By: Sara Donelly

Filmmaking remains big business in 2015, and as the industry quickly evolves, foreign markets want to break into China, and China is keen to invest overseas.

Hollywood is still the world's largest maker of movies, and North America still has the biggest box office receipts- $10.3 billion payout last year, down from $10.9 billion in 2013-but in a few short years, China has surpassed Japan to be the world's second largest film market. In 2013, China’s box office receipts tallied $3.6 billion — a 27 percent increase over the previous year. Then in 2014 China’s box office sales hit $4.8 billion. Experts estimate that China will overtake North America as the top movie market in the next 10 years.

For the U.S. film industry, China is a critical market to crack. Domestic box office numbers have been falling and now a blockbuster film can make as much as 70 percent of its return outside of North America.  Winning over Chinese audiences may be the key to keeping the U.S. market afloat.

The Chinese industry is overseen by China Film Group, a huge government-owned company.

As the demand for film grows in Asia, and the film industry also expands, China needs the depth of moviemaking experience Hollywood can offer, to improve its production values, and develop their market. To date, most Chinese movies lose money, and only about one quarter makes it into theatres.

The quota system, overseen by the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT), allows just 34 foreign films into China each year. Fourteen of these must be either IMAX or 3-D. Films allowed to play in Chinese theatres also must meet a certain criteria, including showing China in a positive light when there is a Chinese component.

Although foreign film producers only getting a small return, usually less than 25% of box office revenues, foreigners are eager to get their films into China. They are even going so far as to adapt their product especially for the Chinese market. A good example of this is Disney's Iron Man 3 which added four minutes of footage with Chinese actors to the Chinese version of the film.

All of this is not without doubt and controversy. When Disney Co. announced it would co-produce Iron Man with Chinese company DMG Entertainment, the U.S. Securities and Exchange Commission launched an investigation into whether Hollywood movie studios had been paying bribes while working in China.

To get a foothold in China, Hollywood studios are helping finance films or co-producing them.

Oriental Dreamworks is a joint venture with Shanghai Media Group, a state owned studio.

The differences are stark, In the U.S. the power lies with the studios; in China with the state. The government controls what films get made and has a hand in every aspect of the film business from production to exhibition. China Film group produces movies and distributes Hollywood and Chinese films. The government rewards independent producers for making films it approves of, and it blocks Hollywood films during national holidays to promote Chinese ones.

The Chinese government's goals in growing the film industry are to have people in China see films that exemplify Chinese values and culture while also spreading a more favourable view of China to the world.

China uses subsidy and censorship to get the kind of films it wants made. But for all the effort, many of the films getting made are remakes of Hollywood hits. Lost in Thailand, which resembled The Hangover grossed $192 million in China, but only $60,000 in America.

Co-Productions a Win-Win

Co-productions get past the limit set on outside films.  A co-production is treated as a domestic film, so the share of box office revenue on co-production is higher. A co-production can command 38 percent of box office as opposed to the13 to 25 percent available for imported films. The Chinese authorities require that around 55 percent of total box office revenue is taken by domestic films so a certain return on domestic film is guaranteed.

Films can't show the Communist Party of China in a negative light, and they must limit depictions of corruption or superstitious imagery, such as ghosts. There’s also an idea that anyone breaking the law should be punished by the end of the film.

But there are no hard and fast rules. Each film is judged on a case-by-case basis. In some instances, it just needs to be clear to Chinese audiences that corrupt or superstitious practices depicted would not succeed in China.

Some filmmakers are taking the extra step of tailoring their content to Chinese audiences.

Transformers 4: Age of Extinction (2014), which brought in more than $300 million in China, broke all box office records. It edged out out Avatar as the highest grossing film of all time in the Chinese market. In the U.S. market, Transformers 4 earned only about $245 million,

The film had purposefully included Chinese elements-part of the film was shot in Beijing and Hong Kong, and well-known Chinese actors were included in the cast.

Big blockbuster films like the Transformers franchise tend to do best with Chinese audiences. As piracy is rife, it takes splashy special effects, 3D and IMAX to entice moviegoers into a theatre rather than just seeing the film on their smartphones or other devices.

Hollywood North

Vancouver is known as Hollywood North for a reason. The city has a long established tradition of filmmaking and attracts the best talent in the industry. Tax incentives and government programs continue to make BC an attractive location for production and filming, and the natural beauty and diversity of the locations doesn't hurt either.

Richard Brownsey, CEO of Creative BC, an independent agency that promotes the development of creative industry in BC agrees. He told Caifu Magazine that:

"This is a very successful jurisdiction for film production. We're the third largest production centre in North America after Los Angeles and New York. We do a great deal of production for US studios, US broadcasters, and we have a very strong domestic industry that creates content that is for Canada but which is also sold around the world. And we have over the past few years become one of the few major global centre for the production of visual effects. So it's a very, very strong industry here in British Columbia. In 2013-14 we did almost $1.5 billion worth of production here in B.C."

Creative BC administers all the provincial tax incentives for the film and television industry. This is at the root of financing of productions that are made in British Columbia.

"These include labour based incentives so that a percentage of the labour that is BC based labor that is hired for a movie- part of that money comes back to the producer.  In addition to that base level that we have ---which is 33 percent ---there are incentives for doing digital animation or visual effects in British Columbia. Those go on top of the base assistance."

In particular, the Digital Animation and Visual Effects (DAVE) tax credits are interesting and are an incentive that is unique to BC. These are labour credits on the workers used to generate digital media content – used a lot on the post-production projects.

DAVE credits are also an investment attraction tool for BC and they have been helpful for Chinese media companies that set up shop here. They first bring in their key foreign staff and then tap into the local talent here. It's a win-win for the Chinese company which can then export the media back to China, but have access to a different talent set and a more global perspective

Working with China

"I think there's a number of ways that we can work with Chinese companies." Brownsey adds.

"Canada has a co-production treaty for film with China. We can enter into formal treaty co-productions in film and that makes the resulting film domestic product for both countries and allows the producers to access incentives on both sides of the pacific."

This is a developing area that producers are looking into- trying to find content that makes sense for both China and the rest of the world, and then trying to strike a business relationship under this China-Canada treaty,

Brownsey emphasizes that British Columbia is also a wonderful location for producers to come and shoot Chinese controlled productions.

"I think also British Columbia represents a really remarkable opportunity for Chinese companies that wish to establish a North American beachhead for the distribution of, or creation of movies for international audiences. It's a very welcoming business environment here. We have programs that exist under the authority of the International Financial Act which makes the international distribution of content out of Vancouver very, very cost appealing."

"It is a very welcoming environment for companies that are looking to establish a beachhead in North America or a beachhead for the western world."

"I think it's also an opportunity for Chinese companies who wish to invest in B.C. companies, and I think that's particularly true in the digital production space for companies who wish to make direct investment."

Slowly Developing

Brownsey explained that this has been a slowly developing industry:

"We have individual producers who are working very hard establishing relations with Chinese companies. That takes time to develop. We are very open to Chinese companies that wish to film here in British Columbia and provide all kinds of services to anyone that wishes to come into British Columbia to shoot. We help with everything from locations to giving them information on who might be good location or production managers. And explain how they can access the incentives that will allow them to finance the production. So it's an area that we are committed to continuing to work on."

"All the tax incentives are production based and they are based on the amount of B.C. labor that is used in the production of that and there are a few components to it, There's the base level and add-ons if post production happens here."

All added together they represent a very competitive and compelling incentive system in British Columbia:

"It's an incentive system that we pioneered, and the Canadian system for production incentives is the model that is now used around the world." Brownsey says, "and in BC we have been managing these kinds of programs now for fifteen years. So we are very knowledgeable about this system, and we're certainly able to explain it to any Chinese companies considering doing productions here in BC."

Some examples of recent productions

"Finding Mr. Right was shot here, it had huge Chinese box office. There was a co-production on the building of the CPR railroad which was called Iron Horse which was a treaty co-production, and there are a number of television initiatives underway. "

Stories are at the root of co-productions and creating content that is desirable for both audiences in China and in Canada

"We have, between China and Canada a very long shared cultural history so there are stories that resonate both in Canada and in China so I'm very optimistic that we're going to find those stories and we're going to find the companies that want to produce them."

For the industry perspective, I spoke with Sean Patrick O'Reilly, CEO of Arcana Films.

O'Reilly told Caifu Magazine:

"We have already worked with a few Chinese companies and are now very interested in collaborating with the right partner who can help produce and distribute our animated content in China. We are just learning the requirements for distribution and production in China, and want a funded Chinese entity to do true co-productions with."

"My experience in China is quite limited and I have not done a co-production or partnership yet. From what I understand, the requirements for Chinese content are similar to those of Canadian content (CAVCO) so I believe I understand the rationale behind it. Having said that, I can imagine navigating the regulations requires a special knowledge and insight that comes from experience."

The Film Production Industry in British Columbia appears to offer fertile ground to cultivate fruitful partnerships between Chinese and Canadian partners.