Why China?
The Chinese consumer market for animation products has been identified as one of the world’s largest. The primary segment, Chinese citizens under the age of 16, is more than 370 million strong. With strong support from the Chinese government, the animation industry is developing at an unprecedented speed. This has attracted growing numbers of competitive international players to seek potential opportunities in China.
Since 2004, the industry in China has been developing rapidly.. The State Administration of Radio, Film and Television (SARFT) reported that in 2009, China produced 322 TV animation programmes- 171,816 minutes compared to 46,000 minutes between 1993 and 2003. There were at least eight domestically produced animated films in 2010. However, total broadcast demand for animated products is forecast at about 300,000 minutes a year in China. When the output value of the industry reached RMB 26 billion by the end of 2008, experts estimated that there was still room for a further RMB 100 billion of development.
UK Trade & Investment Sector briefing: Music sector opportunities in China
Opportunities
The Chinese animation market offers opportunities for international animation professionals to explore in the following main areas: co-production, investment, licensing, animation application in new media and provision of training.
Background on the Opportunities:
Whilst the Chinese animation industry is facing challenges (detailed below), the Government has made a firm commitment to boosting the industry – resulting in numerous business opportunities for the right UK companies.
Direction Change: From Outsourcing Suppliers to Programme and Brand Developers
The direction of the development of the Chinese animation industry is changing, which requires domestic companies to look for co-operation outside China. Providing outsourcing services was the main business of most Chinese animation companies and production had been their strength. But now China is facing fierce cost competition on manpower from Vietnam, North Korea and India. Many orders are flowing to those countries, attracting with the lower production costs. The industry in China has started to realise that creating its own animation programmes and brands is the only way to survive and flourish. Domestic companies now want to be more than outsource suppliers and are looking more at developing original content both for domestic and international markets.
Competition from the US and Japan
China’s Animation industry faces severe competition, as the domestic market is dominated by massive US and Japanese animation products. Foreign cartoons especially from the US and Japan have flooded into China since the 1980s. They rapidly took control of the market. The China Youth Daily in November 2008 conducted a research of nearly 3,000 people. The poll showed that only 14.2% preferred Chinese animation and cartoons over those produced in the US or Japan.
The Industry’s Incomplete Industrial Chain
The Animation industry in China has not developed into an integrated industrial chain, which is composed of five parts: market research & planning, animation development & production, marketing & publishing, broadcast, and derivative industries. The chain usually involves more than 20 industries including consultant, animation production, broadcasting, publishing, toys, clothing, and theme parts etc. However, the Chinese animation industry has concentrated mainly on animation development & production and broadcast. Other parts of the chain have not seen much activity. The industry relies on TV broadcasting. It is not uncommon for animation programmes in China to be sold to TV stations at very low prices- leading to programmes not providing a return on investments made in them..
Lack of Talents in the industry
Executives complain that China is short on top-notch animators and international animation talents, who specialise in international operation and practice. This is a stumbling-block preventing Chinese animation from going global. Up to 2008, 447 colleges and universities had set up animation curricula. Though more graduates are flowing in to the market, integrated talent, with know-how in animation, are difficult to find. Creative story writers, directors, strategic planners and marketers are the most sought-after in the industry.
No Story to Tell
Technical skills in China are starting to rival those of the US, Japan and Europe. But Chinese animation programmes lack individual characteristics both in story and characters. The film “Pleasant Goat and Big Big Wolf”, a production worth RMB six million, pocketed over RMB 100 million at the box office, becoming the new champion of the industry. But critics commented that its movie version was just a simple cut-and-paste from the original TV series. The story telling is weak in Chinese animation industry. A lot of animated series are based on foreign animation programmes in terms of content and characters and the similarities are easily spotted. Audiences now, both children and adults, require more original and entertaining stories and characters.
Lack of Experience or Content Catering to International Audiences
Chinese animation companies have found their programmes difficult to enter foreign markets, especially the US and Europe ones. A lack of experience of catering to international audiences is one of the reasons. Though the Government have funded various projects worth billions of RMB, most funding has been given to low quality programmes for domestic distribution. The other reason is Chinese animation practitioners tend to take inspiration from China's 5,000-years of history and culture. They find it difficult to step out from their comfort zone and create something accepted by both the East and the West. Moreover, the Chinese Government encourage the application of Chinese culture. Many Chinese animation characters and content are based on Chinese culture, mindset, heritage and humour. That is why Chinese animation productions are unlikely to be broadly popular in the West.
Support to the Industry from the Chinese Government
The recent rapid growth of the industry thanks largely to continuous efforts from the Chinese Government, setting up supportive policies to boost the domestic animation industry. The Chinese Government are fully aware of the value of original animation creations. They realise it is an industry which has the potential to be a new and significant economic growth area.
Governments at all levels are committed to supporting the animation industry through preferential taxation, industry funding, establishment of industry parks, and protective regulation etc.
Since 2006, the Central Government has made an annual investment of RMB 200 million into the animation industry. Additionally, the Ministry of Finance and the State Administration of Taxation jointly issued a favourable taxation policy to further support the industry in July 2009. A number of animation industrial bases, integrating multiple functions including training, technical research & development, business development, incubation of small and medium sized business, and international co-operation, were set up in the regions of Beijing, Yangtze River Delta, Pearl River Delta, and Hunan.
The Chinese Government’s support and effort to boost the domestic animation industry has started to pay off. According to the Ministry of Culture (MOC), there are about 10,000 companies making cartoons and comics and the industry employs more than 200,000 people. China has a major platform of 34 TV channels for children and four animation channels for domestic animation with broadcasting time of about 8,000 minutes every day.
According to Xinhuanet, in 2009, China exported 79 animation programmes of 1,490 hours, which were worth $30.57 million, a surge of 150% from 2008. And it was the first time that exports of animation programmes, accounting for 51.8 % of exports of movie and video programmes, exceeded that of TV series- with a value of $20.05 million, 34% of the total.
Opportunities:
Opportunities in the Chinese animation market for international animation professionals can be found mainly in co-production, investment, licensing, animation application in new media and providing training.
UK Companies Co-producing Animation Content with Chinese Companies
Since 2004, SARFT has strictly controlled the broadcast of foreign animation content to no more than 40% air time. Prime time slots are reserved for domestically produced content (further details below in ‘Challenges’.) Even with the 40% allowance, most of the foreign animation contents are old cartoons that TV stations purchased a decade ago from the US and Japan, such as Mickey Mouse and Donald Duck and Saint Seiya. The Government’s regulation has posed a solid barrier for foreign animation content to broadcast on Chinese TV stations, especially the national one, China Central TV (CCTV).
However, co-production or investment in Chinese animation content makes it possible for foreign animation companies to enter the Chinese market. According to Article 18 of the Provisions on the Administration of Sino-Foreign Cooperation in the Production of TV Plays, “A TV cartoon made through Sino-foreign joint production that aims to embody Chinese characteristics can be broadcast as a domestically produced TV Cartoon.”
There are many examples of successful cooperation. Shanghai Fantasia Animation Co., Ltd. co-produced “Shaolin Kids” or “China Boy” with Les Cartooneurs Associés from France. When the series was broadcast on the children’s channel of CCTV, the national TV station, it immediately achieved 2.36% audience rating, the highest for an animated series by CCTV of the year. It became one of the most popular cartoons in China. Later in the year, CCTV for the first time replayed “China Boy” during prime time. Local TV stations also broadcast the programme in prime-time slots. When “China Boy” was on the Jiangsu Children’s Channel, it made the best rating of all. The sales of its comic books reached two million copies in the first month. When it was broadcast in France, it broke the record of 45.6% audience rating among children from four to ten years old, becoming the highest rated series in recent years. The copyright has been sold to more than 30 countries and regions.
Other examples of successful joint TV and film animation production is “The Secret of the Magic Ground” by China Film Group Corporation and Disney, and “Monkey King in Havoc in Heaven” in 3D by Shanghai Film Group Co., Ltd. and Thomson/Technicolor from France.
The Chinese Government is supportive of such cooperation. In June 2010, with the support of Chinese Ministry of Culture, 14 Chinese animation companies, organised by China Animation Group, participated in the Annecy International Animated Film Festival in France. It was the first time that a delegation of Chinese animation companies took part in the most influential animation festival in the world. It was reported that the Chinese exhibitors successfully obtained eight joint projects, which were worth more than RMB 435 million.
UK Animation Companies Co-operating with Chinese Publishing Houses
Chinese traditional publishing houses in China show more and more interests in animation brands. They consider co-operation with animation companies as a win-win business model. Animation not only can be used in comics to enrich publishing content and resources, which can strengthen publishers’ competitiveness in the industry, but also can be applied to the whole industry chain including TV series, films, toys, stationery, theme parks and other derivatives. UK animation companies can join ventures with or licence their animation characters and stories to Chinese publishing houses as a bridge to the Chinese market. In such partnerships, publishing houses act as strategic investors. They require high-quality investment products, which UK companies have confidence in.
In 2010, the Northern United Publishing and Media Group acquired 55% shares in Blue Cat Animation, a well-known domestic animation brand in China. Sharing resources of animation content and publishing platform is one of the important aims of the partnership.
Recently, China South Publishing & Media Group Co., Ltd. through its subsidiary company Hunan Tianwen Animation & Comic Media Co., Ltd. joined ventures with Kadokawa Holdings China Ltd. of Kadokawa Group Holdings, Inc. from Japan to provide animation production, multimedia development, as well as translation, adaption and publication of Kadokawa’s comics.
A new Channel in New Media for UK Companies
Besides traditional media, the booming new media in China can provide another opportunity for UK companies, especially small and medium sized, to step into the Chinese market. The new media platforms of handset, internet, Personal Digital Assistant (PDA), in-car TV etc. have provided great market potential for animation programmes.
Take handsets and on-line gaming for example. According to Talkweb Information System, a listed mobile animation company in China, the revenue from its mobile animation has gained record growth of 25.2% in 2009, reaching RMB 60 million. With the rapid growth of 3G users in China, mobile animation will become the fastest value-added service for 3G users. This will bring large market demand for mobile animation programmes.
On-line gaming is the main revenue source of Net Ease, one of Chinese leading internet technology companies. According to its annual financial report 2008, around 90% of its revenue, which was worth RMB 3,000 million was from on-line games. The game of “XYQ” was the main contributor. Registered users of “XYQ” reached 230 million by 2008. Net Ease is planning a co-operation with Shanghai Tangtang Animation Culture communications Co., Ltd. which integrates animation, comic and games to its industry chain. Tangtang considers Net Ease as its strategic partner in the chain who can provide a powerful channel and may bring it over ten million RMB a year.
China is still weak in applying animation to new media in terms of R & D, story telling and design of animation characters. Their main skills and experience still lie in out-sourcing tasks. UK companies can make full use of the new media channel to access the domestic market.
UK Companies Providing Animation Training Service in China
Today, a growing number of universities and colleges in China offer animation and industry relevant programmes. But China is facing a shortage of talents especially those with background of international practices and experience as teachers or trainers. By 2010, although around 1000 universities have animation relevant courses, the industry has a surplus of animation production personnel while it lacks creative talents.
The Government have been active in funding training in the industry. Animation teachers and industrial practitioners have been funded to study abroad and foreign professionals are invited to share their expertise or work in China. Since 2008, the MOC has held various short-term training programmes in animation content, directing and marketing, with Chinese and foreign training experts.
UK animation experts can find opportunities in providing training in creating animation content, refining techniques, marketing, international operation and practice.