Disaster movie

Since re-establishing diplomatic ties with the United States in 1978, Chinese film studios hadn’t produced a single film about going to war with America’s armed forces. Maybe that was a reflection of decades of relatively benign relations between the two nations. If so, the signs are that the mood is now turning more hostile. As the trade and tech rows between the two worsened last year, state broadcaster CCTV started to schedule movies and documentaries about the Korean War in its prime-time slots. On top of that Bona Film Group received state subsidies for a remake of The Battle of Changjin Reservoir, which is based on a brutal battle between American troops and Chinese ‘volunteers’ south of the Yalu River in the winter of 1950.

Bona budgeted Rmb600 million ($85 million) for the film and shooting started in early January in the northeastern city of Dandong, before being halted by the Covid-19 outbreak. The studio was then forced to disband the 3,000-person crew – many of whom were stranded in the bitter cold near the North Korean border for weeks because of travel restrictions.

With no hope of releasing the film in 2021 as planned, Bona has already announced Rmb150 million in losses. Yet this is just one story in an avalanche of bad news for studio bosses. Long before the coronavirus started to force the closure of thousands of cinemas they had already been describing “the bleakest winter” in their industry, following crackdowns on box office scams (see WiC317) and tax evasion (see WiC424). Then the pandemic appeared, paralysing the sector over the first four months of this year…

More bad news from Bona…

There was shock and sorrow across the industry last month when news spread that Huang Wei, vice president of Bona, had leapt to his death from the 18th floor of the studio’s headquarters in Beijing.

In a brief statement on social media, the company confirmed that Huang had died on June 10, saying it was in “deep mourning”.

The 52 year-old was head of its movie theatre division and his office sat atop the 1,200-seat Bona International Cineplex, the flagship venue of the group’s 80-cinema network.

Huang’s area of commercial focus was a particular victim of the Covid-19 outbreak. Cinemas nationwide have been all but shut down since late January on concerns that movie audiences constitute a perfect host for cluster infections. On May 8, the State Council briefly offered hope that local governments might make their own decisions about reopening the venues. But even in cases where theatre doors have been unlocked, cinemagoers have been hard to come by. Aside from the health concerns, audiences have been unimpressed by the films on offer because studios have been reluctant to release blockbusters when major markets such as Beijing and Shanghai are still in cinema lockdown. Hopes that the situation would change all but disappeared earlier this month when the Chinese capital suffered a second outbreak (see WiC500).

Last week it was announced that 260 cinemas in Beijing would get a special payout of Rmb3 million. But cinemas around the country still have to pay their rents. Many are located in the busiest shopping malls, where rental costs tend to be the highest. Bigger firms like Bona are also under pressure not to make their staff redundant, as that adds to the strain on one of the central government’s main policy commitments for 2020: to keep the urban jobless rate below 6%.

In a bid to find alternative income, some cinemas have even resorted to selling snacks, although this so-called “popcorn income” is hardly enough to balance the books.

Unsurprisingly, the speculation is that Huang killed himself because he could no longer cope with the impossibilities of his job. Leading screenwriter Jia Zhangke, who shared the news about Huang’s death on weibo, added a few words about “the grief of our industry”. Other studio insiders shared emojis of a candle of remembrance.

Bona delisted from Nasdaq in 2016 but the death of Huang is likely to further delay its plans to go public in the A-share market, National Business Daily reported.

How grim have things been?

Despite various regulatory investigations into industry practices, China’s box office takings still reached a record of Rmb64 billion in 2019, equating to pretty reasonable 5.4% growth.

Commentators were expecting the Chinese market to overtake the combined takings of the US and Canadian box office (which grossed $11.4 billion last year) to become the world’s biggest movie market this year.

Now the China Film Administration, which decides which films are released and when, is forecasting that sales at China’s box office will reach Rmb21.8 billion this year – but that’s only if all the country’s cinemas are allowed to reopen this month. Takings are likely to shrink by an eye-popping 91% to Rmb6 billion should the ban be extended to the end of the third quarter, or relaxed only in a few of the bigger cities.

According to Caijing magazine, 13,170 companies in the entertainment industry have already disappeared or deregistered as businesses so far this year. The financial impact reaches across the entire sector, starting with the more than 70,000 cinema screens opertional at the end of 2019. They are controlled by roughly 12,000 independent owner, including 40 national chains. Many are struggling to stay afloat: nearly a fifth had cut their payrolls by March and 40% said they might have to close shop before the end of 2020, according to a “survival status” report issued by the Chinese Film Distribution Association last month.

Wanda Film, China’s biggest cinema operator with more than 600 theatres and 5,400 screens, says that it plans to keep growing through a franchising model. Bosses at smaller cinemas might opt to side with Wanda Film, Caijing magazine notes, although it’s unlikely the struggling group can offer much financial help to its potential franchisees. Indeed, AMC Entertainment, the world’s largest cinema chain and a sister firm of Wanda Film, is deep in the financial mire too. Bloomberg reported earlier this month that the Wanda-controlled US group has asked bondholders to take a 50% haircut on debt worth $2.3 billion. AMC is now worth about $500 million, much less than the $2.6 billion Wanda paid in 2012.

Are movie producers suffering as well?

After acquiring AMC, Wanda splashed out on a series of other investments. Most notably, the property conglomerate acquired Picasso’s Claude et Paloma for $28.2 million at a New York auction in 2013.

AMC’s creditors might feel a little relieved that the Chinese group hasn’t been reduced to selling its most prized paintings yet – unlike some of Wanda’s movie sector counterparts in China.

Take Wang Zhongjun, one of the brothers behind erstwhile powerhouse Huayi Brothers (we first mentioned his studio in WiC30; talking later about its ambitions of becoming another Warner Bros in issue 34). According to newspaper reports in Hong Kong, Wang has just sold two of his properties in the city for HK$220 million ($28.2 million). The divestment rekindled chatter from last year as to why Wang had needed to offload some of his own expensively assembled art collection. It was not clear if the private sale last August included Vincent van Gogh’s Vase with Daisies and Poppies, which Wang acquired in 2014 for $61.8 million. But after the auction Wang said he felt “no shame” in selling some of the paintings to alleviate his “liquidity issues”.

In bygone days Huayi Brothers was often dubbed China’s leading movie franchise, partly because it was the first studio to go public in 2009. Trading on Shenzhen’s ChiNext, it was worth nearly Rmb100 billion back in mid-2015 but two years of losses have slashed its market capitalisation to about a ninth of its peak. Should it stay in the red in 2020, Huayi risks delisting from the Shenzhen bourse altogether. Huayi reported a net loss of Rmb137 million in April. However, a piece of news soon afterwards suggested it might have the financial resolve to weather these extraordinary times, when it announced that it had managed to raise Rmb2.3 billion from long-term investors including internet giants Alibaba and Tencent.

It is not alone in its difficulties. Most of the 16 listed studios and cinema operators were lossmaking in the first quarter, Caijing reports, with other previous high-flying studios such as Enlight Media (see WiC482) and Beijing Culture (see WiC494) also battling hefty losses.

How about the A-list stars?

Elsewhere, film fans are monitoring the fortunes of many of the industry’s top stars. In one example, news broke this month that veteran comedian Stephen Chow had mortgaged his mansion on the Peak, an exclusive hilltop neighbourhood in Hong Kong. According to Apple Daily, the Hong Kong actor and director signed an agreement in 2017 with mainland Chinese investors that included personal guarantees on future profits. Of course, in the last six months, any significant returns have been impossible because of the dire box office environment.

However, Chow’s The King of Comedy had already disappointed last year, grossing just Rmb624 million in Chinese theatres. That compared poorly with his 2016 hit The Mermaid, which made Rmb3.39 billion. Critics have also been questioning whether the 57 year-old can still make films that appeal to younger cinemagoers.

The previous owners of Chow’s Hong Kong mansion have included Yaohan’s Kazuo Wada (the boss of a department store chain that went bankrupt); and Chinese financier Wang Kuan (who also met with financial disaster; see WiC299).

The history of the home has Apple Daily asking whether the purchase of the property often coincides with the passing of an era.

Other A-list stars were already struggling last year, before the pandemic struck. When Taiwanese actor Gao Yixiang died during the filming of a reality TV show in November – which featured celebrities competing with professional athletes (see WiC477) – ThePaper.cn noted that film stars were being forced into “senseless programming” to earn a buck during the industry’s “winter”.

In another sign of the slowdown in the sector, the actress Dilraba Dilmurat lamented last August that she had not received any job offers for eight months.

As the situation turned even bleaker with the pandemic, internet video platforms and e-commerce marketplaces started to offer performers an alternative way to milk their celebrity. Many of these opportunities lack Tinseltown glamour – Dilraba showed up this month on a livestream promoting agricultural goods from Hunan province. It was the first time that Hunan Satellite TV, China’s most watched TV channel, has staged a livestreaming e-commerce session, which soon became apparent in chaotic scenes when a man came out of nowhere, tapped the Xinjiang-born actress on the shoulder and proposed marriage to her. He was quickly led offstage but the moment turned viral, with netizens debating the merits of A-listers becoming online salespeople.

End of an era for the silver screen?

In the past, endorsement contracts from consumer brands have provided A-list celebrities with some of their best paydays. But the popularity of internet video platforms such as Douyin is decentralising star power. Regular WiC readers should be familiar with the trend, including how top KOLs such as Zhang Dayi – a key investor in Nasdaq-listed Ruhnn – are capable of earning more than movie megastars such as Fan Bingbing (see WiC448).

The Covid-19 outbreak seems to have accelerated the shift to new distribution channels in general. Cinemas will eventually reopen and blockbuster films will make headlines again. But there are real questions around whether some of the changes brought about by the pandemic, like the surge in livestreaming sales or the likelihood of more film releases on the online video platforms, could be more permanent.

“If anyone wants to watch a movie, just watch it online,” Xi Jinping, the Chinese leader, said during a public appearance at the end of March.

Some of these video platforms have become sought-after investments. The share price of Bilibili, a popular video-sharing website that specialises in user-generated content, has nearly tripled over the past 12 months, reaching $15 billion on Nasdaq (Bilibili sold a 4.98% stake to Sony for $400 million in April).

iQiyi, another video platform listed on Nasdaq, is now worth $16 billion. China’s equivalent to Netflix, it is also the subject of M&A rumours, after Reuters reported this month that Tencent is planning a takeover bid for the Baidu-backed brand (for more see page 15).

However, the best performing of the online video firms this year is a stock on the A-share market. The valuation of Mango Excellent Media, the producer behind reality show sensation Sisters Who Make Waves (see WiC500), has jumped nearly seven times in value so far in 2020 to Rmb113 billion. That means that the Shenzhen firm, which operates the internet-based platform Mango TV, is worth more than Bona, Huayi Brothers, Enlight Media, Beijing Culture, Wanda Film and AMC Entertainment combined.

Only time will tell if this is a sign that the sell-off in the shares of Chinese studios – the traditional content producers – is overdone.

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