing this. Wanda and Huayi, as listed companies, have used financing tools to raise large sums and spent them on acquisitions, either to build out the industry chain or to lift their film and television production ability.

Huayi has put its capital operations mainly into raising its own production ability, part of a round of strategic adjustment that began in the middle of last year. In the second half of 2015 it bought two companies — one set up by its own artists Li Chen, Chen He, Feng Shaofeng and Zheng Kai, the other set up by Feng Xiaogang — for 756 million yuan and 1.05 billion yuan. Wang Zhonglei, one of Huayi's founders, has told QDaily that this is because what Huayi Brothers values most is the value of the artists themselves.

The thinking behind sending capital in ahead of everything else runs like this: fine, the industrialization of filmmaking now has a rough shape, and the industry chain is in place. In theory, that alone should let Chinese people make good films.

Is that how it works?

Question Two: Where Might Capital Hurt Film?

If people look back on the history of the Chinese film industry a dozen years from now, the Ip Man 3 affair of this March will certainly be brought up again and again, because it was the first time filmmakers realized that the damage capital can do to film may be far worse than they imagined.

Kuailu Group, the film's producer, used a dizzying series of financial moves to turn the box office of Ip Man 3 into an investment product. It then bought tickets in bulk to make the market believe Ip Man 3 really was throwing off handsome profits, pushing up Kuailu Group's share price, and took its profit from that. Beyond the speculation itself, the harm done to the film worried people in the business.

Imagine it had worked.

Step one: more and more films get wrapped in similar financial packaging. Step two: more and more retail investors are drawn in by an annual return of nearly 10 percent. But because the box office used as the underlying asset cannot deliver a return that high, step three follows: new film projects come online, and new retail investors join.

That is a textbook Ponzi scheme.

As the business commentator Chen Changye wrote, "Box office that has been watered down, securitized as an asset, is of course a bubble asset, of course a hollow asset. It is a game of pass the parcel. Can you really afford to play?"

This wariness should have been there back in 2014, when the whole market piled into products like Yulebao and Baidu Youxi — except that those were packaged as insurance rather than P2P lending, and the producers were not buying up their own tickets the way Kuailu Group did.

This is worth worrying about more than "what makes a good film." Even audiences who go to see bad films contribute real box office; the market gets bigger, and for the industry that is a boost either way.

Turning film into capital the way Kuailu did is another matter entirely. If everyone makes films in an investor's frame of mind, then, as with Ip Man 3, all that matters is producing a box-office number, never mind how many people actually watched. A capital game with no foundation under it collapses sooner or later.

Kuailu failed. But look further at how deeply capital has worked its way into Chinese film and you find plenty of room inside it for big capital to do harm.

Wanda has built out the whole chain — Wanda Pictures in production, Wuzhou Film Distribution in distribution, Weying in ticketing, Wanda Cinema Line at the exhibition end — so a film in release can run the entire course inside Wanda's own system. Alibaba holds stakes in the three big private film companies, Huayi Brothers, Enlight Media and Bona Film Group; Taopiaopiao is Alibaba's own ticketing system, and Yulebao is itself a crowdfunding financial product.

Because the coverage is that tight, there may already be the shadow of Alibaba, Wanda or Tencent behind every film now, and capital has a great deal of room to move around in there. What is really frightening is not what Kuailu did. It is that if Alibaba or Wanda decided to do the same thing, capital would be out of control in an altogether different way.

The people who actually make the films can only watch it happen.

Question Three: What Is the Love, and What Is the Killing?

For all the filmmakers' wariness of capital, capital and film cannot in fact be pulled apart.

The reason is simple. A film is the product of a large industrial system; every film has to mobilize a great deal of manpower and material, and the money behind every film is a huge number. Ten to 20 million yuan is now about the floor; a domestic effects-heavy blockbuster costs at least 100 million yuan to make; the top A-list productions in Hollywood also run over 100 million — except the unit is dollars.

Zeng Maojun, president of Wanda Cinema Line, did the arithmetic: close to 700 films a year now earn box office, and if the average production cost per film is 20 million to 30 million yuan, then China needs somewhere around 15 billion to 20 billion yuan a year for film content production alone. His point: without capital, film could never have become an industry.

For filmmakers, the part of capital to love is that "with money you can shoot a good story." After that, there may be nothing more.

Capital really can produce bad films. Even in the United States, with its well-worked-out system, there is a company called The Asylum that specializes in cheap knockoffs and makes good money from them. Capital really is after profit, too; that is how an entire industry called IP was born, with film and television companies buying up adaptation rights to novels, games and comics in the hope of making quick money off existing fan bases.

On this point, though, Huang Jianxin may be worrying a little too much. Monkey King: Hero Is Back, Mr. Six and Zootopia all came from behind on word of mouth, finishing with 1 billion, 900 million and 1.5 billion yuan at the box office. A genuinely good film can do good business too.

Chinese cinema will not turn commercialization away, because once mature, professional capital is inside the film industry, film companies can use it to develop better technology, buy better equipment and train more professional people. For the industry as a whole, that is a positive stimulus.

But financialization arriving on this scale, at this moment, feels sensitive and worrying.

Before Kuailu was exposed, the Ponzi scheme run by the P2P platform Ezubao had already been uncovered. Because of the potential harm to large numbers of retail investors, the P2P industry went into a sweeping clean-up. Kuailu Group's conduct made filmmakers feel that they, too, could become the next P2P industry.

"When a certain kind of capital gets into film, it is not hoping to make money through the film itself. It hopes to make the money behind the finance, through complicated financial instruments, through complicated financial derivatives, and to use that to subsidize the film. That harms the film's content and the film itself. Once complicated financial derivatives are in the picture, it should put us on alert about our future," Zeng Maojun said.

As filmmakers see it, the thing that matters most in the film industry is still the film.

"What holds up a big film is not only the creative work but a lot of systematic groundwork, a lot of systematic coordination — including the director's use of technology and the handling of every shot, while balancing the budget and the actors' performances," said Ye Ning, CEO of Huayi Brothers.

How capital will change the film industry is still unclear. The one certainty is that capital's pursuit of film will not stop.

As Huang Jianxin said, the whole film industry's output is still smaller than that of a single Sinopec or China Mobile, yet capital will chase film anyway, because the room for film to grow is enormous: it is an industry with a future and a story.

There is another reason, which nobody said out loud at the forum: film is, after all, a short-cycle business with a big return on investment. For capital, the return may matter more than the pursuit of scale.

Some scales of operation may be out of reach for this seemingly fierce private capital in any case. Face to face with behemoths like China Mobile and Sinopec, the capital that jokes about being a vulnerable group in front of big directors might really turn into a vulnerable group. Seen that way, sticking to something private capital can actually pull off — making films — does look like the better fit.