56.575 Billion Yuan: As Chinese Cinema Swings Harder, How Can It Keep Up With What Audiences Want? | 2018 Annual Box Office

"Make good movies" is the vaguest answer there is. What other obstacles do filmmakers actually face?

On the last day of 2018, Long Day's Journey Into Night opened. With a saturation blitz on Douyin and a gimmick about "ringing in the New Year with the person you love," its distributor turned a Cannes art film into a mass-market controversy. Helped by the roughly 240 million yuan in net box office the film took on its opening day, the year's total made its final sprint and finished at 56.575 billion yuan.

An increase of 4.2 billion yuan, growth of about 8% — both numbers were down from the year before. Looking at the year as a whole, "a strong start and a weak finish" may be the best summary of the 2018 film market.

Early in the year, Ex-Files 3: The Return of the Exes became an unexpected smash, taking more than 1.5 billion yuan in net box office and letting January match its 2017 total even though Chinese New Year's Day arrived late in 2018. Then came February's unprecedented Spring Festival season: over the 15 days from Chinese New Year's Day to the Lantern Festival, it delivered 8.723 billion yuan, nearly 3.3 billion yuan more than the same period in 2017.

But April brought a drop of more than 20% year on year, for lack of anything on the scale of the previous year's The Fate of the Furious. The steepest fall came in October: the National Day holiday had no tentpole of comparable size, and Hello Mrs. Money, another release from the comedy studio Mahua FunAge, came nowhere near Never Say Die, the Mahua FunAge film that had held the same slot a year earlier — it took only a quarter of that film's box office. October ended down more than 30%.

From growth above 60% in February to a decline of about 30% in October, monthly box office swung more violently in 2018 than ever before. Five of the 12 months grew; seven fell. Apart from the Spring Festival season, which expanded because the pool of moviegoers itself had swelled, whether a film with real drawing power opened became the single biggest factor deciding a month's result — Ex-Files 3, Avengers: Infinity War, Dying to Survive and Venom each propped up the whole market in January, May, July and November respectively, while the remaining months slid for want of a film appealing enough.

Industry people now believe that only word of mouth can get more people into theaters. Liu Peng, head of the Maoyan Research Institute, argues that because third- and fourth-tier cities held roughly the same share of box office as in 2017, and the share of tickets bought online has also leveled off, the channel expansion the market once grew on has stopped working. The films themselves have become the source of China's next stage of growth.

Wang Yizhi, founding partner of Fanying Consulting, agrees about word of mouth, but comes at it from marketing and distribution. Urbanization and new screens, he says, can no longer bring in more box office. Growth will come only if marketing and distribution teams manage expectations well — that is, match a film to the right audience. "You have to satisfy the core audience's reason for buying a ticket before you can set off positive word of mouth," he said, and that is what lifts the whole market.

Filmmakers argue every year about how to make good movies — movies audiences will take to — but the position they are in now may be harsher than in the previous two years. A Fanying survey found that in 2018 moviegoers made up 57% of the urban population, nearly double the share two years earlier. How often audiences buy tickets on Maoyan has also kept climbing. The pool of moviegoers keeps widening, and going to the movies is turning into an ordinary habit.

Not every film benefited. By QDaily's count, six films took more than 2 billion yuan over the past year, twice as many as in 2017. But the number of films in each of the three brackets below — 1 to 2 billion yuan, 500 million to 1 billion yuan, and 100 million to 500 million yuan — fell, for a combined loss of 10 films, while the number earning between 50 million and 100 million yuan rose slightly. The winner-takes-all Matthew effect grew stronger in 2018.

For studios, that means pleasing an audience that keeps getting pickier. For the audience, it means their appetite for movies still is not satisfied. The wilder monthly swings of 2018 show the gap between what filmmakers make and what audiences want is widening, and that may be the biggest hidden danger facing the Chinese film industry.

Part of the reason lies in how the business itself works. From greenlight to shoot to release, a film's cycle runs from a few months to several years. By the time it reaches theaters, tastes may already have moved. That is the main reason so many franchise films underperformed this year.

Detective Dee is Huayi Brothers' flagship series. The second installment, Young Detective Dee: Rise of the Sea Dragon, released in 2013, took more than 600 million yuan and finished sixth on that year's chart. Around Detective Dee, Huayi Brothers launched a sprawling merchandising plan — theme parks, clothing, general goods — hoping to turn audiences' affection for the character into revenue.

This year's installment, Detective Dee: The Four Heavenly Kings, did not deliver. Hobbled by a thin plot, it ended with 575 million yuan in net box office, less than the film that came five years before it. The industry praised it as the current peak of Chinese film craft, but against an investment of up to 300 million yuan, Huayi Brothers' books may not look good.

Hello Mrs. Money had the National Day slot working for it, and everyone expected it to repeat the success of Never Say Die, which had grossed more than 2 billion yuan. It finished with 560 million yuan in net box office. Respectable for a comedy; by Mahua FunAge's own standard, a flat defeat. It too was adapted from a stage play, and the jokes Mahua FunAge boasts have been tested over a thousand live performances did not make people laugh.

IP collapsed across the board in 2018, whether the IP was a film series or a famous director. Without the Spring Festival slot behind them, Monster Hunt 2 and The Monkey King 3: Kingdom of Women might not have made half of what they did. Zhang Yimou's period epic Shadow could not repeat the success of Hero in 2003. Hidden Man failed to repeat what Jiang Wen had done with Let the Bullets Fly, and fell short even of his own Gone with the Bullets four years earlier. The film version of iPartment rounded up a crowd of nostalgic fans on opening day and then became an industry joke.

"Changes in what consumers want will always outrun the speed at which a whole industry improves," Wang Yizhi said. "So from the production side, you can never satisfy 100% of the audience's demand for movies."

That has proved true. A Cool Fish is an absurdist tragicomedy about small people; How Long Will I Love U mixes romance with fantasy; Forever Young was originally made as a tribute to Tsinghua University's centennial. With tastes this hard to predict, who could have guessed in advance that these films would win audiences over?

That does not mean the industry cannot respond. Liu Peng says audience preference runs in cycles: "If a genre or a direction gets used up, its pull declines." And using things up is exactly what the speculative streak in Chinese filmmaking produces.

After Dangal took 1.2 billion yuan and finished seventh on the 2017 chart, a crowd of companies moved into importing and distributing Indian films — and their returns slid steadily. Secret Superstar closed at 687 million yuan, Bajrangi Bhaijaan at 260 million yuan, Hindi Medium at 196 million yuan, Toilet: A Love Story at about 87 million yuan, and the most recent, Pad Man, at just over 60 million yuan. By the end of 2018 the enthusiasm for Indian films had fallen back to 2015 levels.

Wang Yizhi believes the risk from shifting tastes can be managed if the market is offered a wider range of genres. China's film supply "isn't short on quantity, but effective supply is lacking — musicals, sports films, even romance all have gaps." In recent years, he said, many film companies have been repositioning themselves around just a few genres, crime or romance, say, which also helps a company build real expertise in one of them faster.

Asked whether any formula still guarantees a hit, a producer with ten years in the business invoked Robert McKee, the man called Hollywood's screenwriting godfather. He told QDaily: "Under McKee's theory, that classic A/B story — two lines, a few characters, how they succeed and how they fail, conflict building to a climax — that structure is still sound. Otherwise, from a creator's point of view, there would be no rules to follow at all."

This theory sounds elementary, and it may be the hardest thing of all to do. Compared with the standard playbook — keep making sequels, put a big director and a stacked cast together, adapt a stage play straight to screen — it takes far more work and care, and still may not succeed.

For a while yet, out of laziness and out of habit, the industry probably will not shake this path dependence. The 2019 Spring Festival slate already holds two films adapted from Liu Cixin's fiction, Crazy Alien and The Wandering Earth; the sequel Some Like It Hot 2 (《情圣 2》); The Knight of Shadows: Between Yin and Yang and Project D, riding on Jackie Chan and Stephen Chow; and Shen Teng and Han Han's Pegasus. To one degree or another, all of them lean on IP the market has already validated.

There is nothing wrong with IP itself. It is just that now that audience taste has shifted, leaning too heavily on it will leave the market with a single kind of product. And if the Chinese film market wants to find more room to grow, IP films do not look like the way to get there.

The mismatch between films and audiences shows up in timing, too.

Ever since Feng Xiaogang and Jackie Chan together opened up the year-end market for comedies and action films, December's New Year season has usually been prime territory reserved for domestic films. In 2015 the month was carried by Mojin: The Lost Legend, Devil and Angel and Mr. Six. In 2016 it was The Great Wall and Railroad Tigers. In 2017 Feng Xiaogang and Chen Kaige each contributed one, Youth and Legend of the Demon Cat. In December 2018 there was not a single film like that.

To fill the hole, the film bureau brought in a batch of foreign titles. Aquaman opened on December 7, unheard of — two weeks ahead of its global release; My Neighbor Totoro returned 30 years after its first run; and for the first time China imported an animated superhero film, Spider-Man: Into the Spider-Verse. None of them could cover the shortfall in domestic blockbusters. Apart from Aquaman, which took 1.4 billion yuan, the month's second-biggest earner was A Cool Fish, which had opened in mid-November.

Industry people all stress that film production runs on cycles, but they also all traced December's blank slate to how the industry has financed and scheduled projects over the past two years. Liu Peng of the Maoyan Research Institute believes that once box-office growth began slowing in 2016, speculative money and speculative projects started pulling out.

That is close to what a filmmaker with nearly ten years in the business suspects: "After 2015 the broader economy and the financing environment turned down, and that hit the leading film and TV companies. Now they are quite careful about investing in big films. The financing trouble of a while back is what has left their slates empty now."

Across the board, film and TV companies have indeed grown warier of big projects. Huayi Brothers and Kung Fu Pictures planned to co-produce a film adapted from Onmyoji, the hit game of 2017, and at one point set it for National Day 2018. After the film was renamed The Yin-Yang Master: Dream of Eternity, word that shooting had even begun did not surface until August 2018.

After the success of Mojin: The Lost Legend, Enlight Media announced in 2016 that it had confirmed a trilogy drawn from Tianxia Bachang's Ghost Blows Out the Light novels: The Longling Labyrinth (《龙岭迷窟》), The Yunnan Insect Valley (《云南虫谷》) and The Kunlun Divine Palace (《昆仑神宫》). By the time its 2017 annual report appeared in April 2018, all three had vanished from the company's list of coming projects. The Yunnan Insect Valley has since become a Huayi Brothers project; originally set for this year's National Day holiday, it was pushed further back, to December 29.

The slate Wanda unveiled in June 2017 was lavish, a string of expensive, big-IP films including Mojin: The Lost Legend 2, Fighter of the Destiny and Battle Through the Heavens. Le Vision Pictures, now renamed Le Chuang Entertainment, had also announced a lineup that included The Assassin's Plot (《刺局》) and an animated Wolf Totem. For now there has been no further news of any of them.

Given how films work, a project developed halfway and never shot is not unusual. Many things can be behind it, including but not limited to a script that never becomes satisfying, a shift in audience taste, or a company running short of money. But in the end, these delayed and canceled projects stacked up and left this New Year season empty.

Chinese filmmakers' fixation on release windows has made the problem worse. So far 12 films have announced they will open on Chinese New Year's Day, and the people behind them have solid box-office records — these are not throwaway releases. "Production costs have risen these past few years, and most people feel that if they open in December they might not even earn their costs back, so they head for the Spring Festival slot instead," Wang Yizhi said.

The Spring Festival slot has plainly become the most distinctive release window in China. Maoyan's data show that during this stretch the share of people buying three or more tickets at once rises sharply, meaning family outings — extended-family outings, even — have become the norm. The share of people coming back for a second purchase also rises noticeably, meaning many do not stop at one film over the holiday.

In the more traditional windows — May Day, summer, National Day, the New Year season — Liu Peng believes content still plays the decisive role. Only films of real quality bring growth. That is why box office rose year on year at May Day and over the summer while it fell at National Day and over the New Year season. As viewing habits shift, the sheer scale of the Spring Festival slot has pulled a huge number of films toward it and left the other windows looking less attractive — to say nothing of the jolt from the slot's runaway success in 2018.

This is clearly not what a healthy market looks like. "Even a window the size of Spring Festival can only really hold four or five films, plus at most one family animation," said Liu Peng of the Maoyan Research Institute. "If there are too many films, theaters simply cannot fit them into the schedule."

Piling into Spring Festival may not be good for any single film, especially since the slot is close to saturated. On Chinese New Year's Day 2018, national box office reached 1.218 billion yuan on more than 32 million tickets, with occupancy above 70%. For any film market that is already a rare peak. Growing on top of it will clearly not be easy.

And even at full occupancy, the market as a whole could gain only about 50%, while the number of films is simply doubling. Chinese New Year's Day 2018 had five general-audience films plus one children's animation; by 2019 that had become ten general-audience films and two children's animations. Either way, each film's slice of the box office is likely to shrink a great deal.

Wang Yizhi believes this has to do with the structure of China's distribution market. "Abroad, distributors are more concentrated, and companies check one another. They have had films pile up at Christmas or in summer too, but in the end you can tell which are strong and which are weak, and the dates get adjusted. Because China's distribution business isn't very concentrated, building that kind of coordination in the next few years will still be hard."

The enormous pull of Spring Festival finally produced a collective prisoner's dilemma. The result: 12 films crammed into the 2019 Spring Festival slot, and the entire 2018 New Year season left empty.

If filmmakers still have room to improve in how they make and sell films, forces outside their control can leave them helpless.

Possessed (《中邪》), set to open over the Qingming Festival in 2018, announced four days before release that it was changing its date for "technical reasons." Six months later word went around that a new date had been set, but the film never played.

Behind the "technical reasons," though, may lie censorship. This horror film, built around a rural soul-summoning ritual, was widely praised at the 2016 FIRST International Film Festival and at one point held its release permit, the so-called dragon seal. But perhaps because its marketing kept stressing possession and mysterious exorcism rites, it touched the censors' nerves again. According to a Sina Finance report compiling several sources: "Because of its subject matter, regulators have ordered a complete ban on screenings of the domestic film Possessed, and the advance screening events have been canceled." A film that might have been a hit lost its chance to be seen.

This is not rare in China. Youth had its date changed several times. Even Call Me by Your Name, scheduled to screen at a film festival, was pulled because its gay subject matter was sensitive. The company behind one film told QDaily that after the review, the number of notes it received exceeded anything they had imagined, and the film's later marketing and distribution plans suffered for it.

The producer quoted earlier also thinks censorship will be one of the larger risks Chinese films face. "You find your project doesn't even clear the filing stage. And if you grit your teeth and shoot it anyway — even if you think there's nothing anti-socialist in it — once it's made you face a bigger risk still: it may not pass content review."

In fact it is not only censorship; the slightest disturbance can affect a normal release. The version of Ash Is Purest White released on the mainland ran four minutes shorter than the cut that premiered at Cannes. Several people who saw it at Cannes later confirmed that the cuts involved Feng Xiaogang. He had been a focus of the marketing, billed right after the leads Zhao Tao and Liao Fan. All that promotional material was pulled or revised.

Feng Xiaogang was drawn into a tax scandal in June 2018. Cui Yongyuan alleged that Fan Bingbing had dodged taxes using a "yin-yang contract" while shooting Cell Phone 2, a film Feng Xiaogang directed. Tax authorities later confirmed that Fan Bingbing had evaded taxes, but on a different film, The Bombing, not Cell Phone 2 — though before the findings were formally released in October, Feng Xiaogang appears to have taken a considerable hit. As an aftershock of the Fan Bingbing affair, The Bombing, originally set for August, was moved to October and then had its release canceled altogether.

The producer says that after the State Taxation Administration published its findings, he talked with some moviegoers. Some had indeed formed a negative impression of the whole industry because of the tax case, and had become reluctant to go to the theater.

This is not unique to China, of course. After Kevin Spacey was accused of sexual assault, the makers of All the Money in the World, in which he had starred, quickly brought in Christopher Plummer to reshoot his scenes. In that sense a film, as an entertainment product, is always exposed to interference and to risks nobody can predict.

Beyond that, the State Taxation Administration's attention to the film and TV business, besides stirring enormous controversy in 2018, will have a far longer-lasting effect on the industry.

According to what the producer told QDaily, the focus of this round of tax inspection was not the film projects themselves but the service fees each project pays the people who work on it. That explains why, in earlier reporting, actors' studios and screenwriters' studios were the hardest hit: their pay is usually delivered as service fees.

With their old ways of avoiding tax no longer working, they will inevitably ask investors for higher fees in order to keep their income where it was, which pushes up the cost of films of the same size and raises the risk on film companies' future projects.

Alongside the State Taxation Administration's push to regulate taxation in the industry, the tax breaks various localities had offered film and TV companies have been withdrawn. A report by Dumou, an offshoot of the film outlet Dushe Movie, says: "Companies that enjoyed tax breaks in Khorgas over the past few years are required to invest 40% of their total tax savings in local development projects." These moves will also change film companies' cost structures.

Given the current economy, film and TV companies may face a long stretch of difficulty raising money. Companies listed on the A-share market usually raise funds by pledging shares — more than 90% of the shares held by Huayi Brothers' two founders, Wang Zhongjun and Wang Zhonglei, are pledged.

But against the company's peak market value of 90 billion yuan, the figure now stands at 13.2 billion yuan, which means that even if the two of them wanted to raise more money against their shares, there is very little room left. On December 24 the rating agency China Chengxin International Credit Rating put Huayi Brothers on a watch list, citing concern about the company's maturing debt. Huayi Brothers replied that liquidity across the market was tight in the second half of 2018 but that it was in productive talks with a number of financial institutions.

Because filmmaking carries high risk, the industry has always needed plentiful financing to operate and expand normally. As money grows tighter, the whole business will feel it.

Looking back at 2018, the film industry is being pulled apart in ways it has not faced before.

On one side, audiences demand ever-higher quality, yet they are going more often, rather than drifting away from theaters as they did in 2016. That means any kind of film has a chance. Forever Young, How Long Will I Love U, Dying to Survive, A Cool Fish — all of these acclaimed films posted startling numbers. Even in the relatively small market for art-house films, Shoplifters came close to 100 million yuan and Ash Is Purest White took nearly 70 million yuan.

On the other side, the industry still is not ready for the audience's growing appetite. When choosing what to invest in, filmmakers still weigh past successes most heavily; the parade of Indian films and the overstuffed Spring Festival slot both prove that the herd instinct persists. And changes in taxation, censorship and the wider economy keep narrowing what the industry can do.

Pulled in all these directions, the biggest hidden danger for a Chinese film market that still looks like it is growing is whether it can keep giving audiences films they will take to. Answering that may require not only continuing to make good movies, but also some wisdom, and some luck.

Charts / Feng Xiuxia

Cover image / Douban Movie