Magic Dumpling Entertainment President & CEO Kevin Geiger speaks on the challenges and opportunities facing animation producers in China and around the world in the MIPTV special edition of C21 Media’s “Insider’s Guide to Animation”.
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Co-productions on the Chinese mainland are regulated by China’s State Adminstration of Radio, Film & Television (SARFT) through a combination of applications, approvals and oversight at the provincial and national levels.
Television co-productions can proceed under any of the three following models:
- JOINT PRODUCTION: in which the Chinese party and the foreign party jointly invest capital, provide personnel & resources, and share profits & risks.
- COLLABORATIVE PRODUCTION: in which the foreign party invests capital and provides key personnel, while the Chinese party provides labor services, resources and locations.
- ENTRUSTED PRODUCTION: in which the foreign party invests capital, while the Chinese party is responsible for production in its entirety.
The application & approvals process varies depending on the co-production models, with requirements that are variably stringent and vague.
Studios solely looking for distribution in China will be attempting to enter the market as a foreign property, regardless of their content’s cultural cues, and subject to a different set of regulations and restrictions.
More to come…
The typical method of releasing animated feature films begins with domestic theatrical exhibition, which gives value to the various film “windows” (the period following a domestic release before a film can be released in other markets). Historically in the United States and Europe, the sequencing pattern for feature films has been to license international theatrical exhibition, home video & DVD, cable television distribution, broadcast television rights and other ancillary rights. As the rates of return shift among these different sources, changes are made to the sequencing strategy. Not only are release windows currently shrinking, but there is speculation that they may compress completely in favor of a distribution model in which content is delivered simultaneously on the “big screen” (theaters), the “mid screen” (TV displays) and the “small screen” (mobile phones). Regardless, it is important to note that the release windows for gaming and publishing ancillaries usually precede the initial theatrical release of a film or broadcast release of a show by one to three months, and this aspect is unlikely to change.
Distributors around the world plan their release windows with certain target audiences in mind. Low-budget films will often receive platform release windows in selected major cities that feature substantial populations of cosmopolitan filmgoers. In this way, the film is given a build-up to a wider release that may occur several weeks later. With the high costs of film prints, even a relatively modest theatrical distribution of 1,000 screens can exceed $2 million USD in initial expenses, although digital delivery may eventually drive distribution costs down to almost nothing.
Ideally, the best possible initial release for an animated feature film is release in theaters. In addition to its own potential revenue, theatrical release can generate demand for other media release platforms such as broadcast television and DVD, as well as consumer interest in ancillary products. For a film in initial release, the exhibitor will pay a percentage of the revenues from ticket purchases to the distributor (referred to as the “film rentals”, and not to be confused with home video rentals). Film rentals customarily diminish over the length of a film’s theatrical run. Depending on the distribution agreement, the producers and investors are entitled to a percentage of film rentals, after the distributor recovers its distribution fee, marketing expenses and distribution expenses.
Other media releases for the film are calculated in a similar fashion. For instance, in the U.S., a home video company pays an amount to the distributor for the right to stock its DVD stores with the title. From these fees, the distributor will deduct its distribution fee, advertising costs and other distribution expenses in order to recover costs. The producers and investors then receive their agreed-upon revenues as set out in the distribution agreement. The same goes for television and ancillary rights. The total of the money received by the distributor from the exercise of all rights that it is entitled to is called the “distributor’s gross”. Every distribution agreement is different; however, there are similarities common to all. The distributor receives a distribution fee, which is the percentage of the profits that the distributor will receive from the gross. The distributor is then entitled to recover its marketing costs and distribution expenses. The remaining sum is payable to the producers and investors, and is generally called the “producer’s gross” or the net sum.
Independent animation producers have several ways of distributing feature films:
- For the widest distribution, independent producers must partner with a major studio, although this means giving up significant rights. Typically, when major studios get involved early in the production, they finance most or all of the animated film’s development and production budget and also handle distribution. In return, they receive all rights (including the copyright) and control all creative, marketing and distribution decisions. While filmmakers can benefit financially from the guaranteed exhibition and broad audience reach provided by such deals, final compensation may be far less than expected once significant studio fees and expenses are deducted.
- Major studios and independent distributors (such as Lionsgate and The Weinstein Company) can also simply distribute an animated film, controlling marketing and distribution but not production. The distributor usually gets involved only after it sees the completed film, and production funding comes from elsewhere. In this scenario, the distributor takes 20%-35% of gross distribution revenues returned from the theaters, and then deducts expenses before remitting the remainder to the producer. While the relatively lower distribution take and the retention of creative control and copyright are attractive incentives to the producer, there is the very real risk of creating an animated film that is considered “unmarketable”. Distributors routinely reject films that they suspect will be under-performers at the box office due to lack of audience appeal or a clear market position.
- A “middle way” is to negotiate with a major international distributor to distribute the film upon delivery of a master negative (or digital equivalent) – a deal known as “negative pickup”. The distributor’s early involvement brings valuable market insight to the development and production process, may include an advance against revenues, and provides the benefit of helping the producer to gain financing. Signed distribution agreements can be used as collateral for bank loans, and as incentives for other investors to join the enterprise. The distributor receives distribution rights, usually in all media, for a specified length of time (often “in perpetuity”). When possible, it is in the producer’s best interest to negotiate options based upon performance milestones, which allow the distribution rights to return to the producer if the distributor fails to actively market the film.
- Some studios and distributors may also choose to come on board as co-producers, which creates a level of involvement somewhere between owning all rights and simply distributing the film. The studio provides a degree of production financing, has creative input, oversees marketing and distribution, and shares back-end revenues, but does not take full control. The financial details of such arrangements vary greatly.
As these examples demonstrate, studios and distributors can license animated films at various points during the production process: while the film is being financed, during production, or after completion. The more that existing elements seem to point to box office success, the more likely a distributor is to pick up the film early in the process. However, distributors are generally reluctant to get involved early in the production process of independent animated films. The independent producer usually must finance and produce the film without any distribution presale money, and then try to find distribution through success on the international film festival circuit in venues such as Sundance and Cannes, or at markets where films are sold such as the American Film Market and MIPCOM. The hard reality is that only a small percentage of companies pitching their films at festivals succeed in securing distribution deals.
The home video & DVD market is currently undergoing dramatic transformation. DVD sales are dropping as much as 25% at some studios, and low-cost DVD rental kiosks are challenging traditional DVD distribution & release strategies. But a bright spot in the midst of this downturn is animation, which continues to perform better than ever in theaters, and to hold its own on DVD and in ancillary media. In fact, animated movies on DVD appear to perform in a unique, toy-like manner: purchased as both collectibles and as “electronic babysitters” (children love to watch animation over and over again).
Once a “graveyard” for movies which could not obtain theatrical distribution, the direct-to-DVD pipeline is becoming increasingly important to mainstream film franchises. While many direct-to-DVD (D2DVD) releases are sequels to popular theatrical films, others start out as direct-to-DVD franchises and have built their success without a box-office track record. Disney, Lionsgate and Marvel are among the distributors who have made millions on so-called “DVD Premieres” (DVDP) over the past decade. Disney started making sequels to most of its animated films for video/DVD release beginning with “The Return of Jafar” (the sequel to “Aladdin”) in 1994. Universal began its long line of “Land Before Time” sequels that same year. The number of direct-to-DVD films worldwide grew almost 40 percent between 2005 and 2008. In 2008, Disney’s “Tinker Bell” direct-to-DVD movie grossed over $50 million USD. In 2009, the direct-to-DVD title “Barbie and the Three Musketeers” grossed an estimated $14 million USD in North America alone (not counting HD-DVD and Blu-Ray sales).
DVD Premieres are now a substantial source of revenue for movie studios, collectively grossing over $3 billion USD in the last few years. DVDP movies can be shot on budgets much smaller than those of films intended primarily for theaters, allowing studios to profit easier with the combined revenues of home video sales & rentals, broadcast licensing, and theatrical release in international territories. High-profile producers, such as Joel Silver of the “Matrix” trilogy, are signing major deals to produce direct-to-DVD titles, bringing with them top directing, acting and production talent.
DVD Premieres are not only reserved for larger Hollywood studios. Many independents distribute DVDP’s almost exclusively. In fact, DVD Premieres have become a lifeline for independent filmmakers and smaller companies who may not have the resources for a competitive international theatrical release. In Japan, the so-called “V-Cinema” movement has a broad consumer base, and is valued by film directors for the greater creative freedoms allowed. For anime, this is called Original Video Animation (OVA) – often used to tell stories too long for a theatrical feature film and too short for a full TV season.
In the area of broadcast animation, the United States remains the largest and potentially most lucrative television market in the world. The traditional method of selling animation content to U.S. broadcast and cable networks is to license 13 to 26 episodes (a half-year’s or a year’s worth of shows) for a flat fee per episode, which gives the network the right to air each show at least twice, and often indefinitely. Around the world, license fees paid to content creators have shrunk dramatically over the last decade, with networks usually demanding that producers cut their budgets as a precondition of acquisition. These fees, ranging from $0 USD to $100,000 USD per half-hour episode, vary dramatically by budget, country, population, economic conditions and many other factors.
The important point is that a considerable amount of most broadcast animation production budgets remains in deficit, and must be covered through international presales, co-production partnerships, ancillary sales or other means. Partly because of this, networks in the U.S. and around the world commonly become co-producers and co-financers in the productions they air, purchasing part or full ownership of the property, rather than simply licensing the rights to broadcast the show. As stake holders, they also receive revenues from international broadcast sales, home video & DVD, merchandising and other ancillaries. The total number of broadcast networks around the world is on the rise, and the growth in channels provides more points of entry for animated programming. Increasingly in the digital era, television rights are often “bundled”, without separate splits for each media type.
Interactive gaming software is an increasingly important revenue stream for animation properties. This category can easily amount to 50% or more of all ancillary activity, and can rival the revenue of the core theatrical or broadcast distribution for animated films and television shows. Gaming software is also a good way to increase awareness for an animated property, especially when released prior to the screening or airing of the production. On 3D CGI productions, digital assets can be shared between the producers of the animation and the producers of the games. This is often done simultaneously, and can enhance the development of story and characters for both. Games often introduce new story lines and sometimes new characters that expand the world established in the original entertainment property. Platforms include PC, console, mobile and Internet formats.
While book and comic book publishing is usually not the top ancillary category in the United States, books and comics are still an important revenue stream in the West, and an extremely popular and profitable one in the East. Book and comic ancillaries generate awareness with the target audience, provide a means to extend story lines, backstory and character development beyond the original animation property, and enhance the brand image. Typical formats, depending on the age of the consumer and the nature of the content, include board books, story books, magazines, comic books and graphic novels, film novelizations (adaptations of the animation script) and derivative novels (“prequel” and “sequel” stories).
Many animation producers and executives take soundtrack sales into account when they plan the music for a film. By including musical acts that are popular with children and pre-teens (the primary purchasers of animation sound tracks), the producer can enhance sales of the album even among those consumers who have not seen the film. This marketing synergy can also work in the other direction: having a popular singer or band play an important role in the soundtrack can bring people into the theaters who might not otherwise see the film. Music videos are naturally an important part of this equation, and are often planned in conjunction with animation production to create tie-ins between the live action performers and the animated characters.
Toys are the main ancillary product category for most children’s animation projects, with dolls, action figures and board games among the most popular items. There is also an expanding market for collectible “urban vinyl” toys and cast resin figurines among teenaged and adult animation fans. Toys are often one of the first licenses granted for an animation property due to the long lead times required for product development and manufacturing. Some animation-based toy lines are narrowly focused. A licensor of a new, relatively unknown animation property might choose to self-distribute toys, or to license the sale of a small range of toys over the Internet. This approach allows the producer to test the market and gauge demand. For example, Cartoon Network chose to test a dozen products based on its “Samurai Jack” series, with sales initially limited to their website.
While interactive games, publishing and toys are the primary ancillary categories for animation properties, the number of possible products is unlimited, depending on the nature of the content and its audience. Clothing, stationery, food and beverages are among the available revenue streams. Tactical considerations for maximum profits include the timing of product introduction in each country where the property is released, the product categories chosen, whether to grant exclusive or non-exclusive rights, and the choice of retail outlets. While under-stocking can reduce revenues, over-stocking can shorten the life of the product licensing program, and even have an adverse impact on the animation property itself by creating a negative consumer reaction.
Product placement within a film, common to American live-action properties, is generally not encouraged within animation properties, as it tends to reduce the “classic” status of the animated film. Threshold Animation Studios’ animated feature “Food Fight” launched a direct assault on this principle by setting a story in an American supermarket filled from top to bottom with name-brand household products, and using the fees charged to fund production. The ultimate results of this approach remain to be seen, but the negative online buzz from animation fans prior to release is noteworthy, as is the film’s ongoing difficulty in finding theatrical distribution. A more acceptable phenomenon common in mainland China is the inclusion of corporate logos in the end credits of feature films in exchange for production financing.
The Internet is a global market that can be accessed from almost anywhere in the world. Independent animation filmmakers can now obtain a bigger audience through a website than through traditional TV or film distribution. For animation producers motivated to tell stories to the widest possible audience, the Internet offers over a billion potential viewers through more than 300 million broadband households.
Much can be said about the revolutionary potential of online delivery. In short, the opportunity and the challenge that all producers & distributors now face is how to manage the continuation of traditional revenue streams, while also embracing the uncertain (but unquestionable) potential of digital distribution through online media.
The global animation industry is highly competitive, with much of a project’s success being directly related to the skills of the distributor’s marketing strategy. Magic Dumpling actively solicits early feedback from potential distribution partners within the U.S. and China, including independent companies, major studios and government entities. Magic Dumpling is committed to the creation of appealing animation content for mass markets, and values the guidance of experienced distributors. This open strategy directly benefits the market position and profit potential of our properties. Our goal is to make quality animated films and programs that people will enjoy and that distributors will be interested in acquiring prior to completion, thereby increasing the chances of financial success.
~ Kevin Geiger
如上所述，制片厂和发行商可以在影片制作中任何一个阶段对动画电影授权许可，即电影融资阶段、影片制作过程中或完成之后。指向票房成功的现有因素越多，发行商越可能尽早的介入到电影制作中来。但是，发行商通常不愿意过早介入独立动画电影的制作之中，因此独立制片人不得不在缺少发行预售资金的情况下，为影片融资和制作电影，然后试图在国际电影节获得好的放映口碑，藉此来找到发行渠道，如美国圣丹斯国际电影节、法国戛纳国际电影节等上；或是通过电影交易市场，如美国电影市场(American Film Market)、法国戛纳秋季电视节（MIPCOM）等寻找发行商。但残酷的现实是，只有很少的公司能藉由电影节上的大放异彩，而成功签署发行协议。
授权系列玩具：动画电影项目中，玩具也是主要的周边衍生产品，包括电影中最热门人物的玩偶、模型和棋盘游戏等。收集“都市搪胶公仔”（Urban Vinyl）和树脂人形塑像在年轻人和爱好动画的成年人中也形成了一个逐步扩展的市场。由于产品开发和制作的周期很长，因此玩具往往是动画片首先得到授权许可的产品之一。一些根源于动画片的玩具开发范围较狭窄。形象授权人可能对尚不具知名度的动画形象选择自行发行玩具，或通过网络授权小范围的玩具销售。这种做法让制片方得以测试市场和对质量的需求。例如2001年美国卡通网（Cartoon Network）通过在网站上出售限量商品的做法，对一系列《武士杰克》的产品进行市场测试。
The Chinese people comprise the fastest-growing animation market in the world. With a total population exceeding 1.3 billion individuals, potentially 500 million people in mainland China can be identified as animation consumers.
Mainland China’s total 2010 box office is estimated at more than 10 billion RMB (approximately $1.5 billion USD), up over 60% from 2009 (which itself saw a 44% growth rate), and is one of the largest markets in the world. Taiwan’s 2010 box office total is estimated at $96 million USD (about 7% the size of the mainland market), and is dominated by Hollywood films.
There are currently just over 6,200 movie screens on the Chinese mainland, compared with more than 42,000 in the United States. Mainland China produced over 500 films in 2010, but few of these make it to theaters and China’s box office is still relatively small compared to North America’s. At present, 31 cities – each with at least 1 million residents – are without commercial movie theaters, presenting a major opportunity for growth. Three movie screens are being built each day in mainland China.
China’s current 6,000+ screen total includes more than 1,000 3D screens, making it the second-largest 3D market in the world after the United States. At the current rate of growth the number of 3D screens in mainland China is anticipated to equal the number of 2D screens in three years
Mainland China is currently the world’s largest internet market by user, and poised to be one of the world’s largest VOD markets. Legitimate DVD is a sparse revenue stream due to piracy, and China still only shares revenues with 20 foreign film imports per year.
For more on the Chinese movie market and film industry, here is a great primer by Jeffrey Hays.