China Box-Office Recovery Led by Domestic Films

Summary

• Cinema revenues are lagging the slower-than-expected recovery of the Chinese economy.
• However, the picture is much more positive for domestically produced Chinese films than others. There has been a concerted retrenchment from international films since 2019, which seems to be holding up.
• The prevalence of films with overtly pro-China messaging has continued to creep higher as the CCP has increased its control over the space.
• More serious films seem to have benefited through the pandemic, but now comedy films are bouncing back

Chinese Total Box Office Revenues Lagging GDP

After two difficult years, the Chinese economy is finally starting to get back on its feet. However, this has not been without its wobbles; optimism for a big bang seems to be fading. Chinese consumers are returning to the cinema, albeit progress remains slow, even versus GDP (Chart 1). A renewed wave of Covid-19 cases has proven a headwind, which could fade through the third quarter (China CDC data show a 90% caseload decrease from the peak). There are positive shoots: Yicai Global (the financial arm of Shanghai Media Group) reported in February that c.90% of respondents will spend their money on films and entertainment in the coming year. This keenness may, however, constitute more of a shift towards travel than cinema: the success of the Dragon Boat Festival is one example of the former.

YTD box-office performance continues to lag vs 2019 and 2021 revenues, although ‘experts’, cited by Chinese Communist Party’s Global Times, predict the full year takings will end up somewhere around ¥55bn (Chart 2).

US and Them

‘Foreign productions are no longer able to keep up with Chinese audiences’ watching preferences.’

Yú Dōng, the chairman of Bona Film Group (a Chinese film production company)

While total revenues may be flagging, the same is not true for domestically made films. In fact, if the Global Times ‘experts’ are correct, Chinese-made films could see new highs in total revenues in 2023, despite total revenues flagging (Chart 3). The shift in preferences has been consistent since the pandemic, with pre-pandemic foreign films constituting c.40% of total revenues, while post-pandemic they have managed a consistent 15%.

An indicator of this change in performance can be seen in the relative China performance of Hollywood sequels such as for ‘Shazam’ (original: 2019, sequel: 2023) and ‘Ant-Man and the Wasp’ (original: 2018, sequel: 2023). Both sequels vastly underperformed their predecessor in the country (Chart 4). While this may be partly attributable to them being worse films (the critics seem to think so), this would not explain the collapse in the proportional contribution of Chinese ticket sales; the country contributed 20% of the revenue of ‘Ant-Man and the Wasp’, but only 8% to its sequel.

While some (see above quote) may see it as an inability for foreign productions to keep up, there may be a more political side to it too. The CCP has long imposed its views upon China’s screens, but the impact may be getting stronger. Looking at the top earning 10 films each year, it is not just the proportion of films made in China that has increased, the proportion receiving wide-spread accusations of propaganda has been steadily rising since around 2015 (Chart 5). Interestingly, both it and the proportion made in China have stabilised somewhat since 2020.

What Genres are Chinese Cinemagoers Watching

‘Comedy is popular because it’s relaxing and safe’

Lu Chuan, Chinese director and producer

The long-held logic is that cinemagoers prefer uplifting films (Comedy/Adventure) in times of economic malaise. The actual data is somewhat mixed., with Dramas also apparently benefiting from recessions. From our own (admittedly very targeted) analysis of the top 10 films, it seems that through the COVID pandemic, the more serious films (Thrillers and Dramas) were the big beneficiaries (Chart 6). However, this analysis will be greatly distorted by the periods of lockdown, as well as the impact on release delays. It is interesting to note the jump in place for Comedies this year. Their place within the top 10 dropped through the pandemic, while Action remains below the highs seen pre-2018 (Chart 7).

The form of the Chinese recovery bears watching closely, especially while consumer confidence remains relatively weak.

Is Movie Magic Fading Everywhere?

While China has suffered more recently from lockdowns, when compared to 2019 YTD earnings, a similar pattern has emerged across the UK and the US – that of a relatively slow rebound in spend. This could be a warning sign of the weakness facing consumers across the world, or perhaps it is simply due to a dearth of good films – 2019 saw the release of nine of the top 50 all-time highest grossing films (nominal), while 2023 has seen just one.

Henry Occleston is a Strategist, who focuses on European markets. Formerly, he worked in European credit and rates strategy at Mizuho Bank, and market strategy at Lloyds Bank.

Ayra Asad Khan is a macroeconomic intern at Macro Hive. She is studying for a degree in Accounting and Finance at Durham University.

Photo Credit: depositphotos.com

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