China Box Office: Slow Growth Marks "New Normal"

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Courtesy of Universal, Netflix, Marvel Studios and Well Go USA Entertainment

Revenue from U.S. studio movies slips 2.7 percent as local laws and homegrown hits cool a once-blazing business.

Hollywood box office growth in China officially flatlined in 2019 — and there is little reason to believe that conditions in the world's No. 2 theatrical territory will improve anytime soon, analysts caution. Total ticket sales at Chinese cinemas climbed to $9.2 billion (RMB 64.3 billion) in 2019, up 5.4 percent from 2018. That's a far cry from the galloping double-digit growth that characterized most of the past decade, but it's still a respectable uptick for a market of China's scale.

But revenue from U.S. studio films released through the country's quota system fell 2.7 percent, to $2.6 billion, as data from box office consultancy Artisan Gateway shows. Just two American films made it onto China's year-end top 10 list — Avengers: Endgame ($614 million) and Fast & Furious Presents: Hobbs & Shaw ($201 million) — the fewest in the past decade and half as many as in 2018.

As in North America, where the 2019 box office slipped 4 percent, there was just one studio spared by the downturn: Disney. After the acquisition of 20th Century Fox, the Mouse House owned 12 of Hollywood's 32 revenue-sharing releases in China in 2019 but accounted for 53.6 percent of U.S. studio revenue there, with a combined total of $1.4 billion.

Earnings from mid-budget and independent U.S. titles, meanwhile, were also sharply down. As the U.S.-China trade war hit a fever pitch in mid-2019, Beijing-based film buyers warned that they would be steering clear of American product for fear that regulators might not grant them release dates because of the geopolitical backdrop. As a result, just 13 American movies were released through China's flat-fee import mechanism last year — 10 fewer than in 2018. Several flat-fee imports became hits — Alibaba's Green Book ($70 million); JL Vision's Knives Out ($28 million) — helping earnings from U.S. titles in this category to fall by only 9.1 percent, despite there being 43 percent fewer such releases.

Analysts believe the trade war was only a minor contributor to Hollywood's shakier footing in China. The bigger factor has been the Beijing film industry's prowess at producing tentpole-scaled event pictures of its own, told in the country's own language.

Although imports from other countries rose in 2019 — particularly from Japan, which had a record 24 releases in China — Chinese-language films commanded 64.1 percent of the market, the highest share in more than five years. "Local producers are successfully encroaching on genres such as big-budget action and animation, which had always been the domain of major international studios," explains Rance Pow, CEO of Artisan Gateway.

The titles that topped China's box office in 2019 fit this new category: 3D fantasy animation Ne Zha ($703 million) from director Yang Yu and the first Sino-sci-fi spectacular, The Wandering Earth ($691 million).

Below 2019's top-line box office growth number — 5.4 percent — there are other indicators that could spell trouble for the China market overall. A major downside of doing business in the country for Hollywood studios is the revenue split. Western studios get less than 25 percent back of each ticket sold, compared to a 50 percent to 60 percent split in the rest of the world. Also, Hollywood has no say in how long a film plays, or even when it opens in the market.

China did continue building theaters at a rapid clip last year — 26.6 new screens per day — lifting the country's total to just shy of 70,000, the most screens of any country in the world by far (North America is estimated to have around 46,000). Yet average box office earnings per screen slid to the lowest level in more than 15 years. Growth in total admissions also stalled, climbing just 0.6 percent year-over-year, the lowest growth rate in more than a decade.

"We're witnessing a rapidly slowing market," explains Pow. "Excepting outlier blockbusters, we should expect that single-digit box office growth will become the norm for China over the foreseeable future."

This story appears in the Jan. 8 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.