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

2016120813431251201

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

1230px-pudongskyline-pjt
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.

The Question of Being the First Mover

stereo3d

A member of our group feedback to me about his thoughts on being the first mover in business. ” In businesses, first mover advantage often proves otherwise. The first one to do something usually fails. It’s more of a trap, really.

Usually, the followers observe and see what works and take out what doesn’t, then gain critical mass and soon people forget about the first mover while crowning the first one to gain critical mass. 2 cents.”

This is my answer below:
“You are right. I have another approach to this. I can only speak for my own experience.

When I said first mover, I don’t mean that you blindly go into it. One still need to evaluate the risk. My objective for being the first mover is for branding, publicity and awareness of our company. (Which is very important since we are a small company.) It is almost like jumping the queue. From no one knowing who you are to the global players pay attention to what you do.

A little case study of what we did. When I first discovered there is strong interest in stereoscopic 3D content, I start to evaluate if I should make our series into stereoscopic 3D format. There was some risk as the format at that time was not determined. Hence not many producers want to move into it.

I did some detail evaluation of the cost, the risk, the economical and technical viability before making the decision. I was weighting between money invested and potential returns.

With blessings, eventually it pays off.  With this decision, we manage to penetrate US by selling our Stereoscopic 3d series to the first 3d channel.  After we have sold our series to US, we started to create awareness. Today, Dream Defenders have sold to 5 platforms in the US in total. That deal also leads to another one with Cartoon Network where we get the chance to work on Award Winning Ben 10 Destroy All Aliens in normal format and Stereoscopic 3d format.

Now 3DTV is dead. So was it a wrong decision? Not exactly. We have achieved what we needed above which is creating awareness for the company and help us penetrate US. On top of that, it creates opportunities for some outsource projects for us.

After that we move on to work auto stereoscopic 3d content. (Stereoscopic 3d with no glasses) Then AR and now VR. Next will be MR. At every stage, the knowledge gained actually brought us forward to higher grounds.

Our current VR venture has given us an advantage. We are not just doing VR. Something more of a breakthrough that solves the current VR commercial viability issues. In the US, I have gotten many major players excited. So we will see where it lead us to next.

In conclusion, my main reason for being first mover is meant to create publicity, branding and awareness for our company.  I must emphasize that you need to evaluate the risk. In business, there is always risk.  With this move, Tiny Island has now known to be innovative and forefront; always ahead of the curve in the global market. This is useful for our future growth in consultation business.”

When you are small, how do you keep yourself alive.

img_6372

Met a friend in LA today. He used to be a senior management in a major studio. He asked me today. How did you manage to survive? The market situation back home is so bad. Regional countries provide cheaper services. You do not have huge investor’s money to back you up. Your company is so small. “

This is my answer.
” At times, I do ask myself whether this is my last month. ha ha.

I applied some of the principles of how our late Prime Minister build Singapore.

1) Build strong relations and connections with major players in North America and in Asia. Make yourself useful to others. As long as you are a useful chess piece to others. You will become important though you are small.

2) Identify new trends that can propagate. Move into new areas and take advantage of first mover. Provide unique services that others cannot provide.

3) Anticipate changes. Prepare new business model and adapt fast to the change.”

The challenges you should know in producing an animated series these days

(The following is written based on my own experience. It is meant to give independent producers a clear view of the current market situation. The following does not apply to big studios who has deep pockets or with strong commercial channels)

I have attended a Children TV Trade Show in the US recently. At the event, I have met a couple of independent producers. When they presented their IP to me, I am quite surprised that they are still trapped in the old system; expecting the TV licensing fee alone to cover the production cost. (Covering production cost is hard these days. Not to even mention profit. Even DVD market is dead.) One really need a licensing/merchandising strategy. It is no long an option. It is really hard to create an animated TV series or IP just to tell story without a commercial strategy in mind. I know it sounds horrible in a creative stand point. It is really not easy to raise funds these days.

I hope the numbers below will help you. When I first started, I was looking all over for such facts. Its not easy to locate them. This is first hand experience.

When I first step into the US, I heard that you can sell a half an hour episode at USD$50k. In 2007, (my personal experience) I sold at USD$25k per half hour  episode. In 2010, it drops to USD$15k per half hour episode. Now I have buyer in the US asking for free. I am not joking. The market kept changing for the past

Assuming your full production budget is about USD$5M (When I first got into the market, I was told that this budget should be able to recoup just by TV sales) and you are able to sell the TV series to 80 to 100 countries (which is not easy for indie producer) The TV licensing fees add up for these countries  can only cover between 1/4 to 1/5 of your production cost. I have seen independent producers still looking at producing it at USD$7M to USD$9M at the recent trade show. Its going to be very risky.

I am not saying there is no exceptional case. If you have a strong executive producer to back you up, hopefully it could be more. I am just being conservative. Last I heard is that some US OTT channel is looking for original content . They can finance up to 60% of the production cost. This does not include additional dubbing cost of 20 languages. Payment is made in every 3 months and can only come in after you have delivered the entire series. It takes up to 1 year to pay you back the 60%.

Typically, there are only about 6 countries who are able to pay between 4 to 5 digits per half hour episode. Or if you are lucky, you can get a couple of pan regional deals (e.g Pan Asia or Pan Europe Deal) which will also pay about 4 digits per half hour. The rest of the world is paying only 3 digits per half hour especially in Asia. If you add all these numbers up, you will know it is not easy to cover more than USD $4M of your production cost.

Currently, some of the countries that you might be able to get subsidy or investment to offset your cost is Canada, France, Ireland, Malaysia, Korea and China. The rest of the world is not that easy.

One need to have a strategy in place. Your IP needs to be able to engage the sophisticated audience not just on TV. But also on all new digital platforms. Your concept and designs probably needs to have Toys, Computer Games and Themeparks (China) in mind. (Now even Netflix has started to look at Toys now.) There are some  strategic investors looking for good IP to feed their business. These strategic investors will come in right from the beginning. No longer after the release of the series.

Korean producers are very savvy and focus. You will see many of them armed with concept based on the needs of strategic investors. The only challenge is you might end up having too many similar concepts. Hence to challenge your creativity, you need to find a way to create a concept that stands out from the rest.

Don’t get me wrong. I am not discouraging indie producers NOT to work on your own IP. In fact, if your primary survival is servicing (outsource work), you should work on your own IP as competing in prices in outsource work is not the way to go for long term survival. What I am trying to put across here is to change your strategy. Know the market. Build your connections. Get yourself updated with the latest trend. The world economy and technology is shifting its place. In business, there will always be a change. As long as you move with the change. You will survive.

Something I wrote previously. Hope you find it useful as well.
https://entrepreneurshipinanimation.wordpress.com/2016/05/14/various-potential-strategic-investors-for-animation/

 

The IP creations for Animation is growing in China

chinaanimation

Chinese companies are slowly moving away from servicing work to IP creations. Not only they are interested in IP creations for their own domestic markets. More and more are looking for overseas partners to learn how to create content for the global market. Though they have started much later than most Asian countries. In terms of learning how to monetize their IP and gain knowledge in licensing & merchandising, they have caught up very fast. In fact, I would say faster than some Asian countries like us who has started even way before them. With their huge capital, population and box office, I anticipate that they will slowly catch up with US. Or might even replace their position eventually.

There is a potential that some of them can become the next Mattel or Hasbro in the East. Or even Turner or Disney who has the entire eco system. Some of the big players already have their own TV stations, Film Production Company, Distribution Network, Toy Manufacturing Arm, Games Companies, Themeparks etc.

The Themepark owners, Toys Manufacturers and Computer Games Companies are especially the ones most interested in IP creations and learning how to globalize it.

I see a trend of them setting up a pre production arm in LA to tap on the best talents there. Or they will buy over good IP from overseas. Then slowly looking at outsourcing their productions to cheaper countries. So that they will focus on IP management, licensing / merchandising and stay at the top of the value chain.

Currently there are still companies who are willing to learn how to globalize their IP. Initially I was estimating maybe in another 5 years time, they probably already learn all they need and will be independent enough to operate on their own. In 5 years time, they might already have the entire value chain setup. But looking at the rate they are progressing, I think maybe another 3 years (Not 5 years anymore) they will be ready and will NOT need others help anymore. So if you are heading to China for opportunity. I say, it has to be NOW or NEVER.