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Film Industry Zooms In On Ancillary Market
Dec 22, 2016

Though box-office sales growth has slowed this year, insiders believe the coming decade will be a golden age for China's film industry. For many, this view is based on high hopes for the untapped potential of markets beyond the cinema screen.

In Hollywood, around 60-70 percent of a film's revenue can be generated from the ancillary market, which includes sales of licensed merchandise, home entertainment products, pay television, video games, recorded music, books and theme parks. But in China, over 90 percent of a film's revenue comes from theatrical screenings and product placement. The ancillary market in China is still in its infancy.

Statistics from NPD Group show that global sales of spin-off toys from Hollywood movies reached US$5.7 billion last year, accounting for about 90 percent of China's total box office take in the same period. Take the "Star Wars" film series as an example. The series' box office revenues total US$6.22 billion, while the ancillary market has generated US$20.5 billion.

Success stories like these have begun to interest domestic studios. In June, Alibaba Pictures announced that it would get involved in the spin-off business. Development and sales of licensed products from "Ice Age," "Teenage Mutant Ninja Turtles," "Star Trek" and "Ultraman" are currently under way.

Testing the market

In July Wanda Cinema Line Co Ltd announced its US$280 million acquisition of, the world's second largest film database. As part of the deal, offline and online resources have been combined to seek integrated marketing solutions. The new partnership will also explore the film merchandise market.

Mtime also recently held a charity auction for film props and spin-off products from Chinese director Zhang Yimou's latest epic "The Great Wall." The auction was broadcast live and opened to online buyers. All the proceeds, totaling more than 250,000 yuan (US$36,200), went to a project by the China Foundation for Cultural Heritage Conservation to preserve and restore the real Great Wall.

Kelvin Hou, vice president of Wanda Cinema Line Co Ltd and CEO of Mtime, says the auction, a new interactive mode of film promotion in China, will make film art more accessible to movie fans and collectors.

The auction attracted many movie enthusiastists. Items for sale included Chinese weapons and costumes, which were tailor-made by the famous Weta Workshop. An exquisite set of movie-themed mahjong pieces was also available. A calligraphy work of Chinese characters "The Great Wall," written by director Zhang, proved hugely popular at the auction and was sold for 88,000 yuan.

"Domestic spin-offs used to be cheap plush toys and plastic souvenirs," said Eric Wang, a movie fan who attended the auction. "To my surprise, the spin-off products for 'The Great Wall' are very delicately designed and made. Some of them are worthy of collection."

In the eyes of director Zhang Yimou, this is the first time for Chinese filmmakers to co-produce and promote movies with Hollywood in such a comprehensive and in-depth way.

While the film is screening overseas, its spin-off products — including cell phone cases, powerbanks and costumes — will also be distributed to the global market. Hou believes the film's international cast will give a strong boost to sales of licensed merchandise.

"We now have a team of 46 veteran designers from all over the world to develop movie spin-offs," he added. "The design scheme of each product is selected from about 20 candidates. The post-90s generation has become a major target audience of the film market. They usually love trendy and fashionable fast moving products. Diverse and creative spin-offs will give them a stronger emotional connection with movies and their idols."

Creative products

Other industry insiders also see the market's potential.

Earlier this year, "Warcraft" movie spin-off products designed by Mtime were sold for more than 100 million yuan.

The fantasy film is based on the popular video game series "World of Warcraft." The film's merchandise includes toys, digital products and furniture.

Other Chinese movies have started to extend their business to include creative spin-off products.

The release of "The Assassin," directed by filmmaker Hou Hsiao-hsien, coincided with the release of a coloring book of movie scenes.

The comedy "Lost In Hong Kong," which was released around last year's Mid-Autumn Festival, offered specially-made film-themed mooncakes. Around 5,000 sets of mooncakes were sold online within 25 seconds. The adventure fantasy thriller film "Mojin — The Lost Legend" is also expected to inspire new theme theaters and parks in China.

However, not all movies are suitable to develop spin-offs. Insiders note that films should have already built a strong brand and fostered a large fan base before merchandise sales are considered.

Huang Ziyan, vice president of Le Vision Pictures, told media that in addition to blockbuster superhero film series, movies with loyal fan bases such as "Tiny Times" also have huge potential to develop spin-offs and derivatives. In the future, more and more Internet movies, which mainly cater for the tastes of Netizens in China, are also good candidates for spin-offs.

Experts say that the ancillary market in China needs greater protection of intellectual property rights as well as an improved trading mechanism for rights and licenses.

"The creation of a spin-off in China requires better protection of IP rights and multiple distribution and sales channels," said Shi Chuan, vice president of the Shanghai Film Association.

"Spin-off sales can't be limited to theaters. A lot more professional platforms should be built up for sustainable sales and interactive film activities."

Chinese movies are will keep growing in a very high speed, which will encurage the cinema seating and auditorium seating to grow up in next future.