Has Hollywood Blackout Really Improved Chinese Domestic Film Industry?

For some Chinese students studying in the United States, a lot of Hollywood movies might not be accessible for them to watch in movie theaters, if they decide to go back home for vacations. Spider-Man: Homecoming, for example, was released in the United States on June 28, 2017, while the release date for this film in China was September 8, 2017. Thus, for Chinese international students who went back home for summer vacation in May and return back to America in September, they might miss screening period in both countries. Such over two months delay is referred as the practice of Hollywood blackout in Chinese film market, or Chinese domestic film protection months.

[The history of Hollywood blackout period]

The Chinese government has never released any written document to acknowledge the official existence of this Hollywood blackout months, and even in 2012, the Vice Director of Chinese State Administration of Radio, Film, and Television Jin Tian denied in an interview that the Chinese government has even intentionally protected its film industry. Tian said the film market in China is free and is determined by consumers’ demand. However, ChinaDaily,NetEase Entertainment, and PeopleDaily all traced the idea of Hollywood blackout back to 2004. When Chinese movie House of Flying Daggers was released in July of 2004, the Chinese State Administration of Radio, Film, and Television gave an oral order to all Chinese theaters that while House of Flying Daggers was on screen, no Hollywood movies were allowed to compete against. The Spider Man 2 and Shrek 2 both got pushed off release date in China. The order worked effectively, as House of Flying Daggers garnished $92.8 million, which was the second highest box office in China that year and the highest box office for domestic movie in China that year. It also broke the record of the highest box office for Chinese domestic movie. In an interview conducted by Sina Entertainment, The Director of Chinese State Administration of Radio, Film, and Television Gang Tong praised the marketing operation of House of Flying Daggers. He said, “this model helped Chinese domestic film industry.”

Consequently, such model has kept since then and became so-called Hollywood blackout since Hollywood movies are major component of Chinese imported movies. According to ChinaDaily and NetEase Entertainment, aiming to support Chinese domestic film industry, during summer vacation (June to August), Spring Festival, and National Day holiday week, Chinese government discourages theaters to put on foreign movies, especially Hollywood blockbusters, to compete against domestically made Chinese movies. The term “Chinese domestic film protection months” was created by media and film industry, not an official term.

[How has Hollywood Blackout performed in China]

The Hollywood Blackout has been active in Chinese film industry for twelve years so far.

The Hollywood Blackout did help Chinese movies such as Aftershock and The Founding of a Party to end with an impressive box office.

BUT has Chinese domestic film industry as a whole enjoyed the protection and improved since then?

Not really.

According to Hollywood Reporter, since 2012, the Chinese government only allows 34 imported movies on screen each year. In addition to this quote and the Hollywood Blackout, the Chinese government also has applied strategies such as putting big name Hollywood movies at same period; thus, they are in head-to-head battles to decrease Hollywood movies’ box office.

According to Shenzhen Daily, the Hollywood Blackout also resulted a negative competition environment for Hollywood movies since all delayed American movies will massively emerge on theater at the end of August. Shenzhen Daily said Warner Brothers tried to contact China Film Group, a State-owned enterprise which is the only government-authorized importer of foreign films, to delay the opening of “The Dark Knight Rises” to late September, so it would not combat with its another movie “The Amazing Spider-Man” at same period. The Chinese government did not agree. They were both released on September 3rd. They both harmed each other’s box office.

Here is the Chinese release date of movies from June to August. The blue dots represent foreign movies, while the yellow dots represent Chinese domestic movies. Clearly, from June to August, there were much more domestic movies than foreign movies on screen. However, the above graphic also indicates that the Hollywood Blackout is not strict as it stated. In July 2013, for example, there was still a lot of foreign movies. BUT Soho Entertainment argues that most of these foreign movies during “Hollywood Blackout period” are not competitive Hollywood movies.

Did Chinese domestic film industry experience a boom during Hollywood Blackout?

The statistics above presents the film row piece rate and percentage of box office for domestic movies and foreign movies during Hollywood Blackout. The film row piece rate indicates the rate of screening of a film in cinemas within a specified time period, which is calculated by dividing the number of screenings of a film in cinemas within a specified time period by the total number of film screenings in cinemas within the same period. The above chart clearly tells that even the film row piece rate of Chinese domestic movies is generally 3-4 times that of foreign imported movies during Hollywood Blackout period, the foreign movies still could share box office half and half with Chinese domestic movies. The only exception is 2015, which was a clear winning case for Chinese domestic movies, but that momentum did not keep in 2016.

Here is a direct comparison of box office between domestic movies and imported movies during Hollywood Blackout Period. Again, 2015 is the only year that domestic movies took significant advantage.

[What Happened in 2015?]

There was a clearly huge boom of Chinese domestic film industry in terms of box office. What happened in 2015? Is this year an isolated case?

According to CGTN, CCTV English Channel, a growing size of middle class and an expansion of cinema infrastructure contribute to this boom of Chinese film industry.  According to the State Administration for Press Publishing Radio Film and Television (SAPPRFT), “A total of 8,035 screens were installed in 2015 — a rate of 22 screens erected every day. China’s screen count currently sits at 31,627, while the number in North America is estimated at around 39,000.”

In an interview with Deputy Chairman of the Shanghai Film Association Shi Chuan, he said since more theaters and screens were built in smaller cities, more audience could go to cinemas. Furthermore, there was indeed a growing trend of the quality and diversity of Chinese domestic movies, according to Hollywood Reporter.Monkey King: Hero is Back, a 3D animated film based on a beloved classic Chinese story, received not only good looking in box office number but also a positive public review.

However, there was a huge controversy regarding to box office inflation, or even  it should be called fraud. Chinese movie Monster Hunt garnished RMB 2.43billion ($379m) in China and became the highest-grossing film not only during Hollywood Blackout period but also the highest in Chinese  history up to that year.Chinese state broadcaster CCTV addressed an issue that Monster Hunt might conduct box office fraud that many sold-out screenings were actually filled with empty seats. Later, the distributor of this movie, EDKO Film company, admitted that the company gave away RMB 40 million worth of tickets during the final 15 days of its run. In the past, it was a common practice for Chinese movie companies to offer “free welfare tickets” to young children, seniors, police, teachers and the disabled. However, film companies like EDKO took advantage of this welfare tickets and exploited this strategy in order to get their box office number higher.

When the record-breaking Monster Hunt hit in North America, it only got $468 per theater in the U.S., which was the lowest per-theater average of any new film that weekend.

Epoch Times published an article in 2015 that exposed some dirty truths of Chinese box office figures. The article also asserts that “an anonymous executive at a film distributor spoke to Sina about his involvement in a large-scale box office ticket purchase. The distributor had spent over 60 million yuan ($9.7 million) nationwide to boost one film.” Some companies also asked their partners and contributors to buy more tickets. The reason is that “even if the movie didn’t earn much money by the end, the high box office figure may already have created opportunities for the listed movie company on the stock market.” Moreover, the article said high box office in short period of time, like reaching 100 million by the third day, can soon attract media attention. The more media coverage could boost a movie’s competitiveness in the market since people tend to go to watch high-box-office movies.

Another unethical practice mentioned in the Epoch Times article is bribing theaters. In exchange, theaters arrange more showing time for their partners, increasing their sales. “According to the Sina report, profits are split 43/57 percent between the film distributor and the theater, respectively.”

[Has the quality of Chinese movies improved?]

Not much.

The above chart shows ratings of movies in China during Hollywood Blackout period. The source for rating is DouBan, which is a counterpart of Rotten Tomato in China. Larger dots represent more high screening percentage in theater. Chinese domestic movies with low ratings occupy large scale of screening time in theater. Chinese domestic movies with lower and lower ratings took larger and larger portion of Chinese screen, as the years went. In 2016, movies with 2+ ratings are the largest portion on screen while there was an empty whole for Chinese domestic movie with 8+ rating. It is not a healthy trend. The general public in China is disappointed by their domestic film products during Hollywood Blackout period.

In 2017, China Youth Daily published an article that criticized the effectiveness of Hollywood Blackout. The article first acknowledge the function of Hollywood Blackout that it helped Chinese film industry to claim dominance in the market, battling against Hollywood. It also saves time for Chinese film industry to grow, but the article also argues that current domestic film protection mechanism failed to either help small film business companies or boost high-quality movie products. It only created a domestic capital competition environment. The Chinese movie companies with largest capital won, not necessarily a victory for high quality movies. Consequently, Chinese audience tended to equalize Hollywood Blackout period as trashy movie period. They would wait to go to theaters after Hollywood Blackout. This contributes to the fall down of box office in 2016 during Hollywood Blackout.

[Recent Updates and How to Get Around it]

A good new for Hollywood. In 2016, due to a box office turndown, the Chinese government relaxed the quota for imported movies from 34 to 38. According to the Guardian the quota is set to keep expanding as part of trading deal between President Trump with Chinese President Xi.

Chinese audience is definitely a lucrative market for American film producers. The Fate of the Furious, for example, earned just $215 million stateside but collected $388 million at China’s box office.

2017 was a good year and also an interesting year for Chinese domestic movies during Hollywood blackout. Chinese movie Wolf-Warrior 2 grossed RMB5.68 billion($870 million). It defeated Chinese state-military propaganda movie The Founding of an Army. It shows that despite to the all regulation, Chinese audience are able to distinguish what is a better quality movie.

Felicia Chan, a senior lecturer at the University of Manchester said , “I’m not sure if ‘preventing too much Western influence’ is an argument any more at the Chinese box office, given the numbers Hollywood blockbusters are hitting in China … I suspect (the blackout) keeps the Chinese film industry buoyant, which then allows its players to have more negotiating power with Hollywood.”

There are two ways for American film producers to get around Hollywood Blackout.

The first one is to release the movie in May. The Hollywood Blackout only set restrictions that imported blockbusters are restricted to be premiered. However, American movies can get on screen in the mid of May prior to Hollywood Blackout period and can slip into June and July, which are hottest time for people to go to theaters. “Despicable Me 3”, for example released right before the blackout period, was the only Hollywood film on the top-grossing list of 2017.

The second way is to co-produce a movie with a Chinese film company. Then, it will not be considered as an imported movie during the Hollywood Blackout and also be exempted from the annual quota of imported movie.

 The Hollywood Blackout could be viewed as a Chinese tariff on imported movies to protect the Chinese entertainment industry. It intended to create an environment for Chinese film companies to grow before they face competition against western counterparts. However, instead of taking this opportunity to improve, Chinese film companies actually were spoiled by this protection period. More and more trashy quality movies are taking larger and larger portion of screening times on theater. The box office has become floated and misleading. Small and Middle Chinese movie companies are not benefited. It becomes an unhealthy market of playing capitals and money that discourages movies’ quality but focuses on making money in a short period of time.

 

The “Good” Signs That We Are Ignoring

The Great Depression. People waiting in line to eat for free. Source: http://reason.com/blog/2012/11/21/why-are-a-record-number-of-americans-on

The Great Depression was a scary time for America. A time full of poverty, hopelessness, fear, and especially, unemployment. Of course as economies tend to do, we were able to create stability, improve employment, increase hopefulness, and get through the Great Depression. We proved that we truly are the “land of the free and home of the brave,” emphasis on the brave. If we were able to get through the Great Depression, we could get through pretty much anything the economy threw at us, right? Wrong. Fast forward to the Great Recession of 2008 and it felt like, once again, that there was no hope. No hope for economic freedom, no hope for stability, no hope for anything. It felt how the photo to the left probably makes you feel. Millions of Americans lost their jobs, and the world was impacted by Wall Street “hotshots,” who thought they knew everything and simply would never lose the “game” of life. Well, life should never be a “game,” especially when that game ultimately affects millions of people. Case in point — ­­the housing crisis and the declared bankruptcy of the Lehman Brother’s. Wall Street was and is shady.

Since the 2008 recession, markets have been on the rise. Stock markets are looking strong, consumer spending habits are great, and unemployment rates are at an incredible low of 4.2%. That said, it doesn’t mean we should keep following the yellow brick road. I’m all about positivity, but it feels like we are replaying history. Before the Great Recession, Wall Street bankers were ignoring the “good” signs and thought, “hey the markets are hot, housing is through the roof (no pun intended), and we are making millions of dollars. Nothing to worry about here.” Meanwhile, thousands of people were starting to get big houses they couldn’t afford, and so the deep, dark rabbit hole began.

Are we ignoring the “good” signs again? If we look back at history, the truth of the matter is that we are overdue for a recession. Our “low” unemployment rate isn’t as low as we think, so it’s time to stop ignoring the “good” signs and start figuring out how to help our economy….before it’s too late (see picture below).

Source: http://money.cnn.com/infographic/economy/the-us-economy-to-the-brink-and-back/index.html

The “Good” Signs That We Are Ignoring –– Longest Economic Recovery

This is almost the longest we have been in economic recovery since a recession. If we look at history, we are due for another economic recession. History tends to tell a story, so why are we choosing to ignore it? While it is great that our economy has showed strength after the Great Recession, history proves that recovery can’t last more than a decade before seeing another economic recession. America has gone through 33 economic recessions, but the Great Recession was the first one that was as distressing as the Great Depression (hence the name).

Some economists are predicting another Great Recession after seeing such long economic recovery. What goes up must come down…? Even Barclays Capital is calling it a “Hakuna Matata” market. Everything is going up. The market isn’t worried” (Rapoza, 2017). Well, if I remember Lion King correctly, I started to cry when Mufasa died. All jokes aside, with everything going up, all the “good” signs are being ignored. This has been one of our longest economic recoveries, and even Janet Yellen, prior chair of the U.S. Federal Reserve believes we will experience more “major financial crises in our lifetime” (Rapoza, 2017).

While the length of economic recovery doesn’t really feel like an important indicator in the eyes of many people, it matters more than we think. Banks tend to “lower their standards over time [and] at the end at the end of very long expansions, banks and finance companies are willing to lend to almost anyone, because they become overly optimistic” (pbs). Kind of sounds like a similar situation to the housing crisis, doesn’t it? This is what is now happening with U.S. car loans.  (Please see the example of how an industry can affect the economy, detailed in deck at end of presentation). According to Forbes, “a severe market crash will be followed by no growth in the U.S., possibly even two quarters or more of contraction.” Few are actually predicting this “crash” and ignoring the “good” signs similar to the 2008 Great Recession.

The “Good” Signs That We Are Ignoring –– Unemployment Rate

When the Bureau of Labor Statistics releases its employment information, many people are quick to focus on the unemployment rate since it’s a significant sign of how an economy is doing. Well, our economy is only showing “good” signs of low unemployment rates varying between 4.1-4.2%. Do most people, however, know what the unemployment rate consists of? The unemployment rate is the share of the labor force that is jobless, expressed as a percentage (investopedia). This percentage includes people actively seeking work. The percentage fails to mention the pool of people who are neither employed nor actively seeking work because of weak job opportunities (Economic Policy Institute). Thus, unemployment numbers are actually higher than we think. If we really dive into the numbers (which will be explained in more depth on the attached deck at the end of the post), we will quickly learn that we are leaning towards another recession. In fact, Trading Economics is already predicting a 6% or higher unemployment rate in 2020. Since October the number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.6 million, and it accounted for 24.8 percent of the unemployed (Economic Policy Institute). Continuing jobless claims in the U.S. increased to 1,957 in the final week of November, after being 1,915 the week prior (Trading Economics). People who are actively seeking work aren’t getting hired and are entering into a new pool of people, as mentioned above. These are a pool of people who aren’t being accounted for within the “good” signs of our economy.

                                 Source: Google Images

The Ugly Truth

The truth of the matter is that we are overdue for a recession. The proof is in the pudding. This is the longest our economy has been in economic recovery, and it seems like our “low” unemployment rates are unparalleled, but we are ignoring the fact that so many Americans can’t find a job. The worst part is that it feels like President Donald Trump is not ready to handle an economic crisis. In fact, “Many Republicans in Congress are firmly against dramatically increasing the size of the federal budget and railed against the last stimulus bill. And given that interest rates are so low already, the Federal Reserve would not be able to cut rates by much” (The Atlantic). Seeing the trend that Trump is taking with his presidency, it is possible that he is the one landing us in our next recession, and he won’t be able to get us out of it. If our predictions are right and we find ourselves in an another economic recession within the next year, it will prove truly damaging for so many Americans. According to Forbes, 61% of Americans do not have enough money saved to cover six months of living expenses, 49% of Americans are currently living paycheck to paycheck, 68% of all respondents’ investment strategy does not account for a recession, and 64% of Americans do not have secondary sources of income. Essentially, if we land in another recession, YES we will get through it, but we will go through a lot of pain in the process. Back to hopelessness, back to more poverty, back to skyrocketing unemployment rates, and back to the pain of losing your economic freedom. I am not an economist, far from it in fact, but I do think it is important to inspect the “good” signs that our economy is projecting, so we can avoid repeating a traumatic economic history. Here’s to you America…. land of the free and home of the brave.

(This medium does not support the viewing of the deck that goes with this article. Please refer to your e-mail if you wish to view the supported deck). 

Sources:

https://www.theatlantic.com/business/archive/2017/03/is-the-economy-overdue-for-a-recession/519180/

https://www.pbs.org/newshour/economy/get-ready-economic-recession-coming-2017

https://www.forbes.com/sites/kenrapoza/2017/06/29/heres-what-would-happen-if-u-s-faces-another-recession/#13dc75457a79

https://www.forbes.com/sites/axiometrics/2017/04/21/is-a-recession-coming/#57ecbd6e6103

https://www.thebalance.com/could-the-great-depression-happen-again-3305685

https://tradingeconomics.com/united-states/continuing-jobless-claims

https://www.bls.gov/news.release/pdf/empsit.pdf

https://tradingeconomics.com/united-states/unemployment-rate/forecast

http://money.cnn.com/infographic/economy/the-us-economy-to-the-brink-and-back/index.html

http://reason.com/blog/2012/11/21/why-are-a-record-number-of-americans-on

http://www.nber.org/cycles/cyclesmain.html