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VOD Services and Concerns Over Chinese Influence Stalk US Film Expo

With video-on-demand services seen as both a threat and an opportunity by the independent movie sector, this year's American Film Market saw an industry at a crossroads, with the growing significance of China also dividing attendees.

Photo: Pandora: Coming to Korean cinemas and Netflix next year.
Pandora: Coming to Korean cinemas and Netflix next year.
Photo: Pandora: Coming to Korean cinemas and Netflix next year.
Pandora: Coming to Korean cinemas and Netflix next year.

The American Film Market (AFM), an annual fixture in Los Angeles every November, is one of the big three international film markets, along with the Berlin Film Festival's European Film Market (EFM) (February) and the Marche, part of the Cannes Film Festival (May).

From its 1981 launch onwards, the AFM has been the bedrock of the independent film business, a sector that has been driven by the concept of pre-sales for decades. Under this time-tested business model, producers and sales agents sell the international distribution rights to films they are trying to get financed, then cash in the resulting pre-sales contracts at the bank. The money lent by the banks against the perceived value of these pre-sales contracts is then used to actually get the films into production.

Every year, producers, sales agents, distributors and filmmakers cram into the AFM's main venue – the Loews Beach Hotel in Santa Monica – to discuss these once abundant pre-sales and financing deals. In the past, the independent film industry appeared to be more about quantity than quality, with schlocky horror films and tired romantic comedies tending to predominate. Somehow, though, it all seemed to work.

For several years now, though, this model has been in steady decline. The biggest problem has been the collapse of DVD revenue. This has not been restricted to North America, but has taken place across the world. With theatrical releases a risky and expensive business, financiers once assumed they would make their money back from DVD purchases and sales to ancillary platforms. Then along came the internet, online piracy and, eventually, legitimate digital distribution in the form of Netflix, Amazon Prime Video and a host of other video-on-demand (VOD) platforms. While these replaced the DVD window, they didn't necessarily guarantee the same level of returns.

The only bright spot for independent producers is that Netflix and Amazon are now aggressively buying indie films rights at almost every major film market. Even as this year's AFM was winding down, Netflix snapped up world rights to Pandora, a Korean nuclear disaster movie, produced by Next Entertainment World (N.E.W.). This move was no doubt inspired by the success of the company's last major hit – the zombie thriller Train To Busan.

This acquisition means that the film will not only receive a cinema release in Korea, but it will also be streamed on Netflix in 190 countries throughout 2017. As Train To Busan made millions of dollars from sales to theatrical distributors in dozens of international territories – breaking records for a Korean film in many – it's highly likely that Netflix paid a healthy seven-figure sum to secure the worldwide rights to Pandora.

As a result of this kind of deal, producers of sure-fire hit films are faced with something of a dilemma. Should they hold out for a multi-territory theatrical release, which usually only works for a select number of English-language titles? Alternatively, would it be more prudent to take the easy money and sell to Netflix or Amazon?

Not every producer, though, has the luxury of being faced with such a decision. The streaming giants tend to be selective about just what they buy and, despite the unlimited shelf space of the internet, there no longer seems to be a sustainable business model for the onetime stock-in-trade of the AFM – the B-list action films and romcoms that once lined the shelves of Blockbuster. As a result, the number of sales companies attending this year's market was down by around 7%.

With this new focus on quality over quantity, the number of films in the market is contracting. At the same time, with the streaming giants taking out some of the juiciest titles, there is less product for the theatrical distributors in each country to pounce on. Lamenting the current state of play, Ricky Tse, the Founder of Bravos Pictures, a Hong Kong-based distributor, said: "There were not too many must-have titles in the market and those that did look interesting were mostly for pre-buy [ie, not yet completed]."

In truth, there was only a handful of titles that excited buyers this year – notably Annapurna Pictures' remake of Klown (a Danish comedy set to star Sacha Baron Cohen); FilmNation's Greyhound  (a World War II submarine thriller starring Tom Hanks); and Foresight Unlimited's Inversion (starring Travis Fimmel, Samuel L Jackson and Chinese actress Liu Yifei). Set for release in 2018, Inversion is a Hollywood production made with Chinese backing. The film is actually being produced by Facing East, a Hong Kong and Beijing-based production and financing company co-founded by Hong Kong's Philip Lee and Markus Barmettler, a US Producer.

Indeed, in the currently depressed market, it's perhaps not all that surprising that the film business is looking towards the world's fasting-growing movie market – mainland China – as the potential saviour of its ailing business model. Although China's US$6.8 billion annual box office has so far only really benefited the Hollywood studios and a handful of the larger US and European independents, the continuous stream of Chinese investment into US films and film companies appears to have galvanised the industry. Some of the biggest deals in 2016 include the Dalian Wanda Group's acquisition of Legendary Entertainment and Alibaba Pictures' recent tie-up with Steven Spielberg's Amblin Partners.

While the AFM held its own series of seminars focussing on the Chinese film market, there were no less than three separate China conferences simultaneously taking place at other venues across Los Angeles. Among the many topics under discussion at all these events was the unexpected slowdown in China's box office this year; whether or not the country's film import quotas will be expanded; and whether Hollywood really ought to be worried about China's growing influence.

Although China's box office is still growing at a much faster rate than that of any other territory, there was much hand-wringing over the summer about why that growth had slowed to around 20% in 2016. At the AFM's own China conferences, the various speakers cited a number of reasons for this deceleration. These included the recent reduction in online ticketing discounts, the elimination of fraudulent box-office returns and the fact that the line-up of both Hollywood and Chinese movies was not that strong in the second and third quarters of the year.

During his keynote speech at the US-China Film Summit, Michael Ellis, Asia-Pacific president of the Motion Picture Association (MPA), maintained that China was now unlikely to overtake North America as the world's biggest box-office market in 2017, something that had been widely predicted beforehand. When asked whether China would expand its import quota in 2017 – as per its agreement with the World Trade Organization (WTO) – he said: "The quota was always supposed to be a floor, rather than a ceiling. China will always exceed that quota when there are good market reasons to do so."

Indeed, there are signs that China actually did expand the quota in 2016 in an attempt to compensate for its weaker than expected box office. While the country usually only imports 34 revenue-sharing films a year – under a five-year agreement signed with the WTO in February 2012 – it has already sanctioned the release of close to 40 films this year. To this end, its more recent additions have included Miss Peregrine's Home For Peculiar Children and Allied, a World War II romantic thriller starring Brad Pitt.

Photo: Allied: Last minute addition to mainland movie quota.
Allied: Last minute addition to mainland movie quota.
Photo: Allied: Last minute addition to mainland movie quota.
Allied: Last minute addition to mainland movie quota.
Photo: China-bound: Miss Peregrine’s Peculiar Children.
China-bound: Miss Peregrine's Peculiar Children.
Photo: China-bound: Miss Peregrine’s Peculiar Children.
China-bound: Miss Peregrine's Peculiar Children.

Meanwhile, a number of conference speakers also discussed the recent letter jointly issued by 16 members of the US Congress voicing concerns that Chinese investment in Hollywood will result in propaganda being produced. Dismissing such notions, Wang Zhonglei, President of Huayi Brothers, a Beijing-based entertainments group, said: "I don't think there's any desire to control American movies. While it's true that the Chinese government encourages industries to invest overseas, there's no real agenda."

Amidst all the discussion as to whether China will save or destroy the US film industry, film companies from Hong Kong, mainland China and the US set out their stalls as they looked to sell the international rights to Chinese films. Although mainland films continue to be aimed primarily at local audiences and don't sell widely overseas, a number of Hong Kong companies did manage to create a buzz. This was particularly the case with John Woo's action thriller Manhunt (sold by Media Asia Films), and Wong Jing's Chasing The Dragon, starring Donnie Yen as Ng Sek-ho, a real-life 1970s gangster.

Overall, though, Hong Kong sellers reported a decrease in European buyers at this year's AFM. Acknowledging the shortfall, Fred Tsui, General Manager of Media Asia, said: "While there are still a lot of Asian buyers at the AFM, despite its proximity to both the Tokyo International Film Festival and the Busan International Film Festival, the number of European buyers interested in Asian films has dropped off considerably. This has a lot to do with Europe's still struggling economy. As a result, any European buyers who make it to the AFM are solely interested in American films and projects."

With the next major film market taking place in Europe – the EFM in Berlin in February 2017 – sales companies from all over the world will be anxiously waiting to see how much life remains in the traditional sales business. With February 2017 also marking the end of China's current WTO agreement on movie imports, the country's burgeoning film industry is also likely to dominate many of the discussions at that event.

Photo: Manhunt: Hong Kong-produced, internationally distributed.
Manhunt: Hong Kong-produced, internationally distributed.
Photo: Manhunt: Hong Kong-produced, internationally distributed.
Manhunt: Hong Kong-produced, internationally distributed.

The American Film Market (AFM) 2016 was held from 2-9 November at the Loews Beach Hotel, Santa Monica, California.

Liz Shackleton, Special Correspondent, California

Content provided by Picture: HKTDC Research
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