Ten years ago it seemed an unlikely scenario: Chinese film makers overtaking the Hollywood moguls. But times are changing, writes Peking University business professor Jeffrey Towson, co-author of The One Hour China Book in LA Times. Both numbers of movies and their quality have reached amazing heights.
But over time, the Chinese competitors grow and steadily improve their quality. They reinvest, make acquisitions and begin to attack the top of the market. This strategy has usually been devastating for foreign companies living at the top of the market in China, including smartphones, Internet companies, real estate, renewable energy, medical equipment and investment banking.
For Hollywood, there’s also a second threat: The emergence of a massive Chinese creative class that is transforming the production of film and television. In 2009, about 5% of the 19 million students in Chinese universities were studying arts and design — more than were majoring in economics, chemistry, math or law. As a result, a wave of low-cost artists, animators, video game designers and other creative professionals have surged into the Chinese workforce.
An even bigger damper on Hollywood’s future could come from the uniquely powerful role of Baidu, Alibaba and Tencent. These three Internet giants control over 50% of all Chinese smartphone Internet usage. Their apps and services are how Chinese consumers search, shop, chat, play games, watch videos, book their taxis, and pay for almost everything. And these three cash-rich companies are aggressively moving into movies and television.
Tencent has launched its own film subsidiary, Penguin Pictures. One of Tencent’s earlier investments, “Monster Hunt,” was the top-grossing film in China in 2015. Alibaba Pictures has launched a Netflix-type subscription service and invested in movie ticketing software. It co-financed “Mission Impossible: Rogue Nation” and has crowd-sourced other film investments. Finally, there is Baidu, which has a streaming platform called iQiyi. It also crowdfunds films, and has invested in Hong Kong’s SMI Holdings Group, which has film and TV production studios.
All of these moves should worry Hollywood studios, most of which are poorly positioned for an increasingly competitive Chinese market. Studios have remained largely foreign and haven’t moved any operations to the mainland. They likely will find it harder and harder to make movies that culturally resonate with rapidly changing Chinese consumers.
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