China's Film Industry Targets Merchandising as New Revenue Stream

Monster Hunt Still 2 - H 2015
Courtesy of Edko Films

While China's box office is surging, the country's revenue from consumer products is just a trickle compared to Hollywood — but the local industry is looking to change that.

The explosive growth of China's box office is the envy of the global film industry. But amidst the country's surging ticket sales, many areas of China's entertainment sector still lag far behind Hollywood — none more so than movie merchandising.

Such was the consensus on Monday at the Beijing International Film Festival's first annual Chinese Film Merchandising Summit, which featured a panel of influential executives from both Chinese and Hollywood studios.

China's box office expanded 50 percent in the first quarter of 2016, and the country is projected to overtake North America as the world's largest theatrical territory next year.

But as Beijing's deputy mayor Li Shixiang pointed out during a keynote preceding the panel, more than 80 percent of China's film-related revenue comes from box office, whereas in North America, just 30 percent comes from ticket sales.

"The rest is made of up of derivative products," the deputy mayor said, adding: "It's very important for us to develop a merchandise industry ... our hope is that not only the Chinese audience will know Iron Man and the Transformers, but families around the world will own figurines of the Monkey King and other Chinese characters."

As the seminar in Beijing on Monday laid bare, the Chinese industry has begun making efforts to bootstrap its nascent merchandising business. Last year, China Film Group, the country's dominant state-backed film enterprise, created a research institute for movie merchandising in collaboration with the Beijing Film Institute, which also added a movie merchandising major to its film studies programs.

Jeffrey Godsick, president of consumer products at 20th Century Fox, said he believes China's merchandising space will soon follow the explosive growth of the exhibition sector. He said he has made three trips to China so far this year as Fox is "spending a lot of time here looking for local partners."

"Chinese consumers want authenticity and they want real brands," said Godsick. "This is the most exciting moment in the history of merchandising in China, because you're starting at the beginning and you understand how important it is in the industry and you're taking it very seriously."

Jerry Ye, CEO of leading Chinese studio Huayi Brothers Pictures, agreed that the sector was important, but noted the considerable challenges Chinese studios still face in launching healthy merchandising divisions.

"Every country's toys are manufactured in China, so why can't we produce toys for our own films?" Ye asked. "The development of the IP industry must first have an environment of copyright protection to defend our IP from knock-offs," he explained. "Otherwise, these products will only be another form of promotion for the films, and not a very good form."

Once copyright protection is in place, Chinese studios will still require more time to develop strong franchises to build product lines around, according to Ye. "We need to create our own superheroes," he said. "Your film first has to become very successful to be well-suited for merchandised products."

Some in the Chinese industry believe changes in local tastes and improvements in copyright enforcement have already created a viable marketplace for high-quality movie goods, provided that IP holders, manufacturers and retailers can make it as easy to acquire legitimate products as it is to get pirated products.

"Consumers' purchasing power has been growing rapidly, and under these circumstances they are looking for great products and not just great films," said La Peking, chairman of China Film Group, adding, "Since 2015, the merchandising sector has been growing quickly.

Last year, Chinese media company Mtime, which runs a popular movie reviews site and a mobile ticketing service, partnered with real estate and investment conglomerate Dalian Wanda Group to launch over 50 brick-and-mortar stores in cinemas in 10 cities, laying the groundwork for a cross-country online-to-offline merchandise service. The company released a mobile app in December, making it possible for cinema chains to order licensed film goods directly to their theaters with a few clicks.

So far, Mtime's service has mostly trafficked in Hollywood merchandise, as Chinese production companies are just beginning to develop merchandisable franchises to feed local demand.

In a video montage played during Monday's panel at the Beijing fest, Hong Kong helmer Raman Hui, director of China's second highest-grossing film ever, Monster Hunt ($385 million), noted how his movie missed a merchandising opportunity during its wildly successful run in cinemas last July.

A live-action CGI adventure-fantasy featuring a color cast of monsters, the pic was indeed ripe for development into wildly popular toys. "A lot of people were making bad knock-offs and there was not much we could do, because we didn't make any merchandise for the first film," said Hui. "At that time, I said to my boss, 'We should have started this years ago.'"

The boss in question was Hong Kong super-producer Bill Kong, chairman of Edko Films, who was among Monday's panelists.

"Before a film comes into reality, how do you know it will become popular?" he said. "At the beginning of Monster Hunt, we went to McDonald's and KFC [to talk about some merchandising] and they didn't take us seriously — the talks went nowhere."

Kong said a sequel to Monster Hunt, again directed by Hui, a DreamWorks Animation veteran, will be released in summer 2018, followed by a third film at a later date. 

Said Kong, "We'll be paying more attention to merchandising in the future."