2014: The New Forces in Chinese Film

Which companies got you to see more and more movies this year?

For the ordinary moviegoer, going to the movies changed a great deal over the past year.

You now book tickets and pick seats in an app. You pay to watch films on video sites. You prepay for films you want to see. You spend a few hundred yuan on something called "Yulebao" and become a film investor, perhaps even indirectly backing your favorite star... And that's not all: you've found tickets selling for 9.9 yuan, and celebrities selling ticket bundles... The one thing that hasn't changed may be that Chinese films are still not very good, and Hollywood blockbusters are getting thinner, too. But they always tell you it doesn't matter: going to the cinema is just a way to relax, and if you take it seriously, you've already lost.

These small, almost unnoticed changes have added several billion yuan to last year's 21.6 billion yuan box office, and the total may top 30 billion yuan in the final stretch of the year. Online sales may account for 30% of the box office, and the number of screens has grown to 23,000. So far in 2014, 306 films have been released (with 11 more scheduled), and the average film has taken 93 million yuan, up from 60.67 million yuan in 2013. Within a few years China will overtake the United States as the world's largest film market, and you are one of the people making it happen.

What is getting you to watch more and more films? Whenever the media describe the Chinese film market, they reach for the same phrase: "growth comes from new capacity." But looking back at the industry this year, we found that crudely crediting all the growth to new screens is the wrong answer. More and more small companies are trying something new, hoping to find room to survive by being nimble. We'd call that innovation, though there is not yet much of it.

Innovation does not simply mean "something new happened." The writer Han Han moved into film this year, but although he is a new face, The Continent changed nothing fundamental in how the industry makes or markets films. By innovation we mean creating new demand (getting you to start paying for films on video sites, for example), or changing how some link in the industry chain works (Maoyan and Gewara selling tickets in advance, for example, and using the presales to predict how a film will do).

Before we get to this year's new forces, let's look at how the industry itself changed. Note that many of these are only changes, some merely the continuation of old trends, and not innovations:

Online ticketing is gradually replacing the box-office window and the cinemas' own membership cards;

More and more e-commerce platforms are moving into ticketing, using it as a key way to draw in new users;

E-commerce platforms in turn have become marketing channels for films, and they send more audience data back to the industry;

Video sites are moving into the film business;

The big companies are losing their grip on the industry. Huayi Brothers did not produce a single one of this year's ten highest-grossing Chinese-language films;

The popularity of realistic, contemporary stories has lowered the cost of making a film, and more small companies are entering the business;

Film companies have grown more cautious: they would rather pay more for famous screenwriters, directors and A-list actors than give newcomers room to fail;

The "fan film" has become an established idea. Marketing for these films is split into ever finer pieces, with blanket publicity meant to make sure no fan in any region is missed.

Against this backdrop, we think these new forces in Chinese film deserve attention in 2014:

Youku: Data Mining

Old Boys: The Way of the Dragon is far from a good film, and Youku's investment in it differed little from any other backer's. What stands out is how the production used data.

The short film Old Boys had 80 million fans, and the words they used most often were music (1.49 million mentions), dreams (1.03 million) and youth (1.02 million). These happened to be the core elements of the feature Old Boys: The Way of the Dragon, and Youku gave music an even bigger role in it. After the first trailer went online in January, Youku analyzed every comment viewers left under it. The most common complaint was that the two leads, Xiao Dabao and Wang Xiaoshuai, shared too few scenes, so more scenes of the pair were added in the edit.

The film also reused the short film's playbook: it produced the catchy hit song "Little Apple" and let the song's spread online drive interest in the film. After the "Little Apple" music video launched at the end of May, Youku released two more viral videos every day, such as "A Sichuan Girl Covers 'Little Apple,'" 48 in all, to encourage users to watch, upload their own versions and feel part of it. Youku was also pleased by one figure: 20.87% of viewers who talked about "Little Apple" mentioned the film.

Critics called this Youku copying Netflix, the American video service said to have used data mining to make its hit House of Cards. But data mining clearly cannot be turned into blind pandering to audience tastes. Piling up elements that look like crowd-pleasers does not make a good film; it makes kitsch.

Youku and iQiyi: They Have Everything but Production

Video sites now research film data, invest, produce, promote and sell. Unless they take a wrong turn, you will see their influence grow fast and reach into every corner of the industry.

Video sites are replacing the entertainment channels of the web portals. Their homepages and pre-roll ads are replacing the portals' featured images and special sections, and stars increasingly appear on shows such as Youku's Star Talk, iQiyi's iLove Movies and Tencent's A-List Arrivals.

Three years ago, Youku was just a place that "got you onto the front page." Over the past two years, 58 films chose Youku as a marketing platform. Together they grossed 16 billion yuan, 30% of China's total box office over those two years. Now, with its film arm Heyi Pictures, Youku is about to release films such as Surprise (in addition to Old Boys: The Way of the Dragon, already released), and its strength in online promotion has become something it can "trade" with film companies.

Compared with portals, video sites reach young people who overlap heavily with cinema audiences, so film companies can speak to their customers directly. Trailers, theme-song music videos, behind-the-scenes clips and cast interviews usually carry more information and make a stronger impression than articles and photos, and they spread easily on social media. These videos did much for the box office of the Tiny Times series, The Continent and Fleet of Time.

In March, iQiyi announced its plan for films made for online release. In July 2014 it set up iQiyi Pictures, which made the same pitch: to "use its internet nature to play a fourth role in film, including crowdfunding films, mining and studying film big data, selling and preselling tickets online, e-commerce for film merchandise, and using iQiyi's media resources to make film publicity more interactive."

It is easy to predict that as video sites gather more resources, more talent will flow their way. If one day one of them replaces Huayi, would you be surprised?

Alibaba's Yulebao: Marketing by Crowdfunding

Why did Yulebao work? Because film producers were not short of money. They were short of audiences, of a bond with them, and of strong publicity.

At the end of March, Alibaba launched a financial product called Yulebao ("entertainment treasure"). For as little as 100 yuan, users could buy into a film project they liked. They were promised an expected return of 7%, plus chances to meet the cast and crew, attend early screenings, bid for props, tour filming locations and more. The first round sold out its 73 million yuan quota in four days, with 223,800 people taking part.

Because each investment was capped, what users could earn from Yulebao was small: put in 1,000 yuan, make 70. No one would treat it as a serious investment, and Alibaba itself stressed that the product was for fun. In practice, Yulebao combined a safe investment with perks that gave filmgoers and fans a sense of taking part, which helped spread word of mouth. And by analyzing the data of the several hundred thousand users in each round, Alibaba could learn more about the cultural spending habits of the 230 million active buyers on its platforms.

For the first time, a film's audience could be measured: its gender ratio, age, region, other interests and so on. That helps a film project decide on a marketing strategy and where to place its ads.

The first four rounds of Yulebao favored projects with a fan-film streak, such as Tiny Times 3, Old Boys: The Way of the Dragon, Kuiba and Dad's Holiday, and most of the money raised went into publicity and distribution.

Maoyan and Gewara: Ticket Sellers Become Publicity Platforms

These ticketing sites connect users on one side and cinemas on the other. Their biggest asset is a large store of trackable data, and that data is multiplying.

Maoyan tied itself closely to Breakup Buddies, running a joint presale that sold more than 1 million tickets before the film opened. Gewara sold tickets to the midnight IMAX premiere of Gone with the Bullets at full price, sold more than 5,000 in 49 minutes, and had sold 70% of the film's opening-weekend IMAX tickets before it was released.

With their huge user bases and selling power, these ticketing platforms began working more closely with film producers. The apps' launch screens, homepage slots and banner ads all became space that producers fought over. More and more distributors now approach these platforms themselves, because compared with portals and video sites, they are better at turning publicity into sales. Producers will even pay to subsidize part of the ticket price.

Beyond these, we see a few other new forces that innovate in parts of the business but have not changed how films are made:

Bad Monkey and Ferris Wheel Media

Bad Monkey is Ning Hao's old studio under a new name, a small company of about 30 people. Ning Hao is its artistic director, and his partner Wang Yibing is CEO. Breakup Buddies was the company's first project, and the first time Ning Hao was both director and investor.

Breakup Buddies had as many as 12 production companies. Ning Hao and Bad Monkey lacked a big studio's full production line and experience running projects. So they brought in several producers with different resources and worked with specialist companies at each link of the chain. That gave them the funding, production team, distributor and marketing agencies the project needed, and kept its risk as low as possible.

Ferris Wheel was founded by Song Ge and Du Yang, former executives at companies such as Huayi and Wanda Film with many years in the business. Like Bad Monkey, Ferris Wheel pulls together resources from many partners. That is how it made its first film, My Old Classmate, which cost less than 20 million yuan to produce and grossed 450 million yuan.

Sometimes these partners are willing to take bigger risks. Ferris Wheel and China Film Group's Beijing distribution company guaranteed Breakup Buddies' producers 150 million yuan, and Ferris Wheel also put up as much as 50 million yuan for publicity and distribution. Under the current revenue-sharing system, that meant Ning Hao's side was guaranteed income equal to a 500 million yuan box office. Other companies brought exclusive resources. Meituan, for example, used its ticketing app Maoyan to run a presale for Breakup Buddies that sold 1 million tickets before release. The presale in turn helped distribution, giving cinema chains the confidence to schedule more screenings.

These small companies either hold resources that are scarce in the industry, as Ning Hao does, or use resources the big companies have no time for, such as young, talented directors.

Now that money is no longer the hardest thing to find in this business, now that realistic, contemporary stories have lowered the cost of making a film, and now that these small companies can deal with production and the market more nimbly, they have won themselves room in the market and the strength to compete.