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Hollywood Left Out of China Movie Boom Led by Local Hits

China's Cinema Boom Returns as Holiday Box-Office Sets Record

(Bloomberg) -- Hollywood missed out on yet another box-office record for Chinese cinema.

The Lunar New Year holiday that ended on Wednesday set an all-time high for ticket sales, boosting shares of local film companies. The seven-day holiday, one of the most lucrative release windows of the year, is generally off-limits for foreign films, which must obtain government approval to screen. All six titles released Feb. 16 through 22 were domestic.

Comedy franchises “Monster Hunt” and “Detective Chinatown” led the way in a 52 percent year-on-year surge that comes as a relief for content creators both in the U.S. and China, who invested heavily in the market only to see ticket sales growth slow last year. The biggest hit in the rest of the world, Walt Disney Co.’s “Black Panther,” isn’t being released in China until March 9.

Ticket sales in China soared to 5.4 billion yuan ($850 million) over the holiday, according to ticketing data provider Maoyan.

Hollywood Left Out of China Movie Boom Led by Local Hits

Investors are focusing on China’s resurgent cinema market after companies from Internet giant Tencent Holdings Ltd. to conglomerates like Dalian Wanda Group have bet billions on forming alliances with local and Hollywood filmmakers to meet surging demand. A dearth of hits, the rise of a discerning audience and something more structural such as the slowing pace of new cinema additions have been blamed for the slump in the past two years.

Hollywood Left Out of China Movie Boom Led by Local Hits

“Quality and word-of-mouth are becoming the most important drivers of box office,” analysts led by Wei Meng at China International Capital Corp. wrote in a report on Thursday. They expect full-year box office sales to rise by between 25 percent and 34 percent this year.

Ticket sales grew about 3.7 percent in 2016 and 15 percent last year, compared with the more than 35 percent average from 2011 to 2015.

The dominance of domestic films over the 2018 holiday may also draw attention to the Chinese government’s restrictions on imports. An audit commissioned by the Motion Picture Association of America, representing the large U.S. movie studios including Disney and Comcast Corp.’s Universal Pictures, last year revealed that Chinese theaters had under-reported ticket sales of U.S. films.

The number of imported U.S. films has been limited by a quota of about 34 a year, and the studios behind those releases only get a quarter of box-office revenue, rather than the more typical half in most other countries. The limit is the subject of a World Trade Organization agreement that had been open for review since 2017, prompting speculation Hollywood film companies will push for opening the market further.

Hollywood Left Out of China Movie Boom Led by Local Hits

“Detective Chinatown 2,” a Chinese action-comedy take on Sherlock Holmes produced by billionaire Wang Jianlin’s Wanda Pictures, was the 2018 holiday’s biggest hit, taking in 1.9 billion yuan. “Monster Hunt 2,” the second installment of China’s box-office record holder for 2015, grossed 1.7 billion yuan.

Investors back from the holidays plowed into shares of companies associated with hits.

China Film Co., distributor of the holiday’s top two films, surged 5.1 percent Thursday following a week-long break. Jiangsu Lugang Culture Co., which invested in “Operation Red Sea,” the third-biggest holiday hit, climbed 4.9 percent, and Beijing Enlight Media Co. gained 4.7 percent.

CICC’s recommended stocks include IMAX China as market share is expected to improve further this year driven by its improved strategy for film selections.

Hollywood was also left behind last year as a local film “Wolf Warrior 2” set a record for highest single-film ticket sales. The action hit had a patriotic Chinese theme and ample explosions, underscoring the rising competitiveness of local fare versus blockbusters originating in Hollywood.

Last year’s biggest film worldwide, “Star Wars: The Last Jedi,” barely registered a blip in China, pulling in $42.6 million compared with $854.2 million for “Wolf Warrior 2,” according to Box Office Mojo.

--With assistance from Colin Simpson

To contact Bloomberg News staff for this story: Jing Yang de Morel in Shanghai at jyang543@bloomberg.net, Krystal Chia in Singapore at kchia48@bloomberg.net.

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Dave McCombs, Sam Nagarajan

©2018 Bloomberg L.P.

With assistance from Jing Yang de Morel, Krystal Chia