In China, Hollywood tries to think outside the box office

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Did you miss Warcraft, the big-budget fantasy flick, when it came to your neighborhood cinema this summer?  If so, you’re probably…an American.

U.S. critics trashed Warcraft even before it hit theaters (“Pricey and preposterous,” sniffed Variety). Online reviewers pelted it with Rotten Tomatoes.  Despite a budget of $160 million, Warcraft grossed $47 million in North America and disappeared almost as soon as it opened.

But don’t cry for Warcraft‘s producers, Legendary Pictures. In China, Warcraft raked in $220.8 million, the third-highest gross of any movie released in mainland cinemas this year.

And now, according to a report in the Wall Street Journal, Warcraft has tapped the China market for even more money. The Journal says Beijing-based online video network PPTV has agreed to pay $24 million for “post-theatrical” rights to the movie — double the value of any previous online video deal for a single movie in China.

Hollywood hopes similar deals will follow. US studios have discovered success in China can give a huge boost to a film’s global box office. (Lest you doubt that, check out the chart below, which lists eight major Hollywood productions that grossed more in China than they did in North America.) But ticket sales at Chinese theaters, after booming last year, have slumped over the last three months. So American studios are scrambling to discover new revenue streams beyond the box office. Many think video-on-demand could be the China market’s next big thing. China’s state-backed China Internet Network Information Center estimates the number of online video users in the country at 504 million. But China’s consumers are notoriously reluctant to pay for content, an attitude reinforced by the ready availability of pirated video and music. Internet research firm iResearch Global estimates China had 29 million paid online video subscribers at the end of 2015, a 264% increase over the previous year. iResearch says China’s paid video segment is at a turning point and has “huge potential” for future growth.

Figuring out the right mix of content to entice paid subscribers can be tricky. U.S. studios are looking to pair up with homegrown Chinese players like PPTV, iQiyi (for now partly owned by Baidu), Youku/Tudou (controlled by Alibaba Group), Tencent Video who are slugging it out for leadership in the segment.

Alas, Chinese viewers don’t do “Netflix and chill.” America’s most popular streaming video provider hasn’t been granted a license in China (although President Xi Jinping has hinted he is a big fan of House of Cards) and many analysts think Netflix has missed it’s chance in China.

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