Why are Internet giants aggressively attacking the film industry?

In 2014, Internet companies entered the film industry in an all-round way, which made many self-satisfied practitioners break out in a cold sweat. Unlike previous entrants, Internet companies not only brought in funds, but also brought successful experience in fields related to the film industry and many new ideas and words, such as "big data", "iteration", "e-commerce", "pain points", "Internet thinking", "disruptive innovation", etc. Throughout 2014, Internet companies used their sophisticated media operation capabilities to instill their thinking into the film industry with a new word almost every month. Hidden behind these new words are not only innovations in methods, but also new rules that are more favorable to Internet companies and a comprehensive transformation of the industry's old processes.

Why has the offensive erupted in the past two years? Why can the film industry, with a market capacity of less than 30 billion box office, attract Internet giants with a market value of hundreds of billions of dollars? To understand this wave, we must trace back to the story of another field.

From a macro-policy perspective, let’s see why Internet giants are aggressively attacking the film industry

In early 1996, the United States amended a law that had been in use for more than half a century, the Communications Act. The biggest change was that it broke down many barriers in the communications field, allowing long-distance calls, local calls, broadcasting, cable TV, film and television services and other businesses to penetrate each other, and allowing various communications operators to participate in each other's investments and engage in cross-regional group operations. In other words, the "three-network integration" (telecommunications network, radio and television network, and Internet) that we are trying to achieve today, the United States had already begun to make legal adjustments 20 years ago.

In 1997, the United States, Canada, Mexico and other countries jointly announced the unified North American Industry Classification System (NAICS), which clearly listed the information industry as an industry category and defined it as an industry that transforms information into commodities, including three categories:

Industries that produce and distribute information and cultural products: such as publishing, film and television, and software industries

Industries that provide transmission or distribution of these products and data or communication media: such as telecommunications, broadcasting and television

Data processing industries: such as the Internet industry, which was in a period of rapid growth in the United States at the time

The re-planning of the information industry in the United States in the mid-1990s and the introduction of a series of deregulation policies on mergers and acquisitions directly led to the collective participation of the media industry, which mainly provides information services, in the fifth wave of mergers and acquisitions in the history of the United States from 1996 to 2001. According to relevant statistics, in 1996 alone, there were 258 mergers and acquisitions in the US media industry with a value of more than US$5 million, an increase of 48% over the previous year. The total amount of the two transactions that year, Disney's acquisition of ABC and Time Warner's acquisition of Turner Broadcasting, reached US$25.6 billion, which is far greater than the annual merger and acquisition amount of China's information industry today.

After the crazy integration in the mid-to-late 1990s, in addition to Disney and Time Warner, several other media giants were born in the United States, such as Viacom (Paramount's parent company), Comcast (Universal's parent company), and News Corporation (21st Century Fox's parent company). These companies still control the global media industry. In 2001, the merger of Time Warner and AOL completed the largest merger and acquisition transaction in the world's history, with an amount of US$186.2 billion, a record that has not been broken to this day.

The reason why we need to trace the development of the American information industry is that in China, we are also facing a critical period of comprehensive adjustment of the information industry.

The integration of the information industry is the main reason for the cross-border development of Internet companies

Similar to the original intention of the United States to vigorously promote the transformation of the information industry in the 1990s, China's economic development has entered a stage where information efficiency determines everything. The information industry itself improves its resource allocation capabilities by expanding scale effects, and eliminating excess production capacity is an inevitable trend.

In the past two years, four policies have been the direct cause of the accelerated integration of the information industry.

In January 2013, the Ministry of Industry and Information Technology, together with 12 other ministries and commissions, issued the Guiding Opinions on Accelerating the Merger and Reorganization of Enterprises in Key Industries, which clearly stated that by 2015, the electronic information industry should have 5-8 large backbone enterprises with annual sales revenue exceeding RMB 100 billion (the three BAT companies have not yet reached this level, but the gap is not big), and strive to cultivate large enterprises with sales revenue exceeding RMB 500 billion.

In August 2013, the State Council issued the “Several Opinions on Promoting Information Consumption and Expanding Domestic Demand”. This was the first time that the State Council publicly used the concept of “information consumption” to understand the market characteristics of the information industry. At the same time, it detailed the methods and steps for “comprehensively promoting the integration of the three networks” and emphasized the national strategic significance of the integration of the information industry.

On February 28, 2014, the second meeting of the Central Leading Group for Comprehensively Deepening Reform reviewed and approved the "Implementation Plan for Deepening Cultural System Reform", which clearly proposed to promote the pilot of special management shares of large media groups as a key task in 2014. Such a move means that China, which clearly stipulates equal rights for equal shares in the "Company Law", may adopt the method of equal shares with different rights to attract private capital from the media field.

In March 2014, the State Council issued the “Opinions on Further Improving the Market Environment for Enterprise Mergers and Reorganizations”, which reiterated the direction of national policy adjustments in response to some detailed issues in corporate mergers and acquisitions, and proposed that entry requirements for private capital in various fields should be further relaxed to promote mixed-ownership operations of state-owned enterprises.

Under the continuous promotion of policies, various private capitals are scrambling to grab as much territory as possible in the information industry, and a wave of mergers and acquisitions with Internet companies as the protagonists is rapidly emerging. According to statistics from the Zero2IPO Research Center, in 2013, the amount of mergers and acquisitions in the broad Internet field (equivalent to the information industry field) in the Chinese market increased nearly three times compared with the previous year. In 2014, this figure further jumped to more than US$20 billion, and the proportion of the entire Chinese merger and acquisition market increased from a negligible one to as much as 19%. It should be noted that the figures mentioned here are only classified according to the acquired parties, and do not include the expansion of these companies in other fields.

Although Internet companies have quickly embraced the new round of policy dividends with their keen sense of smell, the space they can freely expand is actually not large. These Internet companies, which are mainly based on private capital, are still constrained by unclear policy details.

Before the policy is further liberalized, occupying the film industry is the only option for Internet capital

In the basic communications field of telecommunications and radio and television, the relaxation of access to private capital is still at the stage where the thunder is louder than the rain. Alibaba 's equity participation in Wasu Media, which once set off a public opinion storm in April last year, has been approved by the China Securities Regulatory Commission, but has not yet been completed. Its guiding significance for other Internet companies is still unclear.

As for the channel resources of TV and radio, there was a small gap after 2003. This gap gave birth to Zhejiang Film and Television Group, whose assets include the operating rights of Zhejiang Film and Television Channel. When it was established, the private enterprise Zhejiang Guangsha held a 49% stake (later recovered by state-owned assets). At the same time, Guizhou Jintiandi Advertising, in which private capital holds a total of 60% of the shares, was also born. It contracted the content operating rights of several major channels in Guiyang except news. Inner Mongolia Satellite TV, Qinghai Satellite TV, Travel Satellite TV and Nanjing TV all tried different forms of reform at that stage. However, such a gap was replaced by a new conservative policy in 2005 due to the adjustment of government ideology, and there is still no sign of it being opened up again.

So what is left in the entire information industry, and what can Internet companies participate in relatively freely? Obviously, these companies all think of "content".

In some countries, the content industry is called the "copyright industry", which refers to all areas of intellectual property rights. In China, it is basically summarized as the "cultural industry". Different from the tool services originally provided by Internet companies, all content services that fall under the cultural industry have more complete property rights definitions at the legal level, and the awareness of property rights protection in terms of policies is relatively clear. Among these content products, the film industry, although the marketization cycle is not long, is the most open to private capital.

In the previous article, we mentioned that as early as 2003, the government had allowed private capital to hold a controlling stake in the film industry, and this affirmation of private capital was implemented in most links of the entire industry, not just in a certain part. In other content areas outside the film industry, except for games and digital publishing that rely more on online platforms, such as books, newspapers, TV series, variety shows, etc., they are all subject to the constraints of distribution channels and broadcast control platforms. The relaxation of policy access actually lags far behind the film industry.

So, in summary, it is not difficult for us to understand why private capital from Internet companies would collectively gather in the film industry, a market worth only tens of billions, in 2014. The reason why Alibaba and Baidu , among the three major Internet companies, are more active in the film market is that Tencent controls 40% of the online game market, which is another entertainment-based content industry and reached 110.8 billion in 2014, and its monopoly position is difficult to shake. The relationship between games and movies is also obviously closer than the main businesses of the other two companies, forcing Alibaba and Baidu to speed up their efforts.

In the ever-accelerating marketization process, how do we sell movies in 2015?

The Internet companies that entered the market together not only brought new words and new ideas to the film market in 2014, but also brought some methods to try to improve operational efficiency. The logic followed by these methods has re-established the market-oriented thinking of "audience-centered" in the film industry. When all aspects of the film industry are affected by these cross-border capitals, we can see that the marketization process of the entire industry is being accelerated.

The influx of more capital has made film financing relatively simpler. The financing process that used to take half a year or a year has been quickly compressed to less than three months. However, the convenience of financing has not made project managers more relaxed. Because of the unstable market environment and the excessive amount of tentative funds, most capital is calculating returns based on the success or failure of a single project. Capital turnover efficiency has become the main assessment indicator, and people have become very sensitive to project cycles and investment returns.

In this atmosphere, many practitioners are forced into an extremely excited state, striving to pursue higher and faster, but it is difficult to become stronger in the short term, and quick success and instant benefits have become everyone's helpless choice. The film industry, which always magnified the investment amount for publicity effect, suddenly changed its direction. It seems that overnight, we learned the concept of percentage. The media rarely talked about the scale of investment in the topic of box office myth. It has become a common story to fight for big with fast and small with big. So, in this accelerating market, we need to pay attention to some clues that have not changed much, so as to provide reference for our current market decisions.

The 80/20 rule in the film market remains unchanged, and project management becomes more difficult

Although the overall scale of the film market is increasing every year, the market concentration has not changed much. In the North American market, the top 60 movies have a stable share of more than 70%. In China, due to the lack of diversity in film types, this figure is as high as 80%. We have made detailed statistics on the fluctuations in market concentration from 2009 to 2014, and we can see that the figure in 2014 was 83%, which means that in 2014, a total of 388 movies were released, of which 328 accounted for only 17% of the market share, and each movie only got an average box office of 15 million.

However, every month, all major media outlets focus on the movies with the highest returns, and all movies that have not yet been released do not think they should belong to the 17% range. We have collectively created an atmosphere of optimism, which has led some practitioners and new entrants to believe that the film industry is an open-pit gold mine that has yet to be mined. As long as the shovel is big enough, you can get enough. As a result, the investment scale of a single movie is rapidly increasing, and the current growth rate has gradually exceeded the growth rate of the total market.

The overall profit rate of any industry that is not an administrative monopoly is relatively stable. If it is pushed up by market demand, the influx of new competitors will immediately bring it back to its original state. Therefore, we can see that media costs are growing rapidly in 2014. The cost of new media platforms, which were almost free in the past few years, has increased faster than the increase in publicity and promotion budgets. At the same time, we can also see that the cost of cast and crew is increasing. The income of some young actors has quickly reached the tens of millions level, and their schedules have been scheduled for a year later. The most important thing is that all the factors that can impress the audience are facing a continuously increasing threshold. Special effects? Stars? Directors? Topics? The publicity magic potions that used to work well are gradually losing their former effectiveness because they are output to the audience too frequently.

Unlike the demand for capital, for frontline workers, when the scale of investment increases, the management difficulty also increases. They need more time for preparation and planning, a more stable power structure to think about the control of rhythm, and more resources to support increasingly complex operations. Unfortunately, such demands are difficult to be taken seriously from the beginning of a film project, and everyone needs to be stung by the market before they reflect on themselves.

The audience's demand structure for movies remains unchanged, and real gold needs to be polished to shine brighter

As a form of cultural entertainment consumption, although the movie itself seems very complex, at the audience level, the structure is relatively clear. We can divide their consumption awareness of movies into three levels.

Functionality: As a passive form of consumption experience, whether a movie can provide entertainment is always the first factor for the audience when judging whether it is worth watching. The core consumption purposes of audiences of different types of movies are slightly different. Comedy movies are consumed for joy, drama movies are consumed for suspense, love movies are consumed for romance, horror movies are consumed for tension, fantasy movies are consumed for escape from reality... These satisfactions that can be provided by just video clips are the most basic functional requirements of the audience for movies.

Sense of immersion: In psychology, it is usually called a sense of presence, and in the gaming industry, it is called a sense of immersion. Regardless of how it is described, its essential meaning is the same, which means that the audience believes that they are in the world of the movie from a spatial perspective. The most effective way for the audience to gain a sense of immersion is to provide a multi-dimensional perspective and a large number of rich image details, and the transition of these perspectives and the connection of details need to be consistent with the audience's understanding of the narrative. This places higher demands on technical control. Any deficiency that requires the audience to use their brains to think while watching the movie will affect the sense of immersion. In the film industry, we usually call it "out of play."

Social value: The audience's willingness to accept the movie experience essentially comes from human learning ability. From the moment of exposure to movie information to the discussion after the movie, it is a process of arousing curiosity and finding answers. The mass characteristics of the movie market make a large number of people complete similar experiences at the same time, so the social value brought by the exchange of experiences has also become the audience's main demand for movies.

Because watching movies in theaters is a paid service, the above three needs have a clear ranking at the audience level. The audience's understanding of any movie promotion information will start from the functionality. When the audience thinks that they can get functional satisfaction, they will consider whether it is worth going to the theater to consume the sense of immersion. As for the acquisition of social value, the audience can complete it through any viewing platform, so in mature markets, the arrangement of the window period and the large-scale promotion budget are to encourage the audience to go to the theater as soon as possible.

Based on the situation of the Chinese film market in 2014 and our understanding of future development, if we want to do a good job of promoting the film itself in 2015, we may need to make the following adjustments in project operations.

From the pursuit of dissemination to the pursuit of accuracy: Nowadays, the supply of movies is becoming more and more sufficient, and the audience has become more picky about the functionality of movies. If you want the audience to have a clearer understanding of the effectiveness of the functions, you need to first reduce the appearance of noise. The previous over-reliance on "topics" in movie promotion has seriously interfered with the audience's ability to analyze movie information today. The uncontrollable dissemination of new media channels and the flood of movie information on such platforms will blur the audience's understanding of a single movie. Therefore, reducing the frequency of releases on new media channels and expanding the coverage of the same release on multiple platforms are adjustments that must be made.

The construction of the sense of immersion needs to be strengthened: the trailer is a trial version of the movie, and it is also the main tool for the movie to let the audience predict the sense of immersion. In the past movie promotion, we usually hope to attract the audience's attention by triggering topics, so that the audience will actively search for trailers. However, if the topic has not been laid for a long time and the absolute control over the communication process is not achieved, it will be a more effective choice to directly increase the release of trailers and reduce the obstacles for the audience to contact the trailers.

Guidance of social value needs to be more focused: the appeal of a movie to the audience is composed of multiple elements. In the past, we would disassemble stars, directors, scenes, and plot conflicts into fragmented information for dissemination, hoping to trigger different discussions and expand the influence. However, due to the increase in market supply, these elements have been reused too frequently in various movies, and the audience has begun to feel fatigued. In order to better utilize these elements, it is necessary to strengthen the unified construction of movie brands, that is, to highlight the significance of the movie story itself, so as to better accelerate the fermentation of movie reputation and improve the social value of the movie.

Conclusion: Consumption and art always go hand in hand

China's current round of economic development is under the trend of "neoliberalism", and deregulation is the main direction of national policy reform. The policy changes that occurred in the United States after 1980 due to the prevalence of "neoliberalism" are being staged in China today. The social problems faced by the United States at that time are also the confusion we need to face today. Unlike the American market, movies have not yet achieved their ultimate role in unifying social ideology and shaping new social ethics. "Top Gun", "Driving Miss Daisy", "Rain Man", "Forrest Gump" and other movies that repair family and interpersonal relationships, ease class conflicts, and shape spiritual orientation are the most lacking of Chinese audiences at present, but they are also easily despised.

In 2014, we believe that "Dearest" is the film with the most market reference value. Its production results show a perfect combination of education and entertainment. Its rigorous market operation also helps the film to better fulfill its mission. We believe that a good film cannot be evaluated only from the production. Film is a medium. Film should use its popular language to let people find the sense of security of collective belonging again. Therefore, it must be fully experienced by more audiences before it can really come to an end. How to make a good film and sell a good film well requires us to clear the haze floating on the surface and really go to the audience to understand their feelings and needs.

Even though the market is currently over-pursuing "entertainment", Fanying believes that this is only the result of temporary blind consumption by audiences in the second and third-tier markets when they re-enter the theaters, and it is also the result of some young creators being limited by their own and the industry's overall capabilities and being unable to be perfect in innovation. However, the rapid iteration of the film market will allow the audience to quickly wake up and rediscover their needs. A group of valuable creators are also being recognized by more capital, and we believe that they will eventually gain real respect from the market.

Audiences and creators have never been in opposition. Consumption and art have always been parallel and mutually supportive in the development of human society. When any capital enters the film market, it does not want to bear a bad reputation. Making good movies and making more good movies is the demand of the film market and the whole society. It is also the ultimate bargaining chip for creators to obtain negotiation rights when facing any capital.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.