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Reeling From Crisis

As the country begins to ease lockdown measures and allows movie theaters in some parts to reopen, the industry is working out how to get business back to normal

By NewsChina Updated Aug.1

Since January, the film industry has been among the hardest-hit sectors in the Covid-19 pandemic, missing the Chinese New Year and May Day holiday (May 1-5), major box office earners.  

After three months, the film industry was greenlighted to reopen. On May 7, the State Council issued guidelines for opening indoor venues including cinemas, reflecting China’s lowering of its public health emergency response level to the pandemic. 

Yin Hong, vice president of China Film Association, told NewsChina that the limits on theaters, film production, investment and film companies have devastated the industry.  

Yin estimated it could be one year before China’s film industry sees its pre-pandemic numbers. “It’ll be a tough road for the industry to fully recover. But as demand for film is still strong, moviegoing will become part of people’s lives once again,” he said. 

Ticket to Recovery
At an April 29 meeting to discuss how the film industry has responded to the epidemic, Wang Xiaohui, director of the China Film Administration (CFA), said that “the epidemic has created an unprecedented crisis for the film industry that is forcing it to reform and upgrade.”  

Wang said that the national-level administration should combine relief efforts for cinemas with long-term ones, such as preferential fiscal and tax policies, and encourage local governments to do the same. 

The CFA predicted that box office revenues would drop by 30 billion yuan (US$4.16b), from cinema closures and home isolation during the pandemic, compared with 2019’s 64.3 billion yuan (US$8.9b).  

According to statistics from Chinese entertainment database Enbase, Q1 2020 box office revenues were 2.24 billion yuan (US$311m), an 87.94 percent decrease compared to the same quarter last year.  

Some pre-pandemic industry figures projected ticket sales reaching 8 billion yuan (US$1.1b) over the Chinese New Year holiday. Actual box office numbers were less than 24 million yuan (US$3.3m).  

NewsChina found that as of April 17, 10 of China’s 16 listed film companies reported negative first-quarter earnings with accumulated losses of more than 1.1 billion yuan (US$152m). 
Wanda Cinemas saw the greatest drop in Q1 revenue - 250 percent year-on-year - with a deficit of nearly 600 million yuan (US$83.3m). China Film Group Corporation lost 227 million (US$31.7m) in the first quarter, 163 percent less than the same period last year. Other major companies such as Huayi Brothers Media Group, HG Entertainment and Guangzhou Jinyi Media Corp were also in the red.  

There are still plenty of hurdles for cinemas to overcome before they can return to normal. 
As the new guidelines issued by the State Council require, theatergoers can only preorder tickets and cinemas must limit the number of patrons. Theaters must enforce strict social distancing measures. People have to sit at least one meter apart and wear masks. Seats and screening rooms also must be disinfected daily.  

But a pressing challenge for cinemas is making customers feel safe after the pandemic. “Even if cinemas reopen, I don’t think I will go to the theater this year. There are still risks of getting infected, aren’t there? I’d rather watch movies at home,” Wang Runqi, a Beijing-based IT company employee, told our reporter.  

Home Screen Home 
While the pandemic has delivered a crushing blow to the film industry, it has catalyzed the growth of streaming services.  

During the Chinese New Year period from January 25 to February 8, China’s three main online video platforms - Tencent, Youku and iQiyi - released 42 online movies.  

According to a report by Alibaba Pictures on China’s online movie market for Q1 2020, at least 24 online movies earned more than 10 million yuan (US$1.4m) for producers after splitting the proceeds with online video platforms, twice as many as in the same period in 2019.  

A report by online streaming platform iQiyi on the 2019 online movie industry showed online movies saw a total of 4.82 billion views, a 24 percent increase of the previous year’s 3.89 billion. 

On May 1, The Enchanting Phantom, a remake of the 1987 award-winning film A Chinese Ghost Story, was released only on Tencent Video. As of May 25, The Enchanting Phantom had earned 35 million (US$4.9m) after splitting the profits with the video platform and is projected to take in more than 100 million yuan (US$13.9m) during its six-month run.  

The most successful online movie in China is the recent remake of The Thousand Faces of Dunjia, which has earned over 50 million yuan (US$7m) through iQiyi and Tencent Video. 
Online movies have a long way to catch up with the big screen. Production budgets for online films are normally tiny in comparison, ranging from 6 million yuan to 20 million yuan (US$847,200-2.8m). Traditional filmmakers and audiences have long associated online movies with coarsely made, poor quality productions that rarely attract big stars.  

Although some online movies have performed well this year, they have met with mixed reviews. The Enchanting Phantom had a nearly 40 million yuan (US$5.59m) budget - an unprecedented cost for an online movie. Saturated with special effects and with a lackluster screenplay, the film scored 4.9 out of 10 on Douban, China’s leading media review website. Similarly, The Thousand Faces of Dunjia, Sniper and Mojin, while box office hits, scored 5.4, 4.8 and 2.9 on Douban.
Despite the Covid-19 pandemic sparking massive industry layoffs, Yin Hong said that the online film sector may benefit. “The online film industry might not absorb the established filmmakers, but, more likely, it will train a group of new talented young filmmakers and provide an excellent talent pool for the entire industry,” Yin told NewsChina.  

People wear masks at a cinema in Shanghai, January 23

Industry Reshuffle
The pandemic has also changed the landscape for investment in China’s film industry, insiders said.  

Liu Lei, the film investment manager with financial service provider Far East Horizon, told NewsChina that most capital investment projects have been suspended or withdrawn, while ongoing projects are basically fueled by industrial capital. 

“There are inherent contradictions between capital investment and the film industry. Capital craves certainty but the film industry is full of uncertainties, which is why the two cannot integrate completely,” Liu said.  

“During the time when the entire industry was developing with support from the authorities, we still could find a way to merge capital investment and the film industry. But in the last few years, the drastic shift in policies put more restrictions on the film industry, which saw the withdrawal of a sizeable amount of capital,” she said. “The pandemic has laid bare the intrinsic contradictions between them.” 

Yin Hong, however, argued that the continuous withdrawal of hot money would help the industry in the long run. “If capital craving quick returns from other sectors withdraws from the industry and leaves the capital aiming to make quality films, film financing will become more professional. It doesn’t matter if it leads to a reduction in total productions, since most films normally can’t get into major theaters,” Yin said. 

“In the past, the blind influx of hot money distorted the film market and drove up production prices. The unbelievably high fees for A-list actors is a consequence. Now, the withdrawal of hot money will benefit the film market’s recovery,” Yin said. For years, Chinese film celebrities were among the highest-paid in the world as studios offered eye-popping salaries to lure audiences. 

Liu said that while capital support may weaken, the pandemic would cause the film industry to merge and integrate more deeply.  

“Because of policy changes and other incidents, the industry has been merging since 2018, but progress was slow. The pandemic has sped things up, changing previous thinking, boundaries and relationships in the industry. Every aspect is in a state of flux and being reshaped,” Liu told NewsChina.  

Liu added that while smaller production companies have closed, most large studios, relying on new investments and financing, are undergoing transformation.  

Ni Shuang, principal media analyst of the investment firm Pacific Securities, said that studios making high-quality films would emerge from the industrial reshuffle caused by the coronavirus pandemic.  

“In the future, film companies will concentrate further and large film production studios will expand. It’s worth noting that more internet companies will enter the film industry. Film studios are highly likely to become part of their ecosystems,” Ni told NewsChina.