Some late night observations on the Chinese animation market from my seat at the Library Cafe in Beijing…
China is the fast-growing animation market in the world. With a total population in excess of 1.3 billion individuals, potentially 500 million people in mainland China can be identified as animation consumers. Domestic Chinese box office returns have increased 20% between 2005-2007. Due to increased international demand, Chinese motion picture distributors generated more than $2 billion RMB in global revenue during 2007 - an increase of 5.7% from the year before. In 2007, the domestic Chinese box office totaled more than $3.3 billion RMB (over $482 million USD). Analysts project that the domestic Chinese box office will gross more than $4 billion RMB by the end of 2008 (almost $585 million USD), and more than $10 billion RMB annually by 2013.
It is estimated that 11% of the Chinese animation audience is under the age of 13, with 59% between the age of 14 to 17 and 30% over 18 years of age. China has 370 million children, more than the entire population of the United States. Today, approximately 18 billion RMB (almost $2.5 billion USD) is spent by animation consumers in China, but nearly 90% of that money flows straight out of the country to Japan, and to a lesser extent the United States and Europe. Despite its visual proficiency, recent Chinese animation content has demonstratively lacked domestic market appeal due to an emphasis on education over entertainment. Like most children around the world, the viewing preferences of Chinese youth seem to indicate that they relate better to entertaining stories that provide a vivid reflection of their feelings, problems and dreams. Rigid characters, and plot lines that lack the sense of fun and innocence that children hold so dear, are roundly ignored. Chinese animators in the 21st century face not so much a technological or artistic challenge as they do a challenge in compelling storytelling.
Despite this challenge, or perhaps because of it, the mainland market is uniquely poised for an innovative and profitable future. The gross earnings of China’s animation industry across all media have already exceeded those of its live-action film industry. Building on a remarkable animation history, the Chinese animation market has grown increasingly sophisticated since the pre-Cultural Revolution days, with an appetite for content that seeks to combine Chinese cultural traditions with Hollywood story structure for contemporary resonance. In recent years, provincial Chinese governments have rolled out substantial plans to develop the homegrown market for animation artists and companies, in keeping with the policies set forth by the central authorities. These developments follow the announcement made by Beijing’s State Administration of Radio, Film and Television (SARFT) in August 2004 to launch three new national children’s networks and more than 60 broadcast stations providing an increased volume of children’s programming. 2004 was set as China’s “Animation Year”, and the industry generated revenue amounting to tens of millions of RMB. In light of this evolving landscape, it is no surprise that domestic animation companies and foreign co-production partners alike are eager for a place at the table.
Domestic box office returns as reported for Chinese animated feature films in 2008 range from $1 million RMB for “The Legend of Countryside Hero”, to a record-breaking $30+ million RMB for “Storm Rider: Clash of Evils”, over a theatrical run of 4 weeks each. However, revenues from the domestic Chinese market alone are not sufficient to cover the costs associated with high-quality animation productions. Successful international distribution must be part of the equation. In fact, international co-production deals and distribution presales are vital to the support of Chinese feature films on the mainland. While U.S. cinema is “America first, global second,” Chinese cinema is by necessity “global first, Chinese second”. For the near future at least, earnings in the China market can only ever be a secondary source of income.
Live-action Chinese films such as “Farewell My Concubine”, “2046”, “Hero”, and “House of Flying Daggers” have enjoyed box office success and critical acclaim around the world. In 2000, the multi-national production “Crouching Tiger, Hidden Dragon” achieved massive success at the Western box office despite being dismissed by some Chinese film-goers as pandering to Western tastes. Nevertheless, it provided an introduction to Chinese cinema for many Americans and Europeans, and increased the popularity of many Chinese films that may have otherwise been unknown to Westerners. In 2002, “Hero” was made as a second attempt to produce a Chinese film with the international appeal of “Crouching Tiger, Hidden Dragon”. The film was a phenomenal success in most of Asia and topped the U.S. box office for two weeks, making enough in the U.S. alone to cover the production costs. The successes of these films blur the boundaries between mainland Chinese cinema and a more internationally-based “Chinese-language cinema”. The merging of talent and resources from China, Hong Kong, Taiwan and the West indicate that Chinese cinema is poised to compete with the best Hollywood films. While Chinese animation productions have yet to emulate the successful precedent of their live-action counterparts, it is only a matter of time before a Chinese animated feature enjoys breakout success on the world stage.
However, even international theatrical and broadcast success is not enough to maximize the animation industry’s profits (especially when broadcast revenues reimburse just 10% of production costs on average). In 1999, $21 million RMB (about $3 million USD) was spent to produce “Lotus Lantern”. The animated feature film nearly broke even at the box office, but failed to capitalize on any related ancillary products. However just two years later, the animated film “Crazy for Song” saw two-thirds of its profits come from the sale of related merchandise. And while the American cartoon “Transformers” was broadcast for free on Chinese television, subsequent profits from toy sales amounted to $5 billion RMB. Ancillary animation products occupy an increasingly large market space in China. The annual sales of related stationery products is more than $60 billion RMB (approximately $8.8 billion USD), while that of children’s toys, food and clothing is more than $20 billion RMB, $35 billion RMB and $90 billion RMB respectively. The annual sales of children’s DVDs and publications in China reach only $10 billion RMB annually, no doubt affected by the high degree of piracy on the mainland. The future development of these ancillary profit channels will depend upon effective regulation and enforcement at the state and provincial levels.
Piracy of Hollywood blockbusters is rampant in China, and also has a negative impact upon the theatrical profitability of Chinese films. However, the piracy of films on the mainland has resulted in an unconventional yet functional symbiosis between the Chinese film and television industries. While piracy makes most Chinese films unprofitable, television series and consumer products based upon pirated films are incredibly popular and profitable. Savvy Chinese film directors leverage upon this phenomenon by creating television series and ancillaries based upon the movie, which ironically receives free advertising through piracy.
And since personal bests are almost always improved by stiff competition, it doesn’t hurt to run alongside the “big boys” in the marketplace. This means letting more foreign films IN, and getting more Chinese films OUT. Finally, leverage upon China’s incredible population advantage by showing more films on more screens for less money per person, but greater revenue on the whole.
