Larry Lang on the economics of bad film

Late last month, Hong Kong economist Larry Lang (郎咸平) devoted an episode of his “Lang on Finance” ((财经郎眼) program on Guangdong Satellite TV to the “economics of crummy films.”

In the program, Lang, a professor of economics at the Chinese University of Hong Kong, addressed the issue of state monopoly control of China’s film industry against the backdrop of the new mandate coming out of the Party plenum last October on “cultural system reforms.” His conclusion in a nutshell: the profit-drive state monopoly system is squeezing out creativity.

The program does not address the issue of film censorship, but it is worth bearing in mind that China’s strict political control of film content throughout the production and post-production process (linked also to financing and distribution) is a further substantial disincentive to creative filmmaking beyond the points made by Lang.

The Guangdong Satellite TV program (Chinese), posted to the domestic video-sharing site Youku, is worth watching. But below readers can find our translation of Lang Xianping’s recent editorial on this issue in China Newsweekly magazine.

For more thoughts on so-called cultural reforms (and film), readers may also refer to my November article on the subject.

Readers may note that Lang seems to have some of his facts mixed up, not least on Hong Kong movie ticket prices (see note in comments below). Please feel free to share your own experiences of film ticket prices, attendance or other issues in Hong Kong, China and beyond.

Why Chinese Films Are Getting Worse and Worse
Lang Xianping (郎咸平)
January 7, 2012

In the 12th Five-Year Plan, the importance of China’s cultural sector has been elevated to such a high as we have never before seen. The Ministry of Finance, the Ministry of Culture, the State Administration of Industry and Commerce, the State Administration of Taxation and other ministries and commissions under the State Council have all said they are working on a series of policies to support [these broader cultural objectives]. But looking at the current situation, and particularly at the Chinese film market in 2011, one can only feel discouraged.

Monopolized to the Core

In the industrial chain of film production and distribution, major actors and directors are upstream and the theatrical [cinema] network is downstream. In the middle is the rest of the film production world.

As for the downstream, a single massive [state-run] film group — [China Film Group] — controls more than 50 percent of the national cinema market, and things have already reached to the point where ticket pricing has become a monopoly. This is why the world’s most expensive movie tickets can be found in mainland China.

The basic ticket price in Hong Kong is 30-40 Hong Kong dollars (US$3.86-5). But here prices are a very minimum of 40 yuan (US$6.3), and it’s not uncommon to find ticket prices of over 100 yuan (US$15.8). This monopolization of ticket prices means that [cinemas] can profit even if few people show up to see a film [relative to capacity]. There is an operating principle in our movie industry not unlike what we find in the petroleum industry, which is to say there is a natural monopoly (自然垄断).

In fact, the costs for cinemas in screening films are very minimal. With costs low, fixed prices [per ticket] are also low. They should be something around 5-10 yuan per ticket (accounting for maintenance and operating costs).

Consider that if tickets are sold for somewhere above or around 5-10 yuan, the per-ticket profit might be just 1 yuan each — meaning 10,000 people would have to see any given film before it could even make 10,000 yuan. But with ticket prices fixed at 40-80 yuan, this means that [very conservatively cinemas can make] 20 yuan per ticket. So in this latter scenario if just 1,000 people show up to see a film it can bring in 20,000 yuan.

The above calculations tell us that the monopolization of ticket pricing does not bring revenues down, but in fact substantially bolsters revenue. [In this monopoly system] it really makes little difference how many people show up to see a film.

Our movie industry right now isn’t very different from our property market. Just as relatively few people can afford to buy property, few people can afford to purchase movie tickets. And all of the bad practices we see in the petroleum industry among the likes of CNPC and Sinopec, can be readily seen in our film industry.

Stones From Other Hills

In terms of film output, China falls behind only the United States and India. But there are ten times as many cinemas in the United States as there are in China. The United States, thanks to the country’s antitrust law, does not have downstream [theatrical] monopoly of the kind [we have in China], but rather free competition among cinemas. The environment [for cinema in the United States] is therefore far better than ours. Cinemas are numerous,and there is no way to monopolize ticket prices, which remain cheap in a relative sense — usually around six or seven dollars, a price acceptable to most people. If cinemas can control their costs, they don’t suffer any great loss, a very different situation from what have here.

In China’s film industry, the upstream market is already monopolized by big-time directors and big-time movie stars, and the downstream market is monopolized by [the state-run] China Film Group. Just as in China’s manufacturing sector, those in the middle can make only the most marginal of profits. Without sufficient profits, of course, the only thing anyone can do is trail along on the tails of others, continuing to make rotten movies.

5 Comments to “Larry Lang on the economics of bad film”

  1. John says:

    Do you think the lack of strong copyright laws might have something to do with sparse crowds at the cinemas as well? If people can wait a few days and buy a bootleg on the street for 7 RMB that they can watch in the comfort of their own home, are they really going to want to shell out 80 RMB for movies tickets?

  2. Adam says:

    Regardless of the accuracy of the price of HK theater prices, it still represents a far less proportion of income than it does in the mainland. I’m in the mainland and we only go when we can get half off prices and even then it cost more than it does back home. Man do I miss the $1 theater that just plays the movies that are 1 month old.

  3. Dr. Jones Jr. says:

    Based on my experience living in the mainland, he at least got mainland ticket prices about right. Mainly we’re looking at 60 – 100 yuan in places like Nanjing, Chongqing, and Beijing (places where I’ve gone to the theater in recent years) with some variation–half-off prices during Tues/Weds; double price for 3-D features.

  4. admin says:

    Stephen:

    Yes, I live in Hong Kong as well, and found this statement curious, particularly coming from a Hong Kong economist . . . Something I forgot to note in my introduction. Hong Kong ticket prices at most cinemas vary between 50 HK dollars and 85 HK dollars, depending on time and film.

    Any mainland residents with personal experiences on ticket prices in China?

    Best,
    David

  5. Stephen says:

    I live in Hong Kong and the movie ticket prices here are NOT 30-40 Hong Kong Dollars. They’re much closer to 70-80 HKD for non-3D films. 3D films are extra. Cultural movies at festivals may be around 30-40HKD, but the Hollywood or even local productions are definitely more.

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