When Heroes Are Born - China's Production Industry Looking Forawrd to Change

As the Chinese TV and film industry wakes up to the 21st century it is faced with many fundamental changes as the state owned sectors struggle to come to terms with privatization and accountability to market forces.

"The still predominately state owned film industry is producing very little quality movies at this stage," says China Film Co-production Corporation (CFCC) President Zheng Quangang. The huge old state owned film production houses have the capacity to produce 400 films annually while on average only 100 films per year are completed. This number has decreased even further last year, while 3 to 4 of the top films every year make 50% of total box office revenues.

"Many of the big state owned enterprises do not manage to satisfy market conditions," says Mr. Zheng, "before it did not matter if no one wanted to see your movie and directors produced what they wanted to. Also state owned companies are not flexible enough to be able to freely choose the best directors and actors as these are chosen from the ranks of the life time employees of the company." According to Mr. Zheng, there are few films to satisfy the Chinese audience and no one is happy with the situation, including the audience, the producers and the government. As films are making less money, less money is invested propelling the industry into a downward spiral.

Big players amongst the state owned film production companies include Beijing Film Studio, Shanghai Paradise and Shanghai Film Studio, some of which have proactively embraced the need for change.

"Shanghai Paradise produces on average 8 films and 400 episodes of TV drama every year ranking number three in terms of film output and number 2 in terms of TV drama output," says Jin Da, Vice President of Shanghai Paradise Film & Television (Group) Co. The movie "Lover's Grief over the Yellow River" last year was amongst the Oscar nominations for the Best Foreign Language Film while the company has produced TV drama hits including "Ai You Mama" and ‘Er Nu Qing Chang". In line with this success, Shanghai Paradise, which has over 1,000 square meters of studio space, has restructured says xy and has established the first stock company in its industry with 70% of the shares held by the Paradise Shareholding Company.

While the emergence of an independent film industry was greatly anticipated in the mid 1990s, only a few independent companies have produced box office hits on a regular basis, one of them being Imar Film Co. Ltd., producer of the recent highly successful release Shower.

The independent production house was established in 1996 as one of the pioneers of independent Chinese film and has since produced box office hits including Spicy Love Soup in 1998, Beautiful New World in 1999 and Shower, which is currently number one in Chinese theatres and has been sold to 56 countries worldwide.

Imar produces low budget independent films that speak to the Chinese audience says Peter Loehr, Managing Director of Imar Film. Stories are never period dramas says Loehr as there are too many of those around. "We never produce poor peasants in the countryside stories as modern young Chinese do not relate to that, but we produce modern urban films in modern urban areas".

There are now 70 people working for Imar Film and it's affiliate companies and the majority are enthusiastic young people in their 20s, giving the company much greater flexibility as opposed to state owned enterprises which struggle with life time employment and the lack of choice of talent.

"But, what we do takes a lot of passion," says Loehr, who describes producing in China as a "labor of love". "The Chinese film industry can be compared to the film industry in Europe and the USA in the 1940's, he says. "The process of producing a film is all encompassing. You have to write the script, produce and distribute all in one, where in the US you would have 4-5 people dealing with the same job." In order to distribute their first film, Loehr had to travel from one province to the next as the distribution system is still highly fragmented.

Censorship is another concern for producers of Chinese films says Ann Hu, Director of US Chinese co-production “Shadow Magic”, which showed in theatres around China beginning of this year. “The industry still needs to find a balance between planned and market economy. In one way the state cannot let go of its control over content for obvious reasons, and probably never will, but on the other hand the industry has to survive today's market economy, says Hu.

" In China people often don't know that films are censored and they ask me why Chinese films don't have any sex and violence in them” says Peter Loehr.  “We do impose some self censorship as it is important to get films to be seen,” continues Loehr.  Ironically however, to be popular in international markets Chinese films have a marketing advantage if they were previously banned in China.

Piracy of video products has brought further problems to the struggling film industry. Today China's urban population has access to a vast resource of private movies and can watch anything from the latest box office hits to classics on VCD or DVD. "The Chinese market needs to live up the standard set by the best of what the international film industry has to offer," says Loehr. While many believe that the Chinese audience is much more interested in Chinese films, Loehr sees a similar trend as in Europe, where the American film industry has all but illuminated the domestic film industry.

In addition, China's predominately rural population is not bringing in big returns for the film industry, as many of the population will not have access to theatres at all. "Peasants mainly watch films when they get together for one of the 4 big events including weddings and funerals, explains CFCC’s Zheng. Loehr recalls taking Imar's first film to the countryside, where a truck drove onto a field and a big screen erected. "People came and brought their stools along and it was great," he remembers.

WTO accession will bring more foreign movies to Chinese theatres and foreign investment into cinema theatres will also be possible for the first time. At least for the urban population, it is hoped that this will be an incentive to increase investment on the film industry.

Ann Hu believes that “For investors the potential will be big. Theatre chains and the distribution system especially are places to look into" while she only sees some people generating moderate returns in China by making low budget films, as it is the international market, which makes financial sense." 

China’s TV production industry is facing similar fundamental challenges as China prepares for WTO. Previously the state information monopoly meant that state- owned terrestrial and cable TV stations were both broadcast and production centers at the same time. Producing predominantly in-house created huge overheads while productions were substandard due to lack of market driven incentives to sell programming. In addition, duplication of efforts at more than 3000 terrestrial and cable TV stations across the country has added to the crisis.

The reforms, driven by State Administration of Radio, Film and TV (SARFT), have called for the separation of TV production and broadcast functions. Under the plan, production resources will be released into the market, while the state will retain control over broadcast.

"There is a need for 20 000 hours of news, series and film programming but only 10,000 hours are produced every year," says Zheng. "Of those, 20% are good and only 3% very good", he adds.

Although the move towards establishing production companies is not new in China, the SARFT policy places a definite time period of two years on real practical action and most leading broadcasters have now started to release details of their new production relationships.

Whatever the specific interpretation of "separation" in different places, the release of state production resources into the market is designed to contribute to the growth of batches of professional TV program production companies. In turn, these companies should open the national production market to civil capital investment.

Foreign invested high-end production and postproduction houses that so far have been limited to the advertising sector are welcoming the changes. Having brought local talent up to speed, moving into film and TV program production is the next logical step.

"This change (the separation of broadcast and production) will no doubt improve the production value of Chinese TV production industry by reducing government involvement as well as introducing competition", believes Alex Wang, producer with high end production house Pacesetter Pictures International (PPI), which has just recently completed it's first feature film. According to Wang the film industry initially supplied many technicians and other production talents for the advertising industry who's skills and experience has been greatly been enhanced by working on television spots.

Daniel Mak, General Manger with News Corp. backed Golden Mainland Productions is similarly enthusiastic about the future. Previously Golden Mainland specialized in creating commercials and program ident packages, but is moving into production of TV documentaries and series.

"Because of the separation policy, TV stations will now be more willing to buy programming and will subcontract rather than producing themselves," says Mak.
"Also, TV station employees are quitting their jobs to move into their own companies and are becoming much more flexible and creative," says Mak, confirming the view that the quality of programming still lies with the training of people.

However total separation will not happen immediately predicts Rowan Simons, Chairman of investment consultants RSA Media Relations. Among the biggest problems says Simons is the "basic paradox" that faces all China's state TV resources. "On one hand," he says, "everyone agrees that production forces must be able to develop their businesses according to market conditions. On the other, everyone knows they must maintain 'exceptional relationships' with regulators and broadcasters or risk losing their licenses and scheduled positions."

While the production industry is buzzing with anticipation and policy change is making some happier than others Peter Loehr sits back and believes that great things can still be achieved in the industry and as the Chinese proverb says, "In times of chaos, heroes are born."
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