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Wuhan virus could see wave of failures among struggling film studios

Liu Yifei-w

Liu Yifei: her Mulan movie has been delayed by Disney due to Covid-19

When production studio Huanxi Media found out in late January, ahead of the Chinese New Year, that the release of the family-friendly blockbuster Lost in Russia was cancelled because of the coronavirus crisis, it quickly struck a deal with internet giant Bytedance. For Rmb630 million ($91 million), the studio sold the rights to stream the film on Bytedance’s Douyin (also known as TikTok outside of China), Toutiao and Xigua Video platforms. By January 27, local media was reporting that Lost in Russia had received 600 million views (Bytedance’s three apps were also among the top five most downloaded on Apple’s China App Store in January, partly driven by the movie’s availability).

Last week Enter the Fat Dragon, a movie scheduled for release ahead of Valentine’s Day, quickly followed suit. The film, which features action star Donnie Yen, struck a similar deal with iQiyi and Tencent Video for an undisclosed amount. It will cost just Rmb12 for non-subscribers (and half that for subscribers) to watch the film on the two online platforms, reported National Business Daily. At a time when cinemas across the country have largely stayed shut, releasing a film online is what the newspaper calls “a strategy that keeps losses at a minimum”.

Some industry observers even believe that the virus outbreak could undermine the theatre business model, which sees a film playing in cinemas before making its debut online. But at a time when the film industry has few other revenue options the situation is more a case of xue shang jia shuang which means ‘adding frost to the snow’, commented National Business Daily.

The outbreak all but wiped out ticket sales during the seven-day Chinese New Year holiday – a period that has accounted for 10% of China’s entire annual box office takings historically. This year, ticket sales on the first day of the Chinese New Year were just over Rmb1.8 million – less than a hundredth of the same day in 2019 (largely because so many cinemas were closed, to prevent further contagion).

Shares of Wanda Film, a cinema operator controlled by billionaire Wang Jianlin, have plunged 27% since January 17. Those of Imax China, which operates giant screens, have also dropped 21%, while Beijing Enlight Media, one of China’s largest studios fell 15%.

The impact of the virus is also being felt in Hollywood, which is increasingly relying on Chinese audiences for growth. Disney has described the epidemic as a headwind for the company, which has also closed both its theme parks in Shanghai and Hong Kong.

The studio will likely delay the release of its much-anticipated remake of Mulan, which stars actress Liu Yifei in the lead role, from March to a later month. Pixar’s Onward, which is set for a March debut in the US, will likely be pushed back as well.

Meanwhile, some of the domestic film studios – already wary of funding new productions after the tax evasion scandal in 2018 – struggle forward on life support. According to data from Itjuzi.com, which monitors China’s internet activity, the country’s culture and entertainment industry saw investment funding drop by 85% in the first half of 2019 to slightly over Rmb8 billion.

“After 2019 the industry itself is already suffering from a shortage of funds. The arrival of the epidemic has undoubtedly increased the difficulty in financing,” one insider told the China Daily.

Others concurred: “Right now, with a black swan event [i.e. the coronavirus outbreak], winter has completely set upon China’s film industry. Not all of the film producers, cinema operators and medium to small cinema chains in third- and fourth-tier cities are likely to survive the freeze,” predicted New Bee, a film blog.

While the country struggles to stop the virus from spreading, TV and film productions have come to a grinding halt. In late January, Hengdian, China’s main filming centre, announced that all of its studios would close until further notice to protect staff and film crews. The news came shortly after it made an offer of free studio access to production crews working on contemporary and sci-fi-themed movies in a bid to boost its sagging business.

Suspending a production is costly. The number of people in a crew can range from a hundred people to as many as a thousand. Chen Yitao, a TV producer, lamented in a weibo post: “Each day we are not working we lose Rmb500,000. I don’t know how long we can endure before shooting resumes.”

In a letter to employees, Chen Lizhi, the chief executive of the Beijing-based studio MaxTimes, wrote: “We anticipate the industry will soon experience a very big crisis… a systemic crisis. Let’s think about it, the whole industry just lost a holiday period that’s worth as much as Rmb10 billion. Moreover, all the production has stopped. So that suggests the first half of 2020 is basically ruined. We believe that in the foreseeable future, there will be a lot of bankruptcies. And it will affect the whole supply chain – from production all the way to cinemas. No one is spared. No shows, no production, that equates to death,” he warned.

The embattled Huayi Brothers is one of the studios at the top of the danger list. The company announced recently that it had lost as much as Rmb3.9 billion in 2019, up from Rmb1.1 billion a year before. Also worryingly, the company’s two founders Wang Zhongjun and Wang Zhonglei have pledged a combined 92% of their shares in the studio against loans, which suggests that further declines in its fortunes could see them lose control of a firm they founded more than a decade ago to be China’s equivalent to Warner Bros (see WiC34).

Nevertheless, for some studios, especially those more specialised in television, the virus has presented a partial opportunity. Stay at home families are watching more TV and video streaming than ever before. “In the past few years, the overall supply of the TV drama industry far exceeded demand. At present, there is still a large number of dramas in the backlog so this is the perfect opportunity to digest all the series that have yet to air. Such is the case of many recent hit shows like Find Yourself and Three Lives, Three Worlds and The Pillow Book,” the China Daily noted

Others are still hopeful that the film industry will swing back into life once the virus no longer poses a health threat. “Optimistically, after the outbreak, it will usher a wave of audiences that have been starved of entertainment back to the cinema, which will bring plenty of opportunities to the film and TV industry and give cinema operators a chance to bounce back. Whoever can survive this ‘ice age’ will determine life from death,” reckons New Bee.

But at a time when the reputation of South Korean cinema is at an all-time high – after Parasite became the first foreign language film to win Best Picture at the Oscars – studios in China will be looking on with a blend of envy and self-pity.

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