MEDIA: Domestic Hits Power China Summer Box Office Surge

Bottom line: Growing sophistication by Chinese film-makers will continue to power strong growth at China’s box office, and will foster a new group of homegrown players that could challenge Hollywood over the next 10-20 years.

China box office surges in July

Two blockbuster films are fueling a sudden wave of excitement over domestic Chinese films, providing new momentum for a growing stable of local film-makers and foreign-backed joint ventures. Perhaps it’s no surprise that the 2 films leading the summer charge are both animated or have animated elements, and both also use a potent combination of Chinese elements and western story-telling skills to appeal to huge audiences of young people that go to see movies during the summer holidays.

The huge success for the animated films “Monkey King: Hero Is Back” and “Monster Hunt” has fueled a big wave of national pride in Chinese film-making. It even has some observers calling for an end to the recent ban on showing foreign films during the important summer vacation period, since these new Chinese movies prove that domestic productions can compete with big foreign rivals like the “Kung Fu Panda” franchise.

All the latest buzz comes as China’s box office finds sudden new momentum, and could overtake the US in the next decade to become the world’s largest film market. China ticket sales jumped nearly 50 percent in the first half of the year to $3.3 billion, and now media are saying July’s box office posted an all-time monthly record of nearly 5.3 billion yuan ($850 million). (Chinese article) That figure was roughly comparable to China’s box office revenue for all of 2009, showing just how fast the market is growing.

The success of these 2 domestic animated productions is what’s making the big headlines this summer, and is also a big factor behind the July record. Leading the chart toppers has been “Monster Hunt”, which has smashed China’s box office records with 1.57 billion yuan in ticket sales through the end of July. That beat out not only the previous record holder, the domestic comedy production “Lost in Thailand”, but also other foreign productions that dominate the top 10 list.

I personally went to see “Monster Hunt” on the recommendation of a friend after needing a break from sightseeing during a recent trip to the northern city of Harbin. I hadn’t heard anything about the movie and had low expectations going in, only to be quite surprised by the high quality of storytelling and animation. I don’t go to the movies much these days, but I’ve already recommended the film to a number of friends and suspect this will become a blockbuster franchise akin to a Chinese “Star Wars”.

Inferiority Complex

China has long suffered from an inferiority complex in the movie-making realm, with Hollywood productions regularly outperforming even the top homemade movies. That dominance has come even as China greatly limits the number of foreign films that can be imported, and more recently as Beijing has begun banning foreign movies during the summer months to give domestic productions more screen time.

It’s slightly misleading to say “Monster Hunt” is a completely Chinese production, since it’s directed by Hong Konger Raman Hui, one of several directors from DreamWorks Animation’s (NYSE: DWA) hugely successful “Shrek” franchise. The film also stars several well-known Hong Kong actors, and was produced by Hong Kong studio Edko Films. Still, its tale of a mythical world where monsters and humans co-exist in an uneasy balance is unlike anything you’ll ever see in the west, is still quite entertaining and easy to understand for even non-Chinese.

From an investor’s perspective, this rapid emergence of Chinese films certainly seems to offer profit potential for the large group of private firms that are backing such projects. Those include domestically-listed powerhouses like Huayi Bros (Shenzhen: 300027) and Enlight Media (Shenzhen: 300251), as well as overseas-listed names like Bona Film (Nasdaq: BONA). China’s big Internet companies like Baidu (Nasdaq: BIDU) and Alibaba Pictures (HKEx: 1060) have also joined the film finance bandwagon, and so has private equity giant Fosun (HKEx: 656) through a Hollywood investment a year ago.

At the end of the day investors will still need to do their homework to profit from the domestic film-making boom. That’s because film-making is always a risky business, and Chinese firms are famous for this kind of bandwagon mentality in joining the latest  investment trends. But the outlook certainly looks good for film-makers who know how to find and finance good projects, and I expect that a few of these players could rise over the next 10-20 years to take on some of the major Hollywood studios.

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