Coming to the rescue

The Chinese word nezha is an abbreviated translation of the name of an Indian god. Introduced into China through early Buddhist scriptures, Nezha remains one of the most popular figures in Chinese literature.

According to the Investiture of the Gods, a 16th century fantasy novel which loosely links mythical gods with historical figures, a military commander called Li Jing, waited with great anxiety for the birth of his third child. He had reasons to be worried – unlike his wife’s previous pregnancies this one had lasted three years and six month. When she did give birth it was to a large, round ball of flesh. Shocked, Li drew his sword and struck the fleshy sphere, piecing the surface and revealing, to his amazement, a toddler who could already walk and talk.

Shortly after that a Taoist immortal arrived and told them not to worry as they had been blessed with a boy that wielded godly powers, and they should name him Nezha. His supernatural powers meant Nezha could transform into a being with three heads and six arms (a feature of many Buddhist gods). To get around he had a set of wheels driven by wind and fire.

The story may be new to most people in the West but in China Nezha is arguably the second most popular mythical figure just behind the Monkey King from Journey to the West, another fantasy novel from the 16th century (see WiC182).

Nezha appears in Journey to the West too, although he is beaten in combat by the Monkey King. Yet in the race to become the highest-grossing animation character in Chinese movie history, the film Nezha has already beaten the previous record holder Monkey King: Hero is Back, which took Rmb956 million at the domestic box office in 2015. In just seven days Nezha has earned Rmb1.4 billion ($202.5 million).

A big part of the film’s success is the overwhelmingly positive word of mouth.

“Nezha proves that China can also make a first-class animation that could rival that of Hollywood,” one fan gushed.

Enlight Media, the studio behind Nezha, took two years to refine the script and three years to produce the animated movie. The film has more than 1,300 special effects shots, and hired over 20 Chinese specialist studios and more than 1,600 people to create the stunning visuals. The South China Morning Post reckons that it is the most complex Chinese animated production ever made.

The labour of love has paid off. Enlight saw its share price go up almost 20% after Nezha’s strong performance. The boost is much needed as the studio recently reported that net profit in the first half of the year had dropped by about 96% from a year ago to just Rmb105 million, dragged down by the downturn in the film industry and rising production costs.

The surprisingly strong box-office for Nezha has been assisted by a lack of competition. July, which is traditionally a strong month for Chinese cinemas, has been lacklustre as some of the biggest blockbusters have been pulled from the schedule at the last minute. For instance, Huayi Brother’s big-budget war epic The Eight Hundred, which was scheduled for release on July 5, has been postponed, with no new release date yet announced.

After The Eight Hundred was yanked, The Last Wish, a film Huayi Brothers co-invested in, was withdrawn last month because of a “production problem”. Feng Xiaogang’s widely anticipated Cell Phone 2 – another Huayi Brothers project – has also been pushed back indefinitely.

Last week, news surfaced that in an effort to shore up cash, Huayi Brothers had resorted to selling and leasing back some of its cinema projection equipment. According to a stock exchange filing, the Shenzhen-listed studio has agreed to sell the equipment, which it will lease back for 24 months for Rmb40 million.

The move came as it faced “increased operating pressure and heated competition in the industry,” the studio said. The company has also reported a dismal first-half result, with losses of Rmb320 million (as compared with a profit of Rmb277 million for the same period last year). The result ranks Huayi Brothers as the worst performing listed studio in China during the period.

“The fact that The Eight Hundred wasn’t released as scheduled has brought enormous financial pressure on the studio and its cashflow. The film required too much upfront capital investment so it hit the studio particularly hard,” one industry observer told Jiemian, a news portal. “Huayi Brothers gambled at least three years of its profits on The Eight Hundred.”

But the company clearly needs cash to support several ambitious projects still ongoing. “The problem with Huayi Brothers is that it has over-diversified. Instead of focusing on filmmaking, it went into cultural tourism, invested in gaming companies,” another filmmaker told Jiemian.

Nevertheless, Huayi Brothers’ core business – movies – has been struggling with an unprecedentedly tough environment. The number of Chinese cinema screens has expanded rapidly in recent years: between 2017 and last year alone the total number surged from 50,776 to 60,079. But with the rise in censorship a lot of the domestic films that cinema bosses have counted on for ticket sales have either proven too bland for audiences or, if livelier, not made it to the big screen at all.

An increase in movie ticket prices has also contributed to the box office slump. In the first half of this year, the average cost of a film ticket went from Rmb35.5 to Rmb38.7, the steepest price in the last seven years. The increase is largely because online ticketing platforms like Maoyan and Taopiaopiao have cut back on subsidies they’d paid to win market share. That is especially evident in third- and fourth-tier cities, where prices have gone up significantly. The popularity of streaming dramas online has also led to more competition for the burgeoning number of multiplexes as viewers stay at home.

In the first half of 2019, China’s box office suffered its first decline in eight years with ticket sales sliding 2.7% to Rmb31.2 billion, EntGroup data showed. In terms of ‘bums on seats’, the decline was even larger: 808 million customers went to the cinema, down from about 901 million from the same first-half period a year ago, according to industry regulator, the National Radio and Television Administration.

For Huayi Brothers, though, there is an urgent need to raise cash to pay off debts. As of the end of the first quarter of this year, the studio had current liabilities of Rmb6 billion, including short-term loans of Rmb1.3 billion. Huayi’s cash and cash equivalents dwindled from Rmb2.1 billion as of the end of 2018 to just Rmb1.3 billion by the end of the first quarter.

“To put it simply, the selling and leasing back of the projection equipment is using it as collateral. It suggests that the company is desperate for cash and it needs to sell the equipment to get the cash upfront,” an industry insider confided to Jiemian.

Sadly for Huayi’s bosses there is no six-armed mythical creature waiting in the wings to rescue them – their hopes instead rest with an anti-Japanese war movie that runs counter to Beijing’s current diplomatic stance.

 

 

Keeping track, Aug 30,2019: Back in 2014, Huayi Brothers chairman Wang Zhongjun, a collector of art, grabbed headlines by spending nearly $62 million on a Van Gogh masterpiece at a Sotheby’s auction in New York. The painting, Life, Vase With Daisies and Poppies, was one of the few works that the artist sold during his lifetime. At the time of Wang’s purchase, the price was the highest amount paid by a Chinese collector for a piece of Western art.

Five years later, Wang, who also owns artwork from Pablo Picasso and contemporary Chinese artists like Zeng Fanzhi and Zhang Xiaogang, has had to part ways with many of his prized possessions in an effort to keep his studio afloat, says 1shoucang, an art collector portal.

News surfaced that Wang has been offloading the artwork to shore up the cash reserves of his embattled entertainment empire (In issue 462, WiC reported that Huayi had resorted to selling and leasing back some of its cinema projection equipment for Rmb40 million).

Speaking at the China Entrepreneur Forum, Wang defended his decision to part with some of his paintings: “I recently sold a batch of artwork for cash to help solve the company’s liquidity problem. Some people think that selling art is shameful, but I don’t think there’s any shame in that… For the sake of the company, I will sell anything.”

Striking a more positive tone, he added: “My hope is that the company will survive the crisis and make better movies in the future – one after another. If I have to talk about my dream, that will be my dream for the next 10 years.”

 

 

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