A good turning point for Chinese films

Last year can be viewed as a turning point for the domestic film industry, as Chinese films accounted for 58 percent of the year's 21.7 billion yuan ($3.6 billion) box office returns, up from 48 percent in 2012. This was despite the reduced administrative protection for domestic films, with the number of foreign films allowed to be screened in China up since 2012, when the import quota was increased.

So instead of worrying about whether the Chinese film industry can survive or not, the focus is now on its sustainable progress, and there were some advantageous changes in 2013 that should ensure Chinese films are more competitive in the future.

Most notably there has been a change in audience structure, as audiences have become younger. According to a recent survey of Entgroup, a research institute of China's entertainment industry, the average age of film viewers has fallen to below 25, and it is still dropping. Part of the reason for this is more cinemas and screens have been opened in second- and third-tier cities, and the new cinemagoers in the smaller cities are mainly young people. A total of 5,077 new screens opened in China last year, and the box office returns from first-tier cities accounted for only 47.8 percent of the total box office. It is predicted that the proportion of returns from first-tier cinemas in the total box office will continue to fall over the next few years.

This in turn has led to a change in the types of films being made, as filmmakers are targeting their product at teenagers and young adults. Among the top ten box office earners in 2013, seven films were domestic films, of which five targeted an audience born after 1980. For example, debutant director and famous actress Zhao Wei's So Young portrays the lives of a group of students in the 1990s and their loss of innocence. Not surprisingly, it was a huge hit and it was the year's third-highest earner at the box office, raking in about 720 million yuan.

To some extent, this change in audience structure and film subjects provides a solid foundation for a sustainable market in the future, and it is predicted that China will grow from being the second-largest film market to the largest in the next 10 years, surpassing that of the United States.

In addition to this change in the domestic market, there have been positive developments in the structure of China's film industry, as it is has transformed from a large-scale and integrated studio system to decentralized, flexible and specialized film industry, a transformation similar to the one Hollywood experienced in the 1950s and 1960s.

Some specialized sectors have already achieved good development. Take film marketing for example, which used to be conducted by the production companies themselves. Nowadays, specialized marketing companies have taken over this role and this has helped raise the profile of domestic films. Data shows, that of the 26 domestic films that made more than 100 million yuan at the box office in the first half of 2013, third-party specialist companies conducted the marketing for 17 of them.

The Internet has accelerated the process of third-party marketing of domestic films. The popularity of video websites, social media and "online to offline" viewing has replaced some traditional marketing and advertising strategies. Take Tiny Times for example, it targeted teenagers and young adults, mainly 15 to 25 year-old girls, by incorporating many of the hot issues discussed on micro blogs into the plots, and the film's director and stars would discuss these online creating pre-release hype for the film. This helped build an audience for the movie, and many cinemagoers paid well in advance to ensure they were among the first to see the film, which finally made nearly 500 million yuan at the box office and recorded the highest rate of return on its production costs of any film screened last year.

Lastly, there has been more financial support for domestic films, which has boosted the development potential of China's film industry. The cooperation and interaction between financing companies and film companies has become increasingly prominent, as the growing success of domestic movies is attracting greater investment. This in turn has led to Chinese filmmakers focusing on more commercial projects in order to maximize the return on investments. For example, Feng Xiaogang's new movie Personal Tailor, was produced by Huayi Media Group, which is listed on the Shenzhen stock exchange. The film was released on Dec 19 and made 570 million yuan at the box office in two weeks.

It is reported that Chinese commercial banks issued credit funds of over 600 million yuan to the film industry from 2006 to 2011. By the end of 2013, the amount of private equity invested in the film and TV industry exceeded 32 billion yuan. Such a huge amount of capital and leverage can help the industry realize economies of scale and the integrated optimization of the industrial chain. However, supporting mechanisms, such as risk assessment and guarantee systems, are needed to attract more capital to the domestic film industry.

Whether the Chinese film industry can maintain the above advantages will be significant for its future development, but certainly they will serve to support the boom this year.