Beijing Fest Teaches Film Finance in World’s Hottest Movie Market

Film Finances’ Anni Browning offers China best practices tips.

BEIJING – As China’s movie economy expands, the number of people throwing money in hoping for returns is multiplying. Thus it was no surprise that film finance experts gathered to discuss protecting investments played to a packed house of about 400 guests on the sidelines of the 1st Beijing International Film Festival on Tuesday.

Panelists from around the world tried to teach mostly Chinese producers, directors and would-be backers how to insert protective practices into movie making in a country where producers play second fiddle to directors, whose passion sometimes wreaks financial havoc.

Chinese motivation is high to learn the business of filmmaking, which for decades here was, and sometimes still is, pure propaganda. Ticket sales soared 64% last year to hit $1.5 billion to meet rising middle class demand and about half that money came from Chinese-language films -- most of which were co-productions with some foreign finance.

The number of co-productions between China and other countries is likely to rise with the signing of treaties with New Zealand, Singapore and France just last year.

The finance discussion was timely, too, because Standard Chartered Bank, which opened the region’s only major Western-style film finance practice in Hong Kong in 2006, quit the business in February without saying exactly why, leaving a void for local players to fill.

Observers said the London-based bank’s gap financing in Asia had been slow to take off in the face of the typical Asian practice of funding films with private cash plus regional pre-sales.

Gao Xiulan, a veteran Chinese producer whose company New Wave is based in Tokyo where she’s focused on co-productions, said Chinese directors‘ and actors’ fees were taking up too great a part of the typical film’s budget -- sometimes up to 70% -- and producers with guarantees needed to become bigger pieces of the puzzle.

“This will affect the quality of the films,” said Gao, noting that though there was an excellent work ethic in China, the country’s film industry lags Japan’s in the level of detail and sophistication of planning.

“A lot of hot money has flowed into the Chinese film sector, but we should keep cool headed to protect investors,” Gao said. “Chinese people want to make a profit in the things they do, but we must have a high sense of responsibility to create value for money. Right now there’s a mismatch between investment and return on investment.”

Still, looking past the established film finance traditions of Japan or Hollywood, was panelist Ye Qiang, chairman Shenzhen Tianhai Financial Exchange, an online intellectual property assets trading platform. Ye outlined his form of experimental finance that he said could pay off for the little guy.

“We can make a difference when consumers become investors since one big film may only need a small amount of money from each investor,” said Ye, who claimed his model allows the average citizen to get a piece of the action before it hits the big screen.

Producer Wieland Shulz-Keil, panelist and producer of Chinese co-production The Children of Huangshi, said that, though nervous at first, he had never felt more comfortable making a film than he had in China, where big chunks of the $30 million budget were paid for in small denominated cash bills.

“How do you reduce risk?” a member of the audience asked. “Make films the way locals make films,” Schulz-Keil said. “It was difficult for me to persuade insurers of this method but I firmly believe in it.”

Panelist Anni Browning, from the Sydney office of global completion guarantee giant Film Finances, called some of the risk management she was observing in China “quite innovative.” She nonetheless called on the Chinese audience to consider the basics, flashing slides on a screen to show the audience what a detailed Western film production schedule looked like 60 years ago and how similar it looks today.

By introducing thorough due diligence on a project’s script, its shooting schedule, budget and financing plan, Browning said Chinese producers could make movies able to compete with the Hollywood blockbusters that out-gross most local language films two-to-one despite being limited to 20 imports per year.

“It’s quite simple once the process is in place to help the investors and producers to make sure that transparency and diligence are working to insure return on investment,” Browning said.

Browning handled the completion bond for The Dragon Pearl, a successful Sino-Australian co-production released earlier this year. She’d known director Mario Andreacchio for years and he, in turn, knew the backing Chinese at Hengdian World Studios outside Shanghai.

With trust as the key, a duo of Australian and Chinese accountants worked closely together to provide Film Finances daily progress reports throughout the shoot to keep everything on track. “We don’t mind what the reporting looks like, as long as it’s there and it’s clear,” Browning said.

Panelist William Zhao, president of Beijing-based COG Capital, also placed a premium on trust. As a film guarantor in competition with the Bank of Beijing, COG has been in the Chinese film business since it started its sharp upward trend six years ago.

“If there’s a risk arising between what you say and what you do, we can help you cover that risk,” Zhao told the audience, promoting COG’s gap finance and completion guarantee services, tools that are only just gaining traction here.

Zhao cautioned conservatism, warning the crowd that even in Hollywood -- where box office receipts were more than eight times China’s last year -- return on investment for every dollar spent was about 25 cents.

“In China, ROI is negative. You have to choose if you want to be a hen or an eagle. All those who succeed become successful on the backs of the pioneers who failed trying to soar too soon,” Zhao said.

Bringing a seasoned perspective to the room was Fred Wang, CEO of Salon Films of Hong Kong, which for 60 years – as long as modern China has existed as a country – has had its hands in every aspect of the business, from equipment rentals to banking guarantees.

Because Beijing’s centrally-planned economy has helped improve the industry infrastructure though support for real estate developments that include shopping malls and multiplexes, Chinese filmmakers have a duty to make movies that promote China overseas, Wang said.

One way to do this, he said, was for producers to consider foreign government film subsidies and more co-productions: “In Hong Kong, we want to spread the Asian culture. If we do that better, we will find it’s easier to communicate [with the West] over legal and financial issues in the future.”