Why More Movie Theaters in China Could Be Bad News for Hollywood

The Chinese theater sector is expanding at a breakneck pace, but with more screens comes more competition from local releases - can Tinseltown tentpoles still dominate the world's most coveted film market?

This story first appeared in the Dec. 14 issue of The Hollywood Reporter magazine.

With an average of nine new screens opening every day, China's film-exhibition business is riding a surge nearly unparalleled in history. And as predictions point to all the country's cinemas becoming digitalized by next year, it's shaping up as a gold mine for Hollywood producers to exploit.

But is it really? While short-term gains are certainly there to be had, mainland insiders say that more movie screens in China will be a major boon to local producers hoping to outsmart Hollywood through tailor-made content targeted at regions that had once been off limits.

PHOTO: Marche du Film China Night

So it seems that in the coming battle to dominate all those new screens, China quietly is developing a strategy to fight back -- and Hollywood should take heed.

For now, delegates converging in Hong Kong from Dec. 11 to 13 for the annual CineAsia event must be heartened by the knowledge that Chinese authorities appear intent to nurture their economy toward consumption-driven growth. So it is that the Chinese exhibition market might remain unsaturated when compared to, say, the U.S., where there's one screen for every 9,000 people, against one for 220,000 in China. But the tenfold increase in the number of theaters in as many years -- from fewer than 1,300 in 2002 to more than 13,000 by the end of this year -- is certainly astounding.

Such developments will definitely be treated as good news all around -- for now.

"The 13,000 cinemas will all welcome [Hollywood] films," says Le Vision Pictures CEO Zhang Zhao, who was a co-investor in and Chinese distributor of The Expendables 2, which generated $53.1 million in the country during its September-October run.

But Zhang adds that Hollywood productions will soon have to confront the challenge of local productions released in fewer cinemas and shorter runs that cater to local tastes.

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"Once China reaches the threshold of, say, 20,000 screens, there will be films that are specifically targeted to certain cinemas in the country," he said. "China has its own domestic productions, and they must now find a way to [be competitive]."

But will they? Two recent events suggest the answer is yes.

Just last week, two state-backed studios --China Film Group and Shanghai Film Group -- applied for IPOs on the Shanghai Stock Exchange. The move is widely seen as an attempt to shore up infrastructure (read: cash) to bolster regional productions.

Elsewhere, the recent success of a local release could be a harbinger of things (while giving Hollywood pause): Ning Hao's summer title Guns N' Roses, a heist movie set in northeastern China in the 1930s, scored at the box office with characters mostly conversing in dialect from the region. Despite half the number of screenings of Titanic 3D or The Avengers, the film managed a box-office take of more than $25.1 million.

While superhero franchises will still dazzle Chinese viewers, the U.S. studios would be wise to guard against becoming complacent about challenges from within the country. After all, China produces more than 600 domestic releases every year. A Hollywood blockbuster, Zhang says, "will be like an elephant attacked by 50 monkeys."