Chinese film industry in puberty

The Report

"Chinese film industry in puberty: growing pains of a transforming global power" was jointly created by Deloitte Technology, Media & Telecommunications Industry and Deloitte Research team. This report illustrates six trends in film industry including growth outlook, post production trends, globalization, online ticketing trends, new entrant/incumbent dynamics, and how technology will shape the industry's future.

Viewpoints / key findings

Trend 1：Consumer power rebounded and returned to growth.
After a hiccup in 2016 that caught everybody by surprise, investors in Chinese film market can rest assured that the music is going on. Granted, offline film consumption, like consumption of all kinds, are threatened by online peers. However the historical-high set by War Wolf 2 proved that Chinese viewers are willing to pay for high quality films and they are still not getting enough. The demand is far from saturation. With sustained support from positive government policies, capital flow and supply-side growth, the industry continues to grow.

Trend 2: Post-production power ramping up quickly.
As the world market demands for more superior film-watching experience, bigger portion of the budget flows to post production, especially to cost-competitive providers in new geographies such as China. New generation of Chinese production companies has proven that they are capable of competing on global scale now. However, the future could be yet better, if China film industry can be "modernized" in all aspects other than post production. After all, the "manufacturing" part of the film-making is hardly desirable and nor sustainable, and most players aspire to move further upstream.

Trend 3: Powered by Hollywood, made in China, for the world.
Historically, Hollywood filmmakers regard joint-production as a vehicle to bypass the quota system over import film. This trend will continue, as China is a large sales destination for Hollywood. But the cooperation will deepen to auxiliary services. China's film industry participants are actively seeking global resource to co-produce films that can sell to the global market.

Trend 4: Online ticketing consolidates, and players move upstream.
As the majority of consumer buy tickets online already, online ticketing platform becomes the major sales channel in China. As new-add market slows down, online ticketing platforms seek growth from industry consolidation (M&A) and vertical expansion into marketing and even production.

Trend 5: As internet giants entering the market, incumbent players under pressure to sharpen skills (including basic ones such as story lining).
China-based internet giants, collectively called BAT (Baidu, Alibaba, Tencent), all actively invested in film industry. Some, such as Alibaba, made use of its superior data to enhance decision. Some, such as iQIYI (under Baidu), aspires to becomes "Netflix of China", focusing its investment on content and AI technology. As the war for customer viewership intensifies, conventional wisdom becomes poisonous. Popular profit recipes such IP-driven model becomes outdated as it fails to fulfil the upgraded demand for film-watching. In lieu of massive data asset, channel power, and technology edge, incumbent player need to take a hard, cold look at their strategy. While doing that, sharpening some time-tested basic skills such as telling a good story, are no regret moves.

Trend 6: Technology will transform film industry from art to science.
For a long time, film industry is notoriously for its uncertainty. The investment circle is long. Customers are finicky and hard to measure. In China, with the added complexity of regulatory challenges and low level of professionalism and standardization, it is safe to make the statement that investment is scary, output is poor, and profit is luck. The transformative power of technology may give the old industry a new future: a more agile and intelligent film industry, powered by tools such as cognitive science, AI, and big data. The same power that disrupted how 6 billion people shop may also disrupt how we watch our next film too.