China's box office is back thanks to piracy crackdown

[Len]

Good news for Hollywood studios but 'Star Wars' flop reveals challenges ahead

After coming to a screeching halt in 2016, the Chinese box office is back. Annual ticket sales returned to double-digit growth in 2017, helped by new rules that purge pirated movies from the internet, leaving no other option but to go to the movies for new releases.

"I was able to watch any movie for free online just a short while ago," said a 24-year-old company employee who works in this city. When she was in school, pirated Hollywood titles could be viewed after a simple search.

But now, all that remain are fee-based streaming sites on which the newest films are unavailable until a month after their theater release date. The woman said she had little choice but to pay to see the latest releases on the big screen.

Cinemas have become a popular recreational destination for China's expanding middle class. Until 2016, box-office receipts had been climbing by 20-50% annually, according to data from EntGroup, a Chinese research firm. The rapid growth had put the country's movie market on track to outstrip the leading North American market.

But the boom then evaporated, with ticket sales growing only 3.7% in 2016 and sales actually shrinking 7% in the first quarter of 2017, the first such decline on record. The reversal was blamed on a lack of good domestic films, cheaper tickets, diversified entertainment options -- and rampant internet piracy.

The recovery in ticket sales is good news for Hollywood. China has become a major source of revenue and a "safety net" for U.S. studios that can recover their production costs even if an expensive film flopped in their home market.

Michael Bay's "Transformers: Age of Extinction" (2014), for instance, was largely considered an under-performer in the U.S. selling $245 million in tickets. Yet, it became the-then highest grossing movie of all time in China, raking in $320 million. Globally, it earned $1.1 billion in total, easily making up for its production budget of $210 million.

Hollywood's growing reliance on the foreign box office, however, brings a new set of challenges. Western movies can struggle if Chinese audiences fail to relate to the storyline. The Star Wars franchise found that out the hard way this week when the much touted "The Last Jedi" was pulled from most Chinese screens after just two weekends. Following a relatively weak opening weekend of $28.7 million, ticket sales tumbled 92% to $2.4 million in its second Friday-Sunday period.

The nostalgic references to the original series were lost among the young Chinese cinema-goers. Luke Skywalker standing on an island? China was just one year out of the Cultural Revolution in 1977, when the first Star Wars film was released.