Hollywood Biz 3.0 : China

thefilmbook by Benjamin B

I don't usually write about the business side of the industry, but I was struck by the recent remarks of director/producers Steven Soderbergh, Steven Spielberg and George Lucas, which led me to reflect about the current Hollywood business model, and how it effects the movies that are made.

Is Hollywood in crisis?

And what does the future hold?

In my mind Hollywood 1.0 is the Golden Age of the studios, Hollywood 2.0 begins with the Blockbusters.


So what is Hollywood 3.0?

whiteline775

Outline:

1. mega films

2. two-thirds from international

3. Asian growth

4. China syndrome

5. sequel-izable

6. a new paradigm

7. global cinema?

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1. mega films

Currently Hollywood studios are driven by mega films, big-budget action movies that are based on successful graphic novels, films, TV shows or books. The main goal of the studios is to build franchises, an ongoing series of movie sequels, prequels and/or reboots, featuring an iconic hero.

These "tentpole" films involve production budgets of $100-250 million, with an additional estimated $175 million in worldwide marketing costs. There are also fees paid to star actors and directors who have obtained percentage points of the gross.

This business model is illustrated by analyses by Pamela McClintock published in The Hollywood Reporter in June and July, estimating the studio profits after points are paid to gross participants on some recent mega films:

studio mega tentpole films profit and loss --thefilmbook-

It is easy to see why business people would be very focused on the high stakes roulette game of mega films, which can return 60 to 107 percent of your hefty investment with hits like Fast & Furious 6 and Iron Man 3. With an amazing profit of $400 million, Iron Man 3 is the hit Hollywood studios dream of.

Even the moderate returns of 9 to 21 percent for Gatsby, Hangover 3 and the 12th Star Trek movie are solid. There is of course a downside to mega films, as exemplified by The Lone Ranger's estimated loss of $ 150 million, 35% of the investment. Of course The Lone Ranger is not a franchise, although it was intended to start one.

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2. two-thirds from international

A key point when looking at box office is the geographical breakdown. At present, Hollywood studios make most of their money overseas. Here is the percentage of gross from international box office for the top films of 2012:

Only one film, The Hunger Games, made more in the US than abroad, while the animation film Ice Age made 82% of its gross internationally. The average portion from international for the top 10 films was 65%, or 2/3 of the gross. (This is also true of the top 20 films of 2012). Note that the share of profits from international box office is higher still, when international marketing costs take a smaller share of the gross than US marketing.

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3. Asian growth

According to the MPAA, the global box office for 2012 was about $35 billion, with US/Canada accounting for one third of that, about $11 billion. However, although North America has a dominant share of the film market, the foreign box office is growing very quickly:

international box office growth by region-

EMEA in gray combines Europe, the Middle East and Africa. As you can see the fastest growing region is Asia in red. And the biggest individual foreign market is China which surpassed Japan last year, with a total of $2.7 billion in box office.

According to the Motley Fool, the Chinese gross grew an incredible 36% in the first half of 2012, and China is forecast to overtake the American box office in the next 5 to 10 years.

This is the future that the Hollywood studios are planning for, by building up franchises of movies that foreign audiences, and Chinese in particular, will want to see.

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4. China syndrome

Getting American films into the government-regulated Chinese market is not easy. China has established a maximum quota of 20 American films per year. In February 2012 an agreement between vice-president Joe Biden and his counterpart Xi Jinping allowed for another 14 US films per year, provided they are in 3D or in the IMAX format. Co-productions with Chinese companies are excluded from the quota, but collaborations are sometimes beset by erratic administrative problems.

Studio efforts to woo the Chinese public are considerable, involving publicity appearances by the stars, and sometimes the addition of exclusive footage in the Chinese versions. For example, Iron Man 3 included a scene with local celebrity Fan Bingbing, along with Chinese landscapes, that did not appear in the American version.

More troubling are the censorship requirements by Chinese authorities demanding that filmmakers cut scenes from their movies, or change plots to put China in a more favorable light. Evan Osnos reports in the New Yorker that recent censorship has included barring Kate Winslet's breasts from the Titanic re-release, excluding a scene where James Bond kills a Chinese guard, changing the bad guys in Red Dawn from Chinese to Koreans, and cutting 38 minutes of love scenes from Cloud Atlas.

chinese promotion of iron man 3-

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5. sequel-izable

In an interview with David Edelstein, producer Lynda Obst, stated that the Hollywood penchant for sequels is reinforced by the rising importance of the foreign box office. Obst was promoting her book, Sleepless in Hollywood, and she offered this analysis, saying that franchises reduce international marketing costs:

China is the No. 2 market now. In 2020, it will be No. 1. That’s why movies must all be sequel-ized or sequel-izable. So that they become more and more familiar to the international audience, where 80 percent of the profits are now coming from. We can’t afford to spend the same kind of money marketing movies internationally that we spend here, so we need pre-awareness: titles and characters that are already known.
International audiences love action, wild and exciting special effects that can only be created by our technology. No nuance. Not so good for so-called writing. And China won’t look at anything that isn’t 3-D, which means everything is made that way — even with domestic audiences rejecting it…
For the movie business, the foreign market came just in the nick of time, because in 2008, the DVD market that had been such a cushion collapsed.

In an interview with Kim Masters on KCRW, Obst concedes that “old Europe is still supporting indies”, but that the global market favors films filled with action and VFX, because “humor and romance are cultural-specific”.

whiteline775

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6. a new paradigm

And that is how we arrive at a Hollywood business paradigm of studios trying to build international franchises with characters who are recognized the world over, with a special consideration for the rapidly growing Chinese market.

The genre of these franchises will be dictated by what proves to be popular and intelligible in different cultures, a mix of action, adventure and animation, with less room for complex dialogues, or for comedies. There will also be 3D and Imax releases, and we can expect to see more and more Chinese characters and settings in the tomorrow's studio movies...

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7. global cinema?

Many of my friends deplore franchise Hollywood as bad cinema, including my esteemed fellow-blogger John Bailey. And, without naming names, it’s undeniable that there are some bad films among the studio mega offerings. Others decry the domination of VFX (visual effects) and violence in studio offerings.

But there have always been more bad movies than good ones. And, looking at the top 20 box office hits of 2012, I for one am encouraged by the presence at number 11 of a masterpiece: The Life of Pi by Ang Lee with cinematography by Claudio Miranda, and many of its VFX by Rhythm and Hues. I'm heartened that so many people across the world saw this breathtaking, wonderful film... and that it grossed $609 million!

Life of Pi by Ang Lee cinematography Claudio Miranda-

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When you think about it, The Life of Pi represents the best of what global cinema can be, a story about an Indian boy based on a book by a French-Canadian, directed by a Taiwanese, shot by a Chilean-American in India and Taiwan, with VFX by an American company, and distributed by Twentieth Century Fox.

The Life of Pi also proves that VFX can and will be used to create cinematic poetry as well as comic books. I am hoping that Gravity by Alfonso Cuaron, with cinematographer Emmanuel Lubezki, will meet with a similar global success in the coming year.

Still there are many possible futures for global cinema:

-- Will the majors start shooting in China, and will studio movies morph into a hybrid form of American-Asian culture?

-- Or will Hollywood’s domination ebb, and will we see world cinema evolve into multi-polar cultural strands with competing production centers in Hollywood, Shanghai, Mumbai, London, Paris and – why not -- Lagos?

-- Or is cinema itself changing, and stretching into a protean art form for giant Imax and tiny iPhone screens and everything in between, with theatrical, television and internet venues?

One thing is clear: new business models are changing world cinema before our eyes.

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LINKS

Box Office Mojo - The reference for box office numbers

My analysis of the top 20 films of 2012 on thefilmbook site

The Hollywood Reporter: Robert Downey Jr's Iron Man 3 Tour

The Hollywood Reporter: The China Clusterfuck by Kim Masters

The Guardian Hollywood Risks Artistic Surrender in Effort to Please by Rory Carroll

Box Office Mojo China 2013 YTD top 100 films

Kindred minds feel the zeitgeist :)

My fellow blogger John Bailey just published a post entitled: "Casino Cinema" and "The New Abnormal": Lynda Obst, focusing on the producer's book about the new Hollywood business, and making a persuasive plea for smaller "tadpole" films like the ones John has shot recently.

Life of Pi trailer

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HOLLYWOOD BIZ 3.0 - PART 2 : INDIES

Your corrections and comments are most welcome!

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