Keane, Michael
Exporting Chinese Culture: Industry Financing Models in Film and Television

13
“The question is then: how is such ‘creative destruction’ occurring in media industries, if at all?”
“In spite of the success of a few media enterprises, creative industries in China are fragile when compared with the corporate structures and production relations of Hollywood. In developed economies the mass media are dominated by highly concentrated forms of organization.”
“In China, the options for development of audiovisual industries are still uncertain and subject to vagaries in national media policy. Media organizations may expand provincially; they may aspire to horizontal integration; but the bottom line is likely to remain a lack of capital, which forces them to seek out low-cost ways of competing in a crowded media industry.”

14
“In television industries for instance financial returns on program development and production are extended across, and within new territories. In cinema co-productions and runaway productions are a means of ensuring cost savings.”

15
“Globalization by franchising provides a very different model of development, one that is flexible, post-Fordist, and subject to user innovation.”
“Within the context of globalization, [...] there are four levels of economic activity: economic specialization, de-territorialized production (production of goods in lowest cost locations), partially traded or non-traded services, and routine manufacturing and services.”

economic specialization

“These blockbusters and global brand services are often incubated in ‘export-oriented, specialized industrial clusters’. Hollywood and Silicon Valley, which are result of institutionally embedded know-how, produce continuous learning and innovation. The output of these centres targets world markets.”

de-territorialized production

16
“Outsourced productions in cinema are the most noteworthy example of how international producers seek to minimize costs.”

partially tradable or non-tradable services

“The internationalized services as such need to partner up with local knowledge, in turn creating mutual benefits and cultural technology transfer.”

routine manufacturing and services

“it is possible to make products and services at any location in the globe.”

16f
“The demand for innovation drives the imperative to constantly examine the international market for opportunities.”

17
“This leads back to the conundrum of creativity: how do developing countries compete? If it is easier to compete in the cultural economy by making local versions of global products—or by acting as a low-cost location for footloose multinationals—then the specificity of culture is ultimately eroded. On the other hand, a focus on the national can have the effect of marginalizing the cultural product and ensuring that it fits only into a niche culture market, as illustrated by national cinema and world music. The dilemma for producers, moreover, is making a leap into high-value markets: independents located in developing countries do not have the resources to incubate, produce, and market so as to produce ‘winner-takes-all’ branded products and services. In many instances, new artists are discovered in the margins and expediency drives them or their agents into to the arms of international financiers, often handing over the valuable IP rents in the process.”
“Over-bureaucratization is endemic to the cultural sector and works against implementation of long-term business models.”

17f
“These factors, in combination with existing conventions within the marketplace, notably a propensity to rely on relationships make it difficult for cultural enterprises to generate start-up capital. Product innovation is therefore more likely to be incremental and imitation is favoured over innovation. The focus on imitation has led to the success of Japanese and Korean creative industries. Whereas these countries have managed to move to the next stage (innovation), China remains locked into a cycle of dependency.”
“The principal financiers of the Chinese film industry are government: direct support for approved films as well as indirect support for co-productions via tax breaks and reductions of expensive red tape; foreign investors: particular in co-productions and joint-venture arrangements; major business enterprises: through revenue-sharing arrangements and product endorsements in film; advertising companies: often through brokering of services such as post-production; and state-owned enterprises: many of these such as the People’s Liberation Army, are in fact highly profitable enterprises with interests in communications.”
“In 2003 80 percent of revenue from box office receipts came from the 20 imported blockbusters (Hua 2004). According to official statistics copyright earnings on imported films were 10 times more than those received from domestic productions.”

18f
“The politicization of film content, erratic censorship regimes, and the necessity of managing scripts to appease officials, impacts on production investment in two ways. First, it discourages domestic investors who are unwilling to sink their capital into scripts that are politically doctored; and second, it opens up a private investment market for the more adventurous producers. Since 1997 the partial privatization of China’s leading film studios (Beijing Forbidden City Film Corporation, Xian Film Corporation, Ermei Film Corporation, and Shanghai Film Corporation) has stimulated private investment and co-productions. Most of the capital investment has come from Hong Kong, Taiwan and Japan. While the majority of films in 2003 were still produced by the state-funded studios, there was a significant increase in the number of films (Ibid, 32) produced by privately invested companies. Some of the more notable independent production and investment houses are Beijing New Vista, Huayi Brothers and Taihe Film Investment Company, and Century Hero Audio-visual Investment Company (Yin 2004).”

19
“The success of China’s film industry and the capacity to create exportable content is contingent on unleashing creativity as much as stimulating finance.”
“Tarantino has undoubtedly been impressed by the willingness of the Chinese to work enthusiastically for low salaries in contrast to the spiralling costs in other international locations.”
“With a population of more than 1.3 billion China’s cinema box office revenue is just 25 percent of that of Korea, whose population is 47 million.”
“The success of the Korean new wave has seen film financing models going on-line, allowing ordinary people to buy into the movie-business (Kim 2003). Netizen funds are a way by which (mostly) young Koreans invest in film projects for a return based on the movie’s success after release.”

19f
“International connections are important in order to break out of the cycle of dependency on state funding. In 2003 more than half of the 140 feature films made in China received substantial investment from government but less than half the number of films legitimately screened in Chinese cinemas in 2003 were profitable, and as mentioned above, the heavy grossing films were international ‘blockbusters’.”

20
“the average cost of production was only rmb 3 million (USD362,000), or 0.5 percent of the average cost of production in the U.S.”
“Cellphone received investment finance from a number of sources with major contributions coming from Motorola, China Mobile, BMW, and Mtone (a Chinese internet content provider). Motorola invested rmb 4 million (USD484,000), China Mobile rmb 800,000 (USD97,000), while BMW contributed rmb 1.2 million (USD145,000). Sponsors received product placement and visible recognition in the film promotional messages. For instance, the protagonist of the film—a successful TV talk host who inadvertently left a message from a lover on his new Motorola cellphone—also drives a BMW. In addition, Motorola and BMW’s logo were displayed prominently on advertising billboards. Music copyright delivered a further rmb 8 million (US$968,000) (Meng 2004). In addition to securing financial support, the production company (Huayi Brothers and Taihe Film Investment Company), which is incidentally the advertising agent for China Mobile, sought to ensure returns on investment by working with a Guangdong-based DVD maker to produce cheaper legitimate versions in efforts to limit piracy (Shanghai Daily Jan 21, 2004).”
“Television is an industry that employs an army of people in China. The flow of investment is more dynamic than cinema as the market is shaped by domestic consumption and broadly supported by advertising.”
“Television stations are still technically owned by the state but they are now allowed to apply for licenses to operate as corporate entities responsible for their profits and losses.”

21
“This is not straightforward philanthropy, however, but investment based on guanxi (reciprocal) relationships.”
“In China cable television is ubiquitous but the business model remains low value because subscription to the 30 or so channels is under priced.”
“the mass audience for television – some 900 million — is shared among some several hundred stations. The bulk of income for television stations, and for producers, now comes from advertising.”

23
“Digital content industries provide new challenges for investment in the creative industries.”
“Chinese government is investing heavily in video games production in Shanghai and an animation centre in Beijing. These are joint public-private ventures that draw upon government largesse towards new industry/new economy development in the wake of Korea and Japan’s video games exports. The government recognizes that digital content industries are growth industries and that they have global impact; that is, products and applications developed in China can be marketed globally, in comparison to television and film, which is hampered by being nationally specific. In addition, digital content is invariably produced with the intent of repurposing in multiple platforms: cable, free-to-air, Internet, mobile phone etc.”
“Until recently oligopoly structures have not existed in China due to the need to control information.”
“Digital media is especially relevant to user-led innovation. There is a need to respond quickly to consumer demand and this gives China an advantage in that it has a large consumer base to test new products and applications.”

24
“while ideas may be generated in developing countries, finance to commercialize still comes primarily from multinational investors.”
“In order to avoid becoming a low cost location for media production (Miller et al 2001), China needs to further develop its own industrial base and to recognize the importance of intellectual property protection in developing local creativity. The synergy between creative enterprise and financial inputs into core creativity, R&D, incubation, and marketing now becomes central to meet the challenge of developing export content.” Not sure about that.
“how do countries move from a low national production base into competitive export markets? The transition encompasses a five-stage process.

1. low-cost outsourcing,
2. isomorphism and cloning practices,
3. legitimate co-productions and franchising agreements,
4. niche markets and regional breakthroughs,
5. cultural/ industrial milieu and local clusters can be produced to target high-value exports.”

“These media capitals (Curtin 2003) bring with them economies of scale and scope, the attraction of foreign investment, the certainty of rights management, and greater network and distribution complementarities.”

25
“Successful exports of Chinese film and television, moreover, are ultimately contingent on institutional reforms within China, which will bring these five growth stages into synergistic alignment in order to generate greater value and industry confidence.”