Is China's Movie Boom Doomed?

A stark box-office decline suggests some looming problems.

Competition is good.

Photographer: Weng Zhao/AFP

It's been a tough summer for China's movie business. In what's usually blockbuster season, box-office sales declined for the first time in five years. In July alone, theater visits fell 15 percent. Things are looking especially grim for Chinese films: They've been underperforming foreign competition so badly that the government suspended a longstanding moratorium on summer Hollywood flicks intended to give a boost to local studios.

That's an abrupt turnabout for an industry that grew by 50 percent last year. Although it may prove temporary, it nonetheless illuminates some looming challenges for China's moviemakers -- and for its culture business more broadly.

One immediate cause for the bust is that film authorities are attempting to crack down on falsified box-office data. The practice is longstanding: Distributors buy up millions of dollars' worth of tickets for their own movies, give sales figures an artificial boost and create some buzz. Just how much this affected the bottom line for Chinese movies is difficult to say, but it was enough to draw the attention of the government, and it suggests that domestic filmmakers may have to get used to lackluster sales for a while.

If fraud were the only drag, though, China's box office would probably still be booming. A more pervasive problem is shaky consumer confidence. In the first quarter of 2016, the average price of a ticket rose to $3.35, compared to $2.54 during the same period last year. Moviegoers had gotten used to online vendors driving down prices through subsidies and aggressive competition, but such discounts are starting to disappear. For many Chinese consumers, that adds up to a crimp on leisure spending, especially with economic growth slow and layoffs looming in many areas.

Some more fundamental cultural forces may also be at work.

One is that widespread piracy is putting a premium on film-going experiences that can't be had at home. Although distributors had long relied on 3-D, IMAX and Hollywood films heavy on special effects to draw jaded consumers to the theater, the novelty of such experiences is beginning to wear off for more sophisticated audiences. When "Jason Bourne" was released almost exclusively in 3-D in China, it prompted protests from customers who didn't appreciate having to pay extra to see a movie that would've been just as good (or bad) in two dimensions.

That also helps explain why China's domestic films have done so poorly. Years of easy access to pirated foreign films have raised expectations for story-telling, acting and production values. Though today's Chinese consume their share of mind candy, they are, on balance, much more discerning than earlier generations of filmgoers. The problem is that China lacks the professional class of screenwriters that would be needed to consistently produce quality film and television. One prominent film executive even said last year that his studio would rely on fan fiction and online forums for storylines.

Finally, history has given China's filmmakers reason to be risk-averse. The result has been a kind of cultural pasteurization that favors the tried and true, rather than the artistically adventurous. Historical epics (firmly grounded in the imperial past) and melodramas remain popular if uninspiring topics.

Although China's government will doubtless continue to play a role in shaping culture, it could encourage some competition for staid filmmakers by loosening longstanding quotas on the number of foreign films that can be released every year (currently set at 34). There's little evidence that such quotas work: In South Korea, loosening quotas actually led to steady growth in the local film business and helped boost the influence of Korean film and television overseas (especially in China). Not incidentally, box-office sales also surged.

Increased competition might not be to the taste of every Chinese filmmaker and studio head. But it's the best way to shake off the mediocrity that afflicts so much of China's current output. And it would give consumers a better reason to get in line for a ticket.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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