E-releases of films change eyeball game

China's cinemas may be fearing bankruptcy due to protracted COVID-19-related lockdown restrictions, but businesses offering online entertainment are upbeat about the future.

Nearly 10 new films that were originally scheduled for release at cinemas, had reached audiences for free using online channels as of June 23. The first in the series is Lost in Russia on ByteDance's platforms like Toutiao and TikTok.

The new films' online releases have provoked uproar in China's film industry. Some fear massive loss of ticket sales revenue. Even though film production companies reportedly said online releases are not going to generate adequate profits, they still shifted to online solutions, in case waiting for theatrical release may cause more loss given the current situation.

For instance, Lost in Russia was reportedly under a bet-on agreement with HG Entertainment to receive over 2.4 billion yuan ($340 million) in box-office receipts in exchange for free distribution and a 600 million yuan payment. Given the coronavirus outbreak, the ambitious goal seemed less unlikely. On the other side, ByteDance's offer of 630 million yuan without further obligations was certainly more attractive, market insiders said.

Enter the Fat Dragon team told media that its switch to online release was to pre-empt pirated versions in China, as the film has been released in many countries, including Malaysia and Singapore.

With more films releasing online, traffic to video-streaming platforms has soared of late.

Take Lost in Russia. Within three days of the film's e-release, online views surpassed 600 million. Video-streaming apps of ByteDance like JinriToutiao and Xigua saw increasing downloads. Xigua even topped the list of free downloads on App Store, according to a report by news website 36kr.com.

According to a report from film trade tracker Endata, video-streaming platforms saw surging number of daily active users and total visits in the first quarter of this year, spurred by an increasing need for entertainment among audiences quarantined at home.

Zhou Xuan, director of the Chinese Film & Television Industry Research Center at the University of International Business and Economics in Beijing, said the influx of users who will spend more time on their content would spell more money for video-streaming platforms.

Zhou said video-streaming platforms can make money through user subscriptions and advertising. "Advertisers like game operators and e-commerce players would definitely like to see more people transferred to their pages by clicking popup windows while watching videos," Zhou said.

Actually, film releases online account for only a part of revenue, of video-streaming platforms, which are stepping up efforts to develop their own content produced at a relatively low budget, so that in the future, they don't have to shell out big bucks to filmmakers for online releases. This approach could also increase market share.

The recently released The Enchanting Phantom, adapted from an ancient Chinese myth, has attracted more than 10.16 million views on Tencent Video and netted a record high 40.63 million yuan in box-office revenue by the end of May, according to trade tracker Maoyan.

Since Tencent started to reveal revenue data for films released on its video streaming platform to Maoyan on Jun 15, it reported over five films whose receipts surpassed 10 million yuan in both April and May, with average views surpassing 5 million.

Tencent Video's counterpart Youku has seen over 12 new film releases that generated over 10 million yuan each from January to May, up from seven films in the same period last year.

Snake 2 (a sequel to 2018-released online film Snake, the first film in China to profit over 50 million yuan online) topped the Youku list, earning 32.57 million yuan by the end of May. Snake 2's 'e-box-office' receipts were much higher than the 16.95 million yuan earned by Flirting Scholar from the Future, the highest on Youku in the first five months of 2019.

iQiyi, another major online video-streaming platform in China, has released 16 films whose sales revenue exceeded 10 million yuan each by the end of April, of which the number is about four times that of same period last year.

QimenDunjia gained 33.79 million yuan in online box-office receipts and became the highest grosser on iQiyi in the first five months. The film's name is inspired by an ancient form of Chinese divination, or supernatural powers, like in a fantasy martial arts movie, although it could also mean numerology used by fortune-tellers and astrologers. QimenDunjia's earnings were much higher than the 15.24 million yuan earned by Ji Gong, the highest grosser in the same period last year.

Web series, an important source of content that brings traffic to video-streaming platforms, saw 9-percent year-on-year rise in views to 145.7 billion in the first quarter, according to a report from Endata, a data analysis and consulting platform specializing in the entertainment industry.

In the first quarter, the number of paid subscriptions to Tencent Video increased 26 percent year-on-year to 112 million, according to Tencent's financial report.

iQiyi also reported a 23-percent year-on-year growth of 12 million to 119 million in the number of user subscriptions. Revenue generated from user subscriptions increased 35 percent year-on-year to 4.6 billion yuan.

Video-streaming platforms are now taking further steps to consolidate recent gains, leveraging cutting-edge technologies like virtual reality, to create more content that is compelling viewing, and thus increase market share.

The recent New House Guest Report VR, a spin-off from popular sitcom iPartment, allowed its audiences to actually visit the apartment shown in the film, by scrolling on iQiyi's VR app and iQiyi's VR devices.

A recent episode allowed audiences to customize endings to the story by clicking buttons offering different choices at certain points in the story.

Amid all this online buzz, cinemas across China continue their months-long struggle for survival.

Wang Zheng, general manager of MianyangZhonghuan Culture Communications, which owns eight cinemas and manages 22 others across China, said the firm is facing great challenges as monthly payments toward rent, equipment, and wages have to be made in spite of little revenue.

In January, the firm may have lost about 10 million yuan in box-office receipts, 1.8 million yuan in sales of food, beverages, and film derivative products, and about 12 million yuan in advertising revenue, Wang estimated.

During the same period, about 600,000 yuan had to be paid toward rent, about 700,000 yuan in wages, about 400,000 yuan for utilities, and about 100,000 yuan for laser equipment.

And to think MianyangZhonghuan is a mid-size firm. Cinema giants, the established players in the field who had made huge investments, face bigger losses.

For instance, in the first quarter, Wanda Film reported to have lost 600 million yuan. Huayi Brothers said it lost 143 million yuan. Jinyi Media reported a loss of 153 million yuan. Both Wanda Film and Huayi Brothers announced they have planned the development of their online businesses.

Wei Pengju, director of the Institute of Cultural Economics at the Central University of Finance and Economics in Beijing, said the battle for eyeballs between cinemas and online video-streaming platforms had started long ago, but the coronavirus outbreak has intensified it now.

"Certainly cinemas have advantages like better audio and image quality, but that part is increasingly challenged by evolving technologies like home cinema and improved projection systems that can be linked to phones and laptops," Wei said.

He said the boom in online video-streaming platforms is not just a short-term phenomenon resulting from the pandemic; it may well continue into the future.

"Going forward, cinema operators may need to consider diversifying their revenue sources to include on-demand film services, VR video-watching experiences, and also consider by-products or services like sales via both online and offline channels, to save themselves from pandemic-related losses, and to learn to survive," Wei said.