Beijing-based online video network PPTV paid about $24 million for post-theatrical rights in China to the movie, which it will offer for online viewing, according to a person familiar with the matter.
The deal amount is believed to more than twice the previous peak-price for a single movie in the market, the person said.
Hollywood executives have embraced China’s rise to the world’s second-largest box office but have had trouble finding revenue streams beyond theatrical ticket sales. China has a nascent market for the streaming and video-on-demand services that have proliferated in the U.S. and allow studios to sell a movie several times: first in theaters, and then on multiple platforms that consumers use at home. In
China, rampant piracy led to cheap DVD copies, and a legitimate home-video market never took off as a result.
“China is starting to experiment with having people pay,” said Cecilia Yau, a partner in the entertainment and media practice at PricewaterhouseCoopers LLP’s Hong Kong office. “The amount is not as huge as elsewhere, but the trend is growing.”
The “Warcraft” deal is seen as a sign that Chinese efforts to build that post-theatrical market are working, and if more deals like the “Warcraft” example are signed, they could encourage the Chinese government to crack down further on local piracy rings that have bedeviled all major studios, analysts say.
Legendary Entertainment LLC, which produced “Warcraft,” closed its deal with PPTV in March, months before the movie hit theaters, negotiating a record high price thanks to growing buzz in China. “Warcraft” will begin streaming in September, after it completes its world-wide release.
Legendary is already negotiating post-theatrical deals for its next major feature: February’s “The Great Wall,” an action movie starring Matt Damon as a soldier fighting off monsters at the Great Wall of China, a person familiar with the matter said.
Legendary finances only a few movies each year, which allows it to cut individual post-theatrical deals with various companies and avoid the bundling of multiple titles as some major studios do in China. Legendary was purchased by China’s Dalian Wanda Group Co. earlier this year for $3.5 billion.
In the U.S., major studios have deals with cable channels like HBO, which typically pay 12% of gross box-office receipts up to a cap of $200 million, meaning the “Warcraft” valuation of $24 million is about equal to the upper limits of U.S. deals.
Streaming services like Netflix Inc. often get titles after cable channels, but China’s post-theatrical market isn’t as segmented as in the U.S., where viewers can catch the same movie on online services like iTunes, cable channels like Showtime and broadcast networks like NBC over the course of several years. The PPTV deal for “Warcraft” will become the primary way for Chinese consumers to see “Warcraft.”
This is the second time this summer that “Warcraft” has served as an unlikely test case for how Hollywood works today. The movie, inspired by the “World of Warcraft” videogame, cost $160 million to produce but grossed a paltry $47 million in North America.
However, support from Chinese financiers and the popularity of “World of Warcraft” in China helped it collect $220.8 million in China, currently the third-highest gross of any movie released there this year.
That lopsided dynamic is expected to occur more often as Hollywood caters to the Chinese market.
Despite some recent downturns in attendance, China is expected to become the world’s largest box office in the next few years.
PPTV and its competitors, including Alibaba Group Holding Ltd. and Tencent Holdings , are buying Hollywood content to fill their digital shelves, and revenue from such services in China is expected to more than quadruple from $508 million in 2015 to $2.34 billion in 2020, according to PwC.
As China’s own film industry develops, the battle for Chinese moviegoers is expected to grow as more local productions compete in multiplexes alongside Hollywood imports, which makes the extra money from streaming agreements all the more important for studios.
Source: Wall Street Journal by Erich Schwartzel