China Market Intelligence on Animated Film 2017

FilmMarket

I have started going to China since Sept 2015. Since then, I have made many good friends and learnt a lot about their market. So far, I have been to Hunan, Shanghai, Beijing, Shenzhen, Qingdao, Hangzhou.

This is what I learnt from my recent trips to China. Hope you find it useful.

Many investors feel safer to target at pre school content for feature film. This is rather different as compared to US.

https://entrepreneurshipinanimation.wordpress.com/2015/05/30/in-china-should-i-launch-the-animated-tv-series-or-feature-film-first/

Most of these films are of lower quality and lower budget. It is tapping on their tv series publicity.

Age group 6 to 12 is not an easy group to target as most kids are busy studying like in Korea.

In China, they do have an interesting youth market where this group is not easy to manage in overseas. The youth market is targeted at 13 to 26 age group. Your IP should probably involve more mature genre, life style, music and computer games market etc.

Example 1: 13 to 26 Age Group
Monkey King: Hero is back – Box Office: USD$153M

Example 2: 13 to 26 Age Group
Big Fish & Begonia – Box Office: USD$85,023,628M

 

One unusual thing that I have observed in China. Globally I thought the stereoscopic 3d market is dead. But there still seems to be a demand in Chinese Cinema. Until when, I do not know. For now, it still seems quite popular. Every movie must be in 3d.

SAFE BUDGET FOR ANIMATED FILMS
If you are targeting ONLY the China box office and want to have a better chance to recoup, the advise I have gotten is to make sure the budget do not go beyond USD$2M. Many companies who has a good TV series running in China will normally work at this budget. However, do not expect the quality like PIXAR or Dreamworks film. It is more like watching the TV Series on a big screen.

For those with budget close to USD$7M, they are probably targeting at higher quality and aiming for a box office at least close to 60M. (Last 2 years seems to get harder)

Those who dare to push the budget at 10M need to have past track record of box office beyond 100M like Monkey King: Hero is back. USD$153M

Current there are about 100 animated films in China in production or raising funds. They are paying a lot of attention to IP and globalization these days. How many will evetually make it to the cinema is still a question. Since Monkey King: Hero has hit USD$153M. Many companies are trying their luck rolling out more CG Movies. Its like the initial stage in the US when Pixar and Dreamworks have started the trend of rolling 2 CG movies a year. But in China, it is a lot more. I supposed eventually the bubble will burst. That is why opportunities is in the next 2 to 3 years.

POTENTIAL BOX OFFICE
USD$40M to USD$60M is considered to be decent box office. Anything below this is not too good.

Potential box office in China these days is close to US. Which is close to USD$400M.

In 2016 – There seems to be a chance to hit 40M to 60M
In 2017 – The numbers seems to drop in this year. Average only about 6M for Animated Films.

CHINA ANIMATED FILM PERFORMANCE AT THE CHINESE BOX OFFICE
These films have a good fan based because of their TV series.
Hence distributor are more keen to distribute them.
(Reference: http://www.boxofficemojo.com/intl/china/yearly/?yr=2017&p=.htm)

(2017)
Boonie Bears: Entangled Worlds – Box Office $76,630,780

GG Bond: Guarding – Box Office $6,649,192

FOREIGN ANIMATED FILM PERFORMANCE AT THE CHINESE BOX OFFICE

Foreign Animated Films (Normally has huge marketing dollar)
(Reference: http://www.boxofficemojo.com/intl/china/yearly/?yr=2016&p=.htm)

(2016)
Zootopia – Box Office USD$235,591,257
Kung Fu Panda 3 – Box Office USD$154,304,371
The Angry Bird Movie – Box Office USD$75,872.971
Ice Age: Collision Course – Box Office USD$66,059,140

 

(Reference: http://www.boxofficemojo.com/intl/china/yearly/?yr=2017&p=.htm)
(2017)
Sing – Box Office $31,379,920
The LEGO Batman Movie – Box Office $6,372,757
Kubo and the Two Strings – Box Office $6,114,589

Recently there is a lot of interest in Anime content. Tencent is investing a lot in such IP.
(Reference:http://www.boxofficemojo.com/movies/?page=intl&country=CH&id=yourname.htm)

Your Name did very well in China – Box Office $83,678,210

 

Survival Skills at China Animation Trade Show

Bizmatch01
At most western animation trade shows, you can arrange meetings in advance. At a recent China animation trade show I went to (one of the largest animation trade show, outsourcing & investment event for IP – tv/film, animation, games, comics, toys etc), I realise in China, they do not seems to have a practice of arranging meetings in advance at animation trade show.

It wasn’t easy for someone new like me who do not know anyone there. It’s like a fan hunting for your superstar. (The top executive from an important organization) But the best part of the game is you do not know who is the superstar. So you need to do your research. Find out which talk your superstar is attending. It could be a press conference of an animated series they have invested in. During such an event, pay attention to the host when he made an introduction to the VIP at the event. Normally the VIPs sit in front. They are part of the evaluation panelist for project being pitched. The host will announced who the VIP are. Once the event is over, you need to go straight to him asap as many will do the same. And when you meet the VIP. Getting the namecard is not enough. You need to scan his WeChat account so that you can get in touch with the top executive from these big companies. You have to do this as email is not sufficient to reach them. They hardly read their emails. At the event, many will be there, crowding around the VIP.  It’s like you are a fan hunting for the autograph of the superstar.

Another opportunity is during networking party. Walk around. See if you can hijack into others conversation. (Sorry. I know it sounds horrible. Seems like this is the mode of survival there at the market)

Bizmatch02
At the one to one business matching, I was told that Chinese companies do not like to have a schedule of appointments every 30 mins like what we used to do in Western market. So it is really like a market place. You walk from table to table to look for the buyer. (They will put a badge on the table) You do not know which company (buyer) is there at the table before hand. And the buyer is different in the morning and afternoon. So you need to walk around. When you see a good buyer, you need to circle around the table like a vulture. ha ha Once you see a vacancy, put your yourself on the seat immediately ha ha. Else someone else would.

I know it all sounds crazy. Its a world of cowboy. If you are shy, you might end up going home empty-handed. I felt uneasy at first. But there is no choice. In order to survive, one must seize every opportunity. Once you get the attention and interest, do your best as this is the only chance to impress them. I guess once you have established your connections, you do not need to do all these in future. Its all about connections and relationships.

Coming to China is really a good training for survival.

 

Co Productions with China

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Something I learnt from my recent trip. If a country has a co-production treaty with China, the film made may be considered as China/Domestic film. Hence not restricted by the foreign films quota of 34 films a year. In order to qualify for the co-production treaty, 50% of the film investment and production must involve a China company。The topic of the film must have elements of China. And there are a couple more things.

So far, China has entered into film co-production agreements with 14 countries
http://www.cfcc-film.com.cn/policeg/content/id/2.html

(Singapore and China do have this co-production treaty.)


China Film Co-Production Corporation (CFCC)

Founded in 1979, China Film Co-Production Corporation (CFCC) is a special organization solely authorized by the State Administration of Press, Publication, Radio, Film and Television to administer affairs relating to Chinese-foreign film co-productions. We are always ready to provide filmmakers wishing to film in mainland China with all-round information related to co-production policies, industry landscape and co-production resources. We are committed to deal with any inquiry regarding filming in mainland China in a timely, authoritative manner.

As administrator and supporter of international co-production, we encourage domestic filmmakers to film overseas, and also support overseas filmmakers to film in China. Throughout the past decades, we have been dedicated to bringing together domestic and overseas film organizations and production houses, and enjoyed working with internationally established filmmakers including Steven Spielberg, Bernardo Bertolucci, Jean Jacques Annaud, John Woo, Wong Karwai, Ang Lee, Chen Kaige, Zhang Yimou and Feng Xiaogang, among many others. We are proud to have made our contributions to the growth of international co-production and the drive of Chinese cinema to go global.

KEY ROLES

Our major responsibility is to assess and approve international co-production applications, conduct reviews of completed co-production films, supervise the performance of co-production agreement between the co-producing parties, provide relevant services, and assist in negotiations of governmental agreement on film co-production between China and other countries. The precise roles are as follows:

1) Read and assess proposed co-production scripts;

2) Examine applying documents from co-producing parties;

3) Review completed co-production films;

4) Deal with inquiry regarding industry policies, rules and regulations and co-production procedures;

5) Bridge domestic and overseas co-producers;

6) Facilitate entry visas for foreign crews participating in co-productions;

7) Facilitate customs clearance for filming equipment, film stocks and materials to be used in co-productions;

8) Process applications and provide related services for overseas crews to shoot short films in Mainland China.

 

 

Tax Issues for Servicing Work

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More and more China studios are shifting from providing outsource services to foreign companies to creating their own IP. Based on our recent observations, there seems to be more and more China studios looking at outsourcing their work.

In fact, due to the weak euros and also the decline of western economy, we might see growing opportunities coming from China than the West in next few years.

One thing to take note about getting service work from China is withholding tax.  In the past, many countries outsource their work to China tapping on its low labour cost. However things are changing now. Chinese Companies have started to look at outsourcing their work as labour cost is raising in Beijing and Shanghai. This is all new. No one exactly know how much withholding tax they must hold back if they were to outsource their work to foreign companies. So on the safe side, some will just hold back the maximum. Which is 17%. This is based on our own experience. E.g if your client ask you to do a job at $1000. They might withhold up to 17%. Meaning they might eventually pay you only $830.

If the value is high, you might want to seek a tax advisor for help. Singapore has many companies in Shanghai. Hence many of them are familiar with the tax issue. IE has introduced me to the following company who has served many Singapore companies in China. They have offices in various part of China. This is important as different province has a slight different tax regulations. http://www.sbasf.com/

What they will do is to help you look through your Chinese Contract. Advise you how to word it to protect yourself and also in a way easier for them to negotiate with the China Tax Department. You need to prove that the service work is not executed from China. From there, the tax consultant will discuss with the China tax department to lock down a rate. For my case, they help me to bring down from 17% to 6%. This is a huge saving.

Once the tax rate has been locked down, you can show the documentation to your client. So that your client cannot hold you at e.g 17%. I am not an expert in this. I can only share with you what we have gone through. Hope it helps you too.

Market Orientation for Chinese Animation Industry

IMG_1935

This is a very interesting place in Beijing where there are many feature film, games and animation companies based here. I was told there are quite a number of places like this in Beijing.

The following cities have more companies in the Animation, VFX and Games.
Beijing, Shanghai, GuangZhou and ShenZhen.

BEIJING
In terms of investment, IP creations, feature films and computer games, Beijing seems to be leading. There are some in Shanghai too. Many head office is based in Beijing. Most of the film companies are also based in Beijing.

SHANGHAI
Shanghai seems to have more post houses that provide services for TV commercials.
Here are some interesting articles with regards to the TVC market

http://shpplus.com/insight/commercial-postproduction-in-china-part-one-landscape/
http://shpplus.com/insight/commercial-postproduction-in-china-part-two-the-china-schedule/
http://shpplus.com/insight/commercial-postproduction-in-china-part-three-talent-crisis/

GUANGZHOU & SHENZHEN
Guang Zhou and Sheng Zhen have more outsourcing services and Animated TV Series facilities.

COST OF LIVING
Beijing and Shanghai cost of living is very high as compared to other cities. In fact, their rental cost is quite close to Singapore.

STARTING SALARY
In general,  a starting salary in Beijing and Shanghai could be anything between 4000rmb to 5000rmb (S$800 to S$1000)

Other less developed cities has a starting pay of around 3000rmb. (S$600)

The market is changing tremendously. From servicing foreign companies, now more and more are looking at IP creations and globalisation. In fact, China companies are looking at outsourcing their work.

 

Outsourcing work coming from China

Outsourcing

The CICAF/IABC event in Hang Zhou has several unique activities where we have never seen it in other overseas trade events. This particular conference focus in outsourcing. Company who wants to outsource their work will present the specification, concept and materials. Attendees are companies who are interested to provide their services. There seems to be a lot of work available in China now. There are 11 companies who want to outsource their work. Each has 3 to 4 projects. I was told that there are about 100 animated films in production now. The seminar is good for companies looking for work. In the west, it seems to be harder and harder to get work. Maybe it’s time to look east.

The only challenge for foreign companies is you have to figure out how to deal with the withholding taxes and understanding their pipeline etc.

Making Connection in China

wechat-logo1In most market, once I gotten the name card of that important person, I will be overjoyed. Thinking I have now gotten the person contact and I can start communicating.

In China, it is very different. You must get connected with that person via WeChat. (Very often you offer to let him scan your WeChat account or you scan his) That represents one step closer. I didn’t realise this initially and lost some good contacts. This is very important.  In other markets, we seldom do that as sometimes it feels like you are going into personal space. But in China, it is different. Its all about relationship.

For email, I realise many Chinese executive seldom check it. Or your Gmail might be blocked by their firewall or their company email at times cannot send or receive email outside China. Hence WeChat is crucial.

At times if that person do not offer to connect you via WeChat account. It almost feel like your relationship hasn’t reach the close level yet. Ha ha.