Cultural Industries

1. Market Overview[1]

China is a rapidly evolving society, one that is eager to interact with the outside world, and one that is keen to enhance diversity in its cooperation in cultural industries with other countries. The planned 2008 Beijing Olympics and Shanghai Expo2010 are adding pressure for further opening of the market and development of its cultural industries.
Listed as one of the priority sectors in the 11th Five-Year-Plan (from 2005 to 2010), China's cultural industries in 2006 recorded 34.40 billioRn RMB (4.53 Billion USD) of added value while the total value of import-export in that sector amounted to 10.32 billion USD in 2006.

In 2005, China became the fifth-largest export market for Canada's cultural goods and second-largest source of imports. Overall, China is Canada's second trading partner for cultural goods, accounting for about 5% of all of Canada's international transactions in the field.

The fact that China has entered the post-WTO transition period opens up channels to various fields of the cultural industries and will serve as a plateau to attract investment. Private capital is taking an increasingly active role in the industry: for example, in Shanghai, of 186 accredited performing agents, private ones account for 78%; private capital controls more than half of online services, as well as internet cafes. Meanwhile, leading Chinese enterprises are becoming internationally known, especially those in gaming and media industries: Shanda (No. 1 game operator in China), the Ninth, Tencent, Focus Media etc have been listed on Nasdaq.

TV/Film/Animation

Overview of Opportunities:

Co-Production

Due to the imposition of quotas for the import of foreign content set by the State Administration of Radio, Film and Television (SARFT), co-production is recommended by Chinese partners as the best practice for foreign companies to access the Chinese market as co-productions are recognized as domestic content by SARFT. During the past three years, Canadian producers have actively invested in co-production of feature films and documentaries. In 2006 and 2007 (till October), seven feature film co-production projects between Canada and China (1 as official production and 6 others as service productions) were registered. Television co-productions also offer opportunities for Canadian producers, especially for documentaries. The number of co-production projects is expected to rise after the signing of a TV co-production treaty which is currently under negotiation between Canada and China.[2]

Service and Technology

Canadian companies which have strengths in multimedia, post-production, special effects as well as service production can find business opportunities in China. For example, the new Huairou Studio of China Group Corporation is seeking partnership with foreign post-production and special effects companies; several Chinese films with important financing have had the post-production done in Canada or in other countries. SARFT also encourages the formation of joint-ventures in the digital cinema sub-sector. (Foreign ownerships is limited to 49% of the stock).

Key events

Participating in and attending major events in the region are effective ways to expand networking contacts and gain a better understanding of the business opportunities. The Shanghai International Film Festival, the Guangzhou International Documentary Festival, the Sichuan TV Festival; and HK Filmart are all excellent events that provide business opportunities.

Animation - a new field

In September 2006, SARFT issued a new regulation which banned the broadcasting of foreign animation content from 17:00 hours to 20:00 hours on Chinese television. This measure, aimed at protecting the domestic animation industry, offers new opportunities for co-production and animation education and training. The first sino-foreign animation co-production in China was launched in 2006 and involved Shanghai Jinri Animation Studio and France III. The animation series entitled "Shaolin Wu Zang" ranked first in terms of of audience ratings (for animation & cartoon) in France while it was considered by SARFT as a domestic Chinese production.

New Media

Overview

The telecommunications market is expanding rapidly: by the end of 2006 China counted more than 132 million internet users, 97 millions broadband subscribers and nearly 461 million mobile phone users.

n the gaming industry, because on-line game is immune to piracy and not subject to import quotas, on-line gaming has enjoyed rapid development. It is estimated that revenue from the Chinese on-line gaming market, which hosts an estimated 31 million players, will grow 30 percent annually to 25 billion RMB (USD $3.2 billion) by 2011. In 2006, total sales of on-line games amounted to 6.54 billion RMB (USD $860.53 million) with 32.6 million subscribers. Locally developed on-line games dominate the market with a 60% market share.

Mobile games sales reached 2.2 billion RMB in 2006 with an annual growth rate of 150%.

Business model

The CSP (Come-Stay-Pay, i.e. free to play and pay for items) business model for Massive Multi-players Online Role Play Game (MMORPG) has become a great success. Shanda Interactive entertainment Limited, one of the top one on-line game operators in China, realized a growth in revenue of 10.5% in Q1 2007 from the Q4 2006 on existing games by transferring from the traditional CPS (Come-Pay-Stay) model to CSP.

Opportunities

Co-development - Many Chinese game developers are not only interested in publishing content overseas but also in co-developing on-line content and building globally recognized brands. For example, Shanda is in cooperation with Relic Entertainment (Vancouver-based) to co-develop and publish an online-only version of THQ's critically acclaimed 3D Real-Time Strategy (RTS) PC game Company of Heroes'.

Training - The rapid development of the gaming industry offers business opportunities for education and training as local game developers are constantly seeking high-quality professionals. Some companies, such as ZT Network, a well known game operator in China, commented that it is increasingly difficult to find and attract good game designers even by offering very high compensation packages.

Publication of content - "The World of Warcraft" achieved a profit miracle in the Chinese market through a local agent - The 9th, which is one of the top 5 game operators in China. Local game developers would like to bring in world-class content. We are also aware of sales of Canadian mobile games into the Chinese market (most are puzzle games) through agents.

Other -The rapid growth in online gaming also creates opportunities for related industries such as telecomms, internet, computer, soft ware and consumer electronics.

Performing & Visual Arts

Performing Arts Overview:

n 2005, the total revenue of the performance market reached 2.34 billion RMB. In 2006, the performance market in Shanghai was 709 million RMB, and that of Beijing was about 200 million RMB. Following China's entry intro the WTO, the performing arts market mechanism will be further improved, and the performing arts market in China will become further integrated with the rest of the world. The Beijing 2008 Olympics and Shanghai Expo2010 are setting the stage for further expansion of China's performing arts industries and will offer business opportunities for foreign-based companies.

Opportunities for Canadian performers:

Canada has an international reputation for its contemporary and digital art, for example, modern dance, contemporary theatre and multimedia plays. In 2006, a dozen Canadian performing groups presented shows in China, most of them specializing in digital music and jazz and they were well received by local promoters and audience. Generally speaking, Chinese promoters would cover the costs of domestic transportation and accommodation, as well as performance fees; but for international travel of the performing groups, they will resort to sponsorship either from foreign governments (such as Promart of DFAIT) and/or from corporations. The major performing arts markets are in first-tier cities such as Beijing, Shanghai and Guangzhou. The growing economy and performance infrastructures in second-tier cities (especially in Delta Yangzi area like Suzhou, Hangzhou, Ningbo, Hefei etc) offer new opportunities for Canadian performers.

In 2007, the Cirque du Soleil had its first presence in Mainland China in Shanghai from June to August. Seventy performances attracted nearly 120,000 spectators, demonstrating the purchasing power of the Chinese market. Each year, at least a dozen world class performing troupes come to the market and make profit, including Broadway musicals, European ballets, and world-renowned orchestras.

Visual Arts:

China's visual and media arts and design communities are now increasingly able to access professional-quality gallery space, and to hold exhibitions in small, independent spaces. As the government has reduced its influence over and occasional pressure on avant-garde art, it has begun incorporating contemporary arts into festivals, museums, exhibitions, etc. There is a new capacity and commitment to promote contemporary visual art in official cultural institutions.

Publishing

There are business opportunities for Canadian publishers in specialized sub-sectors such as children's books and books related to language learning, social sciences and digital publishing but international competition is fierce and violation of intellectual property rights can be a problem. As most Canadian publishers don't have a physical presence in the local market, they normally sell copyright directly to Chinese publishers. A successful example is Lingo Media, a Toronto-based educational publisher which has opened an office in Beijing and sold more than 100 millions copies of its English-learning materials to China. The Beijing Int'l Book Fair is still the only int'l book fair in China and provides a good opportunity to meet with counterparts.

Challenges

TV/Film/Animation

Despite many promising changes, robust growth is being impeded by ongoing restrictions on market access, import quotas and limits imposed on business ownership, inadequate protection of intellectual property rights, censorship, centralized procurement (only China Film Group Corporation and Huaxia Film Distribution Company have import licenses), accounting procedures and payment mechanisms that can imposes additional challenges to companies interested in pursuing business opportunities in China.

More specifically, with regard to TV, film and animation production, the following import quotas are enforced:

  • 20 revenue sharing films every year
  • Flat deal films (trade of copyright): 15%-20% of the Chinese productions of the year, normally between 30-50 films.
  • For foreign TV drama: less than 25% of the total broadcasting time of the Drama channel, no foreign content drama broadcast allowed between 19:00 hours and 22:00 hours.
  • For TV documentary: 10-15% of total broadcasting time of Documentary channels. Co-produced documentaries are treated the same as domestic ones.

In late 2005, SARFT's new regulations barred foreign investors from holding majority stakes in joint ventures in the audio-visual sector (up to 49% of the stakes). Setting up joint-ventures for content production is not allowed while SARFT encourages cooperation in technology, such as post-production, special effects etc.

New Media

For on-line games, government has announced some restrictions to diminish some "social ills" caused by the great popularity of on-line gaming among teenagers and young adults. New regulations which will impose age restrictions and deter people from playing for more than three consecutive hours are being implemented. In addition, registered capital for companies offering on-line gaming will pass to 10M RMB, up from 1M.

For mobile games, the business environment remains difficult as the diffusion channels are dominated by big telecom operators, i.e. China Mobile and China Unicom. Many local mobile game developers have gone out of business in the past year and the surviving ones have been exploring alternative publishing (diffusion) channels, such as overseas market and handset manufacturers (sell the games to manufacturers for pre-installation in the phones). Mobile game developers believe that 3G technology could bring more game players to the industry. However, some argue that the key requirement for the development of the mobile game industry would be a reform in publishing (diffusion) channels.

Performing Arts

China's Ministry of Culture and provincial/municipal level cultural bureaus are responsible for the management of major performing arts agencies which are important partners for foreign artists interested in performing and exhibiting in China. It is reported that application procedures to obtain the necessary permits can be time-consuming and demanding.

Companies interested in performing in China should state performing conditions including technical requirements (stage, sets, rehearsal etc), logistic arrangements (hotel, transportation, meals, per-diem, translation service etc), performance fee etc. in their contracts.

Publishing

Protection of intellectual property, although progressing, remains uneven. Financial and technology constraints remain as well as some form of government control over content and import of foreign publications. Only six publishing houses in China have the necessary licence to import and export publications. Foreign direct investment is now allowed in the publication of books, magazines, audio-visual and digital productions industries (up to 49% of the stakes).

Careful consideration of market regulations, flexibility in pricing, and a good understanding of business culture are needed to succeed in China.

Canadian Government Contacts

Consualte General of Canada in Shanghai
Email: shngi-td@international.gc.ca
Internet: www.china.gc.ca

Trade & Investment Branch of Canadian Heritage
25 Rue Eddy Street
Gatineau, Québec K1A 0M5, Canada
Internet: www.pch.gc.ca

Useful Internet Sites

[1] The Government of Canada has prepared this report based on primary and secondary sources of information. Readers should take note that the Government of Canada does not guarantee the accuracy of any of the information contained in this report, nor does it necessarily endorse the organizations listed herein. Readers should independently verify the accuracy and reliability of the information.

[2] The Canada-China Film Co-Production Treaty was signed in 1987 and it doesn't apply for the TV co-productions. The TV Co-Production Treaty will be crucial for Canadian producers to get co-production status in Canada and to apply for funding.

Source: The Canadian Trade Commissioner Service