Mtime to Create Chinese Movie Merchandising Revolution

For China's nascent movie business, it's about time, Mtime.

Mtime, the 10-year-old, Beijing, China-based movie marketing company founded by Kelvin Hou, a former Microsoft executive, is creating a revolution in the Chinese movie merchandising business that promises to be a very bright spot for the future of Hollywood studio merchandising revenues coming out of China.

Mtime was originally created to be the Chinese version of digital movie resources Fandango, IMDB, Rotten Tomatoes and the TV series "Entertainment Tonight" all rolled into one, and has become the largest online movie ticket seller in China. The company claims 160 million monthly visitors to its website, who come to buy movie tickets, look at movie reviews and get entertainment news. Now, having built a loyal following of Chinese moviegoers and fans for the past decade, the company is further monetizing its customer base by offering them officially licensed movie merchandise both online and in specially designed retail kiosks at movie theaters throughout China.

For Hollywood's movie industry, the Chinese market has been a double-edged sword. On the one side, Hollywood has seen a tremendous interest from Chinese moviegoers for Hollywood films, which has helped build franchises in what will soon be the largest movie market in the world. Yet on the down side, the Chinese government exercises quota limitations on the number of foreign films allowed into the market in any given year.

The consumer product business is also a source of frustrations for Hollywood studios–the licensing component has for years been rife with counterfeit product.

Market Size

Mainland China is currently the world's second largest movie-going market, behind only North America, with rapid growth driven by a booming middle class and a theater-building spree that shows no sign of slowing. To put that in perspective, box office receipts for the U.S. and Canada totaled $11.1 billion in 2015, up 7 percent (source: Rentrak). According to the State Administration of Press, Publication, Radio, Film and Television, China has added about 9,000 movie screens in 2015 alone, increasing its total by about 40 percent to roughly 32,000. By the end of 2017, China will have 40,000 movie screens and most likely eclipse the U.S. in box office gross. This is significant for the licensing business because movie merchandising in China is still in its infancy.

Rules of Engagement

Currently, the process to get a film into China is this: Hollywood studios need to lobby the state-controlled China Film Group to get films released in the country, and because of revenue share with China Film Group, the studios only get to keep 25 percent of the box office revenue. On average, each of the major U.S. studios only has the opportunity to release four to six films per year in China, due to the fact that the majority of films screened in China need to be locally produced. In 2015, 60 percent of films screened in China were made there.

Last year, China allowed 58 foreign films into the country, but only 34 of those were permitted in on a "revenue share" basis, allowing Hollywood studios to take home up to 25 percent of the box office receipts. Foreign revenue share films sold about $2.25 billion in tickets in 2015–meaning the studios pocketed a maximum of $560 million from those 34 titles.

The remaining 24 imports were allowed in on a "flat fee" basis, under which Chinese distributors pay a lump sum up front and all the box office proceeds stay in China, no matter how well the film performs. The upside for China can be huge–one such film, a Japanese animated movie based on the cat character Doraemon, earned $83 million in mainland China this year.

Another major challenge for Hollywood is that China Film Group usually only provides a 30-day notice for release dates, making it very difficult for the studios to properly market and advertise films.

Good News for Movie Licensing

According to Mtime's Hou, from the studio merchandising perspective, what has helped licensing efforts is the Chinese government's increased scrutiny on intellectual property protection and the booming middle class in China which is demanding quality products for their favorite films. Mtime has made a major commitment in its merchandising efforts to create a total merchandising solution with licensing, manufacturing, shipping and merchandising, as well as online/mobile app retail sales.

Exit Through the Gift Shop

Hou believes that Chinese moviegoers will embrace the experience of both entering and exiting a theater with a gift shop that sells officially licensed, high-quality merchandise much like one would find in a museum or concert venue.

To that end, Mtime creates and franchises highly sophisticated in theater retail kiosks that create a point-of-purchase environment conducive to impulse sales of licensed merchandise right then and there. Mtime entered the movie merchandising business several years ago, giving customers the opportunity to purchase movie merchandise at Mtime or at an Mtime-franchised, in-theater merchandising kiosk. Mtime currently has 55 in-theater stores that sell movie products for films such as Star Wars: The Force Awakens and Kung Fu Panda 3.

Mtime plans to have 100 in-theater retail stores installed by mid-2016. To make that happen, in September 2015, Mtime sold a 20 percent stake in its company to Wanda Theatres (China's largest theater chain), betting that retailing movie merchandise will be a growing and profitable area for theater owners.

U.S. Presence

In Los Angeles, Calif., Mtime has an office that acts as its Hollywood marketing base of operations. The office is run by Afrat Spalding, a former Paramount publicity executive who oversees a staff of five full-time film and entertainment reviewers that cover all things Hollywood and entertainment related specifically for Mtime's 160 million monthly visitors. In addition to its L.A. press contingent, the company recently hired licensing executive Aaron Sobel to be its U.S. deal maker and act as a conduit to the U.S. studios. At Mtime's Beijing headquarters, Matthew Su, a former Disney Consumer Products executive, oversees all licensing deals for the company.

2015's Winners

Universal and Disney were the big winners among Hollywood studios in China in 2015, mirroring their worldwide performance. Universal brought in $690 million in Chinese ticket sales from its five major titles, led by Furious 7 and Jurassic World. Disney also had a great year in China with six major releases–Avengers: Age of Ultron and Ant-Man proved to be big hits.

What the Future Holds

In 2017, the studios will have the ability–through the MPAA lobbying organization–to renegotiate both revenue take and the number of films permitted for distribution in China. The studios are hopeful that more competition among Chinese distributors will enable them to derive higher percentages from the box office takes and lessen controls on the numbers of foreign films released per year.

Looking ahead, the future looks very bright for the studio's marketing and licensing folks as there is now a more legitimate way to bring official licensed merchandise into the Chinese marketplace.