What Hollywood Can Learn From China's $510M Box Office Hit 'Mermaid'

Hong Kong filmmakers have had spectacular success tailoring recent releases to the nuances of the Chinese market.

This story first appeared in the March 18 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

Throughout the 1990s and 2000s, the biggest story in Chinese cinema was the attempts by Hong Kong's A-list actors and directors to cross over into Hollywood. Jackie Chan, Jet Li, Stephen Chow, John Woo and others strove to transport their careers to the larger industry pond of Southern California — and often succeeded. Today, however, Hollywood is little more than an afterthought for the leading lights of Hong Kong cinema. Instead, Chow, Chan and their peers have set up shop in mainland China, where they have come to dominate the market and achieve a degree of success considered inconceivable 10 years ago.

During the Chinese New Year holiday in early February, actor-director Chow smashed China's domestic box-office record with his comedy The Mermaid, which pulled in $440 million in barely more than two weeks and as of Wednesday morning U.S. time had reached $510 million.

The quick record run by the movie, a timely fantasy about a group of modern mermaids battling a ruthless developer who threatens their habitat, was all the more impressive given that it faced off against two formidable rivals, both also directed by Hong Kongers: Cheang Pou-soi's fantasy epic sequel The Monkey King 2 grossed a muscular $164.1 million during the holiday period, and Wong Jing's gambling comedy From Vegas to Macau III earned $158.1 million. Together, the three titles are expected to climb toward $1 billion from China's theatrical market alone.

Hollywood's sway in the Middle Kingdom, meanwhile, has been slightly on the wane. No U.S. studio film has topped $150 million and achieved blockbuster status since Jurassic World grossed nearly $229 million in June 2015 (Star Wars: The Force Awakens ran out of gas in China at $125.4 million in January) — a period that has seen nine Chinese films exceed $150 million at the local box office, including five China-Hong Kong co-productions.

Chinese film regulators' preferential treatment of domestic movies is partly to blame — import "blackout periods" are imposed during lucrative holiday windows, giving Chinese titles the best release slots — but local industry figures say it's also true that Hollywood films haven't been connecting with Chinese audiences as consistently as they once did.

"The Chinese love their culture, and they love to see it onscreen," says Los Angeles-based producer Bill Borden, a consulting producer on Mermaid. "That's why Stephen is so popular: He has a million little jokes and funny nuances in his movies that you just won't get if you're not Chinese. To continue to work in China in a big way, you're going to have to be culturally sensitive."

Soon after the Closer Economic Partnership Arrangement was signed by China and Hong Kong in 2003, eliminating trade barriers between the territories (Hong Kong operates as a special administrative region of mainland China, with a separate legal system and trade laws), Hong Kong filmmakers began flocking to the mainland to co-produce films in Mandarin Chinese rather than their native Cantonese, tapping the country's rapidly expanding box-office potential. The Hong Kongese had more experience in audience-pleasing commercial filmmaking than the mainland Chinese industry, which had been government-supported for decades. The result: Hong Kong filmmakers' cultural edge over Hollywood has become increasingly apparent.

Constrained by China's import quota, which allows only 34 foreign films into the market each year, and, to a lesser degree, language barriers, U.S. studios have begun an accelerated push toward the Hong Kong model for success in the mainland.

In the fall, Warner Bros. announced an agreement with China Media Capital, a giant investment fund backed by the Chinese government, to form the Hong Kong-based joint venture Flagship Entertainment, which has offices in Beijing and L.A. and will develop, distribute and produce a slate of Chinese-language tentpoles. DreamWorks Animation was ahead of the curve: In January, its Shanghai-based Oriental DreamWorks venture with CMC released its first film, Kung Fu Panda 3, in Chinese and English versions that have grossed a combined total of $144 million, Hollywood's best showing in China in more than six months. Sony Pictures Entertainment, meanwhile, poached international guru Sanford Panitch from Fox to bolster its local-language production pipeline, with a particular emphasis on China.

"This is going to be the trend," says Borden. "Every studio is going to have to be in China, making Chinese films — there's no reason not to be with the box-office potential that big."