Benefits beyond the box office

The film industry generates enormous amounts of intellectual property (IP), which has benefited Hong Kong greatly over the years. The Chinese mainland, on the other hand, is only now starting to tap into the economic benefits generated beyond the box office, a China Daily Asia Leadership Roundtable heard on Dec 3.
The issue of movie-related IP and the benefits it can generate for businesses and economies was at the heart of the discussion during the event titled The Strategic Implications for Chinese Mainland and Hong Kong’s Film Industry under the IP Era.
What emerged at the roundtable event — part of the fifth Business of IP Asia forum which took place in Hong Kong on Dec 3 and 4 — was a discussion about the need for the industry in the Chinese mainland to find more revenue channels for IP.
There are also opportunities for Hong Kong, which is well positioned to act as a “super-connector” between the mainland and the rest of the world.
In May, the Hong Kong Special Administrative Region’s government launched a plan to invest HK$200 million ($25.8 million) in a Film Development Fund to support the development of the industry.
Hong Kong has an entrenched legal framework, said Zhou Li, an editorial board member of the China Daily Group and publisher and editor-in-chief of China Daily Asia Pacific.
“This is an opportunity for Hong Kong to take advantage of the Belt and Road Initiative,” said Zhou, referring to plans proposed by President Xi Jinping to revive ancient trading routes between China and the West.
“When it comes to the collaboration among belt and road countries in moviemaking … the possibilities are immense.”
These include opportunities for production, marketing and investment, all of which require IP agreements among countries.
The numbers coming from China are “simply mind-boggling”, said Michael Ellis, president and managing director for Asia Pacific at the Motion Picture Association.
Box office revenues in China of 29.6 billion yuan ($4.6 billion) in 2014 were 10 times the 2.9 billion yuan recorded in 2005, and revenues are already higher in 2015.
By 2017, box office revenues should surpass those of the United States to become the largest box office market in the world. In Hong Kong, the box office continues to grow, up by 23.3 percent in the last five years to $212.4 million in 2014 from $172.3 in 2010.
Even with these large revenues, the number of film screens in both the Chinese mainland and Hong Kong are but a fraction of those in the United States. In the mainland there are about 22 screens for every 1 million people, 30 in Hong Kong and 120 in the US.
And there are challenges in China for international moviemakers, who have to work with caps on the number of films that are released and domestic competition.
There are about 700 films made every year in the Chinese mainland, of which just 200 are widely released to the national box office, and as much as 80 to 90 percent of revenues for films come from the box office. This is not the case in Hollywood, however, as a lot of income is derived from merchandising and franchises.
“IP is important … There is an increased focus in China to protect IP,” said Ellis. “There is more cooperation between the screen industry, the technology industry and the government.
“Hong Kong is really built off a robust IPR regime,” he added, referring to IP rights. This is backed by both government policy and resources to enforcement agencies that work with both outreach and surveillance efforts while tax incentives for production and post-production help support the industry.
Hong Kong has traditionally been a major supplier of both television and film content, particularly to the Chinese market, said Percy Fung, production director at Digital Magic, a film production company.
“Hong Kong, as a free port, has for a long time been serving content owners around the world,” said Fung, who is also a board member of the Hong Kong Film Awards.
“Whatever orders come into Hong Kong overnight we can ship them around the world. Hong Kong has a long history of service to Hollywood movies and movies of Asia.”
Fung added that the major issue for the industry in Hong Kong is how to sell movies, especially those from the mainland, to the world. For movie studios, IP protection is important, particularly at a time when studios around the world are trying to get into the market.
“A few years ago, copyright in China meant the right to copy,” said William Pfeiffer, CEO of Dragongate Entertainment, which is backed by giant entertainment company Lionsgate. “That has changed.”
Much of the change has come from the evolution of the industry in China. Many of the companies that use content or license films to show in China are now listed on stock exchanges. This evolution translates into greater transparency.
“What they are trying to do is pretty similar to the Hollywood studio environment,” said Pfeiffer, who has made large investments in China through various subsidiaries. “You are finding money from China going into Hollywood.”
Capital is also flowing both ways, with foreign studios looking to tap into the huge Chinese box office and Chinese investors looking to break into foreign markets and studios.
“In addition to film, the TV market is an important landscape,” said Pfeiffer. “The online video distribution business is big and getting bigger. The video-on-demand business is also important.”
For example, Dragongate has a deal with e-commerce giant Alibaba, and film-streaming website Netflix is trying to find a way into China.
The mobile business is also increasingly important in the market, while theme parks — with Disney leading the charge — emerge as important drivers of revenue alongside merchandising and digital content.
“Chinese companies are starting to understand the value of their IP,” Pfeiffer said. “China makes a $200 million film and everybody is going to want to see it. There is money being lost to piracy.”
Going forward, however, more Chinese IP will come under pressure from greater demand and more piracy of domestic content. It will also face pressures to perform better financially.
A few decades ago, the film industry was controlled by the government but about a decade ago, private film ventures first emerged. Then about five years ago, more foreign capital began to enter the market.
The result, said April Ye, CEO of the China arm of Film Finances, Inc, was a need for more risk control.
The 50-year-old company is the largest in the world focused on the film completion guarantee business. Originally based in the United Kingdom, the company expanded globally and is now looking to tap into a new and generally unexplored market.
What the company does is guarantee to investors that films are completed on time. Film Finances opened its first office in Shanghai in May.
“This is something that is brand new for China,” said Ye. “People say that China is not ready yet, but I say ‘we can’t wait until everything is ready’ to grow with the market and help build the system.”
In more developed markets, a well-established producer system is in place that does not yet exist in the Chinese mainland. As movies become commercial products with big value, there is a greater need for a more transparent standard system.
Ye has been working on co-productions in China for about 14 years. For more than two decades, she said, Hong Kong has been a bridge for the world into the Chinese mainland’s film industry.
However, the opportunity for the Hong Kong film industry will be in bringing the Chinese mainland industry to the world. In the mainland, box office revenues are split between the big global blockbusters and domestic films.
To ensure the industry in China grows, IP will have to be tracked through what lawyers call the “chain of title”, or ownership, said Jason Goldberg, a partner at international law firm Covington & Burling, and leader of the firm’s entertainment, sports and media practice in China.
Much of Goldberg’s work focuses on the IP that goes into a film, rather than the IP generated by the film itself. “In China, as it turns out, this is a very challenging thing to do right now,” he said.
The chain of title of the inputs — novels, stories or scripts — that go into movies is not always clean.
The system in China is changing, but a lot of IP still exists under the old system. This means that determining who actually owns rights to a particular piece of IP can be complex.
“People are very aware of the value of the film business in China right now,” said Goldberg. “The awareness is there but the structure and expertise to implement that awareness is still developing.”
Source: http://www.chinadailyasia.com/2015-12/11/content_15357640.html