Will streaming save or break the film industry?

Cinemas are in a state of uncertainty in China. As of March 21, more than 507 cinemas had reopened in Mainland China after the nation celebrated several days of near-zero cases of COVID-19. In an attempt to jumpstart the industry, cinemas used tactics such as re-releasing popular films like Avengers, Avatar, and Harry Potter. All revenue went directly to cinemas after film distributors, and production companies agreed not to take their usual 43% cut of ticket sales.

This endeavour did not last long. One week later, on March 27, China’s Film Bureau ordered all cinemas to close once again, offering no reason for the reversal in policy. Days later, President Xi Jinping resounded the closures, affirming cinemas should remain closed for now and that “If anyone wants to see a movie, just watch it online!” The decision to reverse the opening of cinemas likely came after new COVID-19 cases in China shot back above 100 per day starting from March 20.

The case of the film Lost in Russia

The move to online streaming has not been without drama, as streaming platforms have been eating into the profits of cinemas for years. One media company seized the opportunity just before Lunar New Year (January 25). It changed the theatrical release of the Chinese film Lost in Russia to a free online streaming release, causing contention with cinemas. To tell the story in brief:

In November 2019, Huanxi Media, the producers of Lost in Russia, authorised the release rights to Hengdian Pictures for 2.4 billion CNY. The framework of this deal is similar to that of many film releases in China. Huanxi would obtain a minimum guaranteed income of 600 million CNY in advance, and Hengdian would invest 150 million CNY for promotion. If the box office earned more than 2.4 billion CNY, Huanxi would receive 35% of the revenue and Hengdian would receive the other 65%.

Lost in Russia

However, following the lockdown and closure of cinemas throughout the country, a theatrical release was no longer possible. Instead, Huanxi Media signed a last-minute 630 million CNY deal with ByteDance, the parent company of the Chinese content platform Toutiao, for the streaming rights to the film. Following the announcement, Huanxi’s stock on the Hong Kong Stock Exchange shot up by 10%.

Following the announcement of the deal, many cinemas across the country issued a joint statement condemning the breaking of the film’s theatrical window as a violation of anti-monopoly laws. The cinemas also threatened to boycott Huanxi Media and Xu Zheng, the writer and director of Lost in Russia. In China, more than 700 films are produced each year, but only a portion of these get selected for the 50-day cinema screening window. Of these films, only 20-30 turn a profit each year. The cinemas saw the film’s perpetual online release as an undermining of the cinema industry which had resulted in them suffering losses. The China Film Administration has not yet commented on the matter.

Several legal considerations could be made here. For Huanxi Media, there is the breach of contract and the losses made by the cinemas for the screening slots they freed up, among other preparations. Whether force majeure could protect Huanxi Media here remains unclear. For the cinemas, a boycott of Huanxi Media and Xu Zheng could be illegal, as it is a clear violation of anti-monopoly laws in China. At present, the boycott remains a warning and has not been carried out, though.

Breaking the theatrical window does not necessarily mean turning a profit will be easy for Huanxi Media. According to iQiyi, a video streaming platform that also streams the film for free, the film would need 144 million clicks of paying users (those with paid subscriptions to the website) within six months to break even. Although the film has already amassed an impressive 600 million views, industry expert Wang Lu believes this is a special case. This is because hundreds of millions of Chinese people were in lockdown during Lunar New Year, a time where most people are off work and spending time at home with family – and watching films together.

A new trend

The steep climb to profitability has not stopped a trend from ensuing. After Lost in Russia, Toutiao and other platforms have invited users to watch films for free. The Winners, a Chinese comedy, was originally going to be released in cinemas in late February; instead, it has premiered for free on several platforms. 

Even short video platforms like Douyin (known as TikTok outside of China), known for their mere seconds-long videos, are looking to take their cut in the market and are adding movie streaming features. In total, online content platforms released 26 films during the week after China’s cinemas closed, and the average viewing numbers doubled compared to two years ago.

Are streaming services benefiting from the COVID-19 crisis? A new door has certainly opened for them, as cinemas, for now, can no longer be the gatekeepers of film releases. How much they will benefit from the crisis will rely on the success of their new business model, as well as the recovery of cinemas.

A slow recovery

Can cinemas make a comeback? In China, their brief reopening was underwhelming. To illustrate, a Xinjiang-based movie theatre manager surnamed Dong told China News Service that his theatre had received fewer than 100 daily visits since reopening. The cinema also had to follow strict outbreak control policies, such as checking customers’ body temperature and recording their personal information.

We can suspect that cinemas, which by design put many people close together in confined spaces, will be one of the last public spaces to be frequented before a COVID-19 vaccine is developed. China is in love with cinema, housing the most theatres in the world (60,079 in 2018), but in a recent survey, 62% of respondents said they will wait until there is complete containment before returning to theatres.

There are similar scenes in the West. Sky, which provides television and internet services in the UK, is bringing theatrical releases to television, and Universal and Warner Brothers have already broken theatrical windows and released new movies on demand. Blockbusters, such as Mulan and James Bond, have instead had their releases pushed back to the end of the year.

Cinemas bounced back after the Spanish Flu, but for now, the cinema industry cannot plan for the future. Maybe lockdowns will be lifted within months and not be seen for a generation. Maybe intermittent disruptions will see an end to the prominence of cinemas. With the endorsement of streaming coming from the very top of the party in China, however, we can expect new streaming arrangements to proliferate there in the coming months.

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