Top Chinese producers engaged global venture capitalists in a lively debate about risk in China's rapidly expanding film industry Monday at the market adjoining the 12th Shanghai International Film Festival.
Patrick McGovern, chairman of the International Data Group, which has $2.4 billion invested in 240 Chinese companies -- including online giants Sohu, Tencent and Baidu -- laid out the terms for his country-specific media fund focused on making films.
"We're not interested in stand-alone films but in developing a business around the community of fans," said McGovern, who, with his chief China representative Hugo Shong, called for 35%-40% return on IDG China Film Fund investments.
Wang Zhongjun, chairman and CEO of Beijing-based Huayi Brothers Media, who has backed "If You Are the One" director Feng Xiaogang for a decade, said McGovern's call for high returns was "impossible."
"If you're making one film, it's possible. But if you keep doing it, it's impossible," he said.
Huayi makes five movies a year and recently has been able to draw loans from Chinese banks, like ICBC and China Merchant's Bank, just getting into the entertainment business.
Stepping into the fray were "Crouching Tiger, Hidden Dragon" producer Bill Kong and investment banking rainmaker Levin Zhu (think Petro China's New York IPO), son of former Chinese Premier Zhu Rongji.
Kong, who also is invested in production company and film fund Irresistible Films, said he agreed with Wang's assessment and cautioned that McGovern might be bringing too much American optimism to China.
"The U.S. has a 100-year history in film and returns are studied case by case," Kong said. "There's no general rule, but here one thing's for sure: You have to look at 10-20 movies before you can understand the average return on investment. It's tough to gauge off only five films."
Zhu, a former meteorologist cum managing director of China International Capital, controller of China's sovereign wealth fund, said he saw bright skies ahead but warned that the industry is just now coming out of years of shadow cast by a lack of variety in the films state censors allowed to screen.
He cited a recent survey showing that only about 10% of China's urban population goes to the movies once a week, while the rest goes just once every three to four years.
"Nobody wants to watch movies that rely solely on the government," Zhu said. "The most important challenge is to move our 1.3 billion people into theaters and to have a discussion about what kinds of movies they want to watch."
It's not enough to boost theater attendance, countered Kong, whose hope is that China's film industry soon will learn to grow ancillary revenue with government support to reduce investment risk -- like selling movie-related merchandising, for instance.
Looking to a more radical risk reduction tool, McGovern described the scanner IDG has helped develop at the Massachusetts Institute of Technology. It will measure the brain's pleasure centers when its wearer is watching a movie.
"This could help us reduce investment risk and suggests a ratings system for individual films," McGovern said. "We hope to have a brain scan facility in China in a few years."