Take your Pig to China and trade it for a VCD player...
Tough going: Sino the times
DON GROVES
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12/01/97
Variety
Page 1
Copyright 1997 Variety, Inc.
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SYDNEY American businesses have been touting Asia as a huge market just waiting to be tapped, but Hollywood keeps running into Chinese Walls.
Though studios have found little success at distributing films and TV shows in China, a few now are prospering via alternate routes.
Warner Bros. has been making significant progress in homevideo and Disney, despite stepped-up problems on the bigscreen front, expects to open a version of its Disney Stores on the mainland next year.
And many of the majors are reversing their distribution battle plans: Rather than trying to release U.S. films in China, they are picking up mainland films and distributing them elsewhere around the globe.
In general, a panoply of quotas, taxes and middlemen severely limits the volume of U.S. film and TV product sold to China --- and ensures the majors are paid a pittance for it.
But WB is raking in decent bucks, thanks to a pioneering licensing deal between Warner Home Video and government-owned conglom Shenzhen Advanced Science Enterprise Group.
WHV released its first batch of product (all from its library) on video compact discs ( VCD ) in March, and WHV veepee Tony Wells forecasts that by the end of this year, some 1 million units of Warner titles will have been sold in China.
Though Hollywood usually gets 10 cents-on-the-dollar on theatrical releases, Wells says the deal with the Chinese licensee gives WHV a better return than that; however, the exec declines to reveal specifics, only saying, "It's equitable to both parties."
Asked why Warner's competitors have not yet followed WHV's path into China, the exec says cryptically, "You will have to ask them."
It's known that the video divisions of Sony and Disney have been plotting to enter China for more than a year, but their cause has not been helped by Beijing's antipathy to those studios over "Seven Years in Tibet" and "Kundun," respectively.
As for the reasons why the vid biz in China seems easier to navigate than theatrical, Wells points out video is far less regulated, with more than 100 companies licensed to publish --- and in some cases distribute --- product on disc.
Warner's choice
Warner Home Video chose the Shenzhen conglom as its Chinese partner because it's one of China's largest manufacturers of Video CDs and laserdiscs. Wells is so encouraged by the licensing deal, he aims to seal similar pacts with companies in other regions next year.
"We will increase our product flow four- or five-fold, now that we are comfortable with the administrative process of getting titles approved and published," says Wells.
Wells says there are at least 20 million VCD households in China, with players costing $100 to $120 --- about the same price as a pig. WHV's top-selling titles such as "The Bodyguard" have sold 100,000 units, and others have clocked 40,000. Copies retail for about $6.
The government, however, takes a big chunk out of video revenues by levying a tax that is equivalent to 50% of the royalty on each unit.
Wells says the crackdown on video piracy has been quite effective, so it's harder now to find illegal copies on the streets in Shanghai or Beijing than it is in Hong Kong.
Next year also could mark a breakthrough in China for Disney Stores. There are seven Disney Stores in Hong Kong, and the company is plotting to introduce its well-honed retailing concept to the mainland.
That may not mean outlets trading as Disney Stores, because, as the division's Hong Kong-based VP Peter Dove explains, that would entail ownership issues and the need to work with a Chinese partner.
"We'll know where we are going next year," Dove says. Noting that Disney rigorously pursues people who counterfeit its goods, Dove confirms that piracy is an issue "we will manage." But he adds, "that is not a reason not to enter China."
Acquiring film rights
Several U.S. majors are more active in acquiring rights to distribute mainland Chinese films in selected territories around the globe. WB Intl. recently acquired "Days Without a Hero," the saga of a Chinese folk legend; Sony Pictures Classics has domestic and some offshore rights to Chen Kaige's epic "Assassins"; and 20th Century Fox is closing a deal for "Inkstone" for territories in Europe and Latin America.
Hollywood execs rebut any suggestions this is due to pressure from China Film Import & Export (the agency that has fiercely clung to its monopoly of importing films); the studio execs also reject a theory that each studio had been told it must pick up one Chinese film for each of its titles released on the mainland.
Ivan Cheah, WB senior VP Asia, says his company has agreed to help China Film by distributing "Hero" in Hong Kong, Singapore and Malaysia. Cheah points out WB has been acquiring Chinese films since it launched Warner Asia with that very mandate in 1993.
"We do not make much money distributing Chinese films, (but) we want to play the good corporate citizen role, and we want to see a balanced market in China," Cheah says.
Films like "Hero" will give the "outside world a glimpse into what is popular in China and why," he adds. "We want to see a healthy Chinese film industry, (otherwise) the whole market will suffer."
But these are small victories in a difficult territory to conquer. Here's a typical lament from one U.S. TV exec who deals with China: "We don't sell movies to China because the prices they offer are so low, and the most we get for TV series is $5,500 an hour. I don't see China going anywhere (as a meaningful market for U.S. TV product) for years."
The exec, like most of his counterparts at other studios, requested anonymity. Few people in Hollywood are prepared to talk on-the-record about their relationships with China, especially amid the trading "freeze" imposed on three studios: Beijing ordered a temporary halt to dealing with Sony Pictures Entertainment, the Walt Disney Co. and MGM after taking offense at their respective films "Seven Years in Tibet," "Kundun" and "Red Corner."
There are other signposts why biz in China is an uphill struggle:
The majors reaped a paltry $1.3 million from selling TV programming to free-to-air Chinese broadcasters last year --- even less than 1995's $2.7 million, sources told Variety. One exec says he doubts whether revenues this year will be much higher, if at all.
There is a quota of 15% foreign programming aired in primetime. Last year the central government decided it alone should vet all imported programming, taking that power away from regional authorities.
Despite the much-touted B.O. revenue-sharing deals introduced several years ago, U.S. distribs privately admit they receive no more than 10 cents-11 cents of every dollar collected by Chinese cinemas. The rest is swallowed by taxes, exhibs and China Film Import & Export.
So United Intl. Pictures probably won't see more than $900,000 of "The Lost World: Jurassic Park's" all-time record gross of $8.5 million. The returns would have been even more modest on this year's B.O. successes "Dante's Peak" (which rang up $5.7 million), "Eraser" ($5.5 million), and "Space Jam" ($2.8 million).
The unofficial annual quota of 10 U.S. films released on a revenue-sharing basis has resulted in zero Disney, Fox and Sony pictures getting out of the gate so far this year. However, Fox's "Speed 2: Cruise Control" and "Volcano" have been accepted (the former is due out imminently), and Warner's "Batman & Robin" is slated for Dec. 26.
China Film rejected Sony's "Men in Black," apparently not seeing the humor in the Tommy Lee Jones/Will Smith caper; and the jingoistic "Independence Day" has yet to win approval.
Two U.S. majors' toehold in exhibition in China via the Malaysian-led consortium SMI Leisure & Entertainment (Smile) has had a problematic initiation.
The Universal and Paramount co-venture United Cinemas Intl. has a 5% stake in Smile and the contract to manage its Chinese cinemas. Trading at its first two sites, a twin in Shanghai (which bowed two months ago) and a fiveplex in Chonquing, has been "just so-so," Smile director Peter Leow says.
Leow blames the shortage of U.S. product and the lackluster B.O. performance of Chinese films, and vouches, "The only way the market will grow is to allow more imported films." Leow hopes the visit to Beijing this month of Motion Picture Assn. of America chief Jack Valenti will help persuade the Chinese to relax the quota.
Sony Pictures Entertainment reportedly has scaled down its co-venture with the Beijing TV Arts Center that was intended to produce and distribute programming nationwide.
Execs at SPE's Beijing office (the first beachhead by a U.S. major in China) could not be reached for comment, but sources told Variety the results of distributing a one-hour daily drama weren't encouraging, and the "Seven Years in Tibet" brouhaha has put a hold on that. |
