A New Studio System

Cinemimi[Friday February 04,2011]
Louis B. Mayer and Jack Warner had the right idea in prewar Hollywood, thinks Qin Hong of Beijing.

In 2006 the young and not-yet-renowned director Lu Chuan took his idea for an ambitious epic about the Japanese massacre at Nanjing, already rejected by a major Chinese studio, to a young, unknown film producer who, as one of the producer's own friends chided him, "didn't know anything about movies." Qin Hong, then 35, had taken the helm of Stellar Megamedia Group, a moneylosing company whose listed Hong Kong arm was on the verge of liquidation, selling off assets to stay afloat.

It didn't seem like a good time to take a big gamble on a movie--especially one that could run afoul of history-sensitive censors, that would be shot in black-and-white and that would ultimately require a budget of $10 million. All in an immature movie market with a shortage of quality cinemas, where $10 million in total box office qualified as a certifiable hit, far short of what Qin would need to make his money back on Lu's film.


Did Qin want to take that big a risk? He couldn't get his money in fast enough. "He called me, he said he finished the whole script in one night and he decided to make this movie," Lu says. "He gave me the money without a contract. That really touched me. Without a contract, without anything, he gives me the money."

City of Life and Death went on to become one of China's top-grossing films of 2009, with $26 million in receipts, making Lu a star director and catapulting lead-investor Qin into his next role, Hollywood-style movie mogul, at just the right moment. For the last 18 months Qin has been buying up movie theaters, signing stars and directors to his in-house agency, and making movies with his contracted talent to show in his theaters. He is in a costly race with private rivals and with the government's vaunted China Film Group to integrate vertically like Hollywood in the 1930s. The valuable prize at stake is China's suddenly lucrative box office in the 2010s.

The nation known internationally for movie piracy is entering its own golden age of cinema-going: Box office receipts in China grew an astounding 64% in 2010 to $1.5 billion, on top of more than 40% growth the year before. That is still far behind the $11 billion collected in the U.S. and Canada last year, but China could surpass the number two and three markets, Japan ($2.7 billion in 2010) and India (estimated $2.2 billion), by 2012. In January the Chinese Western Let the Bullets Fly became the top-grossing domestic film ever, with more than $100 million in ticket sales. The country has more than 6,000 movie screens and is on its way to 20,000, adding new screens at the rate of 4 per day, mostly digital and many of them 3-D-capable, in modern multiplexes that hardly could be found in China a decade ago. Industry predictions of 40% annual growth for the next five years would have China potentially rivaling the U.S. for box office supremacy by the end of the decade.

"Nobody could have guessed where we are today five years ago," says Peter Chan, a star Hong Kong director who is working with Stellar to market his films in China, including the big-budget martial arts film Swordsmen, due out later this year. How big can the market get? "Anything is possible. I think it's beyond anybody's imagination, because we're actually talking about the tip of the iceberg right now."


Rising up to profit from this is a Beijing version of Hollywood's infamous studio system, when the Big Five studios owned not only their movies, but also the talent that made them and the theaters that showed them, before a 1948 Supreme Court decision broke up their oligopoly. Sixty years later Qin and his competitors believe a sharp-elbowed

campaign of vertical integration will be necessary to survive in what Qin calls China's "competitive monopoly" system. (Japan also developed integrated studios, in Toho and Shochiku.)

"Lots of people have seen the future potential of the film market, but the competition is fierce," Qin says. His personality seems made for the task. Stocky in build, open-faced with semi-rimless glasses, Qin compensates for his unassuming appearance and lack of a film background with a serious demeanor, a steady diet of Marlboro cigarettes and a Hollywood-size ego.

From his office in downtown Beijing, Qin coolly runs down the weaknesses of his formidable competitors: Blockbuster-making studio and talent agency Huayi Brothers, whose film Aftershock took in an estimated $100 million last year, is making a very late and modest entry into the cinema-operating business; the leading non-state-owned distributor Bona Film Group, which had a lackluster U.S. IPO in December, has quickly accelerated its production of movies but must play catch-up to sign talent and add theaters; and real estate giant Dalian Wanda Group, though positioned to remain the dominant owner-operator of cinemas, is starting from close to zero in production and talent.