China’s movie theaters are closed—again. For studios, the anxiety is unbearable

April 22, 2020, 2:45 PM UTC

In late March, as the coronavirus pandemic continued to ravage the global film industry, forcing theaters to shutter and grinding movie and television production to a halt, U.S. and Chinese studios and distributors received a surprise bit of good news: More than 500 cinemas in China, where COVID-19 was first detected, would reopen for the first time since January.

The positive news in China, the world’s second-largest box office and a crucial moneymaker for Hollywood movies, was short-lived. Days later, on March 27, the country’s national film bureau ordered all cinemas to close once again. An uptick in coronavirus infections among travelers arriving in China from abroad sparked fears of a second wave.

The swift decision underscores lingering uncertainty around conducting business in China, especially among organizations reliant on large public gatherings, even as the nation on March 19 reported no new local coronavirus cases—a first since the outbreak began in Wuhan. For movie exhibitors and distributors in particular, the flip-flop nature of the order demonstrated the challenges they face in welcoming audiences back to cinemas.

For some, the initial decision to reopen theaters came as a surprise. “We really thought theaters wouldn’t open until May or June,” says Richard Gelfond, CEO of IMAX, which licenses its technology to more than 600 cinemas in China. The move to renege on that decision was just as unexpected. “It was a big surprise to everybody,” says a major Hollywood studio executive who asked not to be named, citing active business relationships. “Unfortunately, the box office was soft. They were doing like $3,000 dollars a day—literally nobody was turning up.”

Sentiments were similar on the other side of the Pacific. Steven Xiang, CEO of Chinese film studio Huanxi Media, tells Fortune that “attendance was very, very weak” during the brief window in March when some cinemas were reopening. The company is now monitoring when schools in China will reopen as a “parallel indication” of life returning to some kind of normal, he adds.

Gelfond, whose IMAX has offices in Shanghai, says early May has been discussed as a possibility for reopening Chinese schools. “I think people on social media pushed back [on the notion] that theaters would open before schools and other vital functions,” he says. “People didn’t like the perception of theaters leading the way. But schools opening indicates a willingness to open the country more aggressively.”

A Hollywood role in China

As Chinese authorities look to coax weary residents out of their homes in the wake of a sweeping global pandemic, the U.S. film industry has its own part to play in boosting attendance at China’s movie theaters.

The China Film Bureau, the state agency that oversees the approval of foreign films screened in the country, approached Hollywood studios about rereleasing a series of blockbusters following a first slate of older Chinese titles. American titles with plans for rerelease include all four of the Avengers movies, James Cameron’s Avatar, and the Christopher Nolan thrillers Inception and Interstellar.

Hollywood’s cooperation with Chinese film regulators is no act of charity. The rights holders of U.S. blockbusters returning to Chinese theaters, according to The Hollywood Reporter, will receive the standard 25% share of sales—a rate established in a 2012 U.S.-China trade deal. As the publication noted, these rereleases can be lucrative: A 2012 3D rerelease of James Cameron’s Titanic earned $145 million.

The next wave of releases would come in the form of Hollywood movies approved by regulators just prior to the closure of theaters in China. These titles include 1917, Dolittle, Jojo Rabbit, Ford v Ferrari, and Sonic the Hedgehog.

But China’s U-turn on theater closures has put Hollywood executives in the dark in terms of when U.S. films will be cleared to screen again in the country. “We haven’t been told when they reopen. We heard rumors it may be the end of May,” a U.S. studio executive says. “There’s nothing the studios can do until we’re told we can submit movies again for censorship. Studios are in latency.”

Should China be able to reopen its theaters in the coming weeks, it could be an early bright spot for studios and distributors as theaters around the world potentially remain closed for much longer. But Hollywood studios almost certainly wouldn’t premiere movies unreleased in the U.S. such as, for example, Disney’s Mulan, which is set for a late-July release in the States.

“It’s a tricky thing,” the studio executive says. “You can’t release new movies when the rest of the world is closed down, just because China is open.”

A local film industry under fire

When the coronavirus forced cinemas across China to close during the Lunar New Year holiday in late January, the Chinese film studio Huanxi had to halt the releases of two scheduled blockbuster films. In the weeks since, as the coronavirus shutdowns intensified and China’s economy ground to a halt, Huanxi postponed five more releases.

The Lunar New Year cancellations alone hit China’s film industry hard—in 2019 the weeklong holiday accounted for 14% of the country’s total annual box office revenues, according to Maoyan Entertainment, a ticketing and entertainment services platform.

By March 15 in China, the theatrical releases of 44 movies had been canceled or postponed, including 16 imported movies. The blow has proved particularly severe for the country’s top theater chain, Wanda Film Holding, which operates more than 500 theaters in more than 180 cities in China, Australia, and New Zealand. The chain’s owner, Wanda Group—which has a controlling stake in AMC Theatres, the largest chain in the U.S.—reported dismal preliminary first-quarter results last week: a loss of 550 million yuan to 650 million yuan (around $92 million), compared with a profit of 400 million yuan a year earlier.

Xiang, Huanxi’s CEO, thinks that “things will get back to more or less a little normal during the summer, but obviously, half the year is gone.” He is hopeful the studio can release six of its seven unreleased films in theaters in the second half of 2020. 

The remaining unreleased title, one of Huanxi’s Lunar New Year movies—Lost in Russia—was made available on TikTok parent company ByteDance’s streaming platforms. ByteDance paid Huanxi around $90 million in the deal. 

Before COVID-19 hit, Xiang says, streaming was already a growing market in China, helped by easy online payment infrastructure and, when 5G rolls out, super-high-speed connections. In addition to producing movies, Huanxi has its own streaming platform, Huanxi Premium, enlisting directors like Wong Kar-wai and Zhang Yimou to create direct-to-streaming series. 

“That trend will continue, and what’s happened during coronavirus and the lockdown and the isolation will probably accelerate that growth,” Xiang says. But he is confident that moviegoers will flock back to cinemas. “Once it’s back to normal I think people would come out, no question.” 

The Lunar New Year losses mean China’s box office will “suffer a significant decline” in 2020 compared with the previous year, a Maoyan spokesperson says. “However, an industry recovery is expected in the second half of this year with strong consumer demands when movie theaters reopen, as well as releases of good quality postponed from the Chinese New Year holidays.” 

A Maoyan Entertainment survey found that 72% of moviegoers were “eager” to return to cinemas after the pandemic. A third of respondents said they would return to cinemas after an official announcement that COVID-19 was contained; 29% said they would “wait for a while” after such an announcement was made. 

Xiang offered his own experience as proof that moviegoing will bounce back—he watched Lost in Russia in a large movie theater after production wrapped up, and then via a streaming platform. “I myself responded to it quite differently, because in a cinema, you’re in a controlled and dark environment,” rather than the more casual experience of online streaming at home, Xiang says. 

“Bigger films and films that are made for the cinemas still will go to the cinemas first,” he says. “Because the investment and the way it’s made and the way it’s supposed to be enjoyed are still quite different.”

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