Film industry needs long tail to grow

The domestic film market registered record half-yearly box office returns of 10.9 billion yuan ($1.77 billion) in the first six months of this year, up 35 percent year-on-year, and there have been excited voices saying that the Chinese film industry is about to boom in the international market. However, box office success is just part of the industry's chain, and without the further development of licensed movie merchandising, the Chinese film industry is still in the early stage of development compared to developed countries.

Movie merchandising refers to the spin-off products from a film, such as toys, audiovisual products, books, video games, souvenirs, clothes and even theme parks. Such merchandise is an indispensable part of the industry's value chain and manifests the long-tail retailing strategy of selling a large number of unique items in relatively small quantities.

The importance of such long-tail spin-off retailing for movies has been proven in developed film markets, such as the United States, where the box office usually accounts for only 22 percent of the total revenue generated by a film. The rest comes from non-theatrical releases and film-related products.

The most successful movie merchandiser is Walt Disney Studios. For instance, in 1994, the company invested $45 million to produce The Lion King, which took $780 million at the box office, while the revenue from spin-off products was more than $2 billion. The effectiveness of movie merchandise as a money-spinner was demonstrated by the original Star Wars trilogy in the late 1970s and 1980s. The films realized $1.8 billion at the box office, while the revenue from spin-off products exceeded $4.5 billion.

Movie merchandising has already become a mature and profitable channel in the film markets of developed countries. Usually, a popular Hollywood movie will authorize around 50 to 100 different products as licensed merchandise. The total sales revenues from such products reached $147 billion in 2010 worldwide, according to data from Licensing Letter. Therefore, the major film studios consider spin-off products as a crucial element in the pre-production stage.