China's box office is booming, but will VR crash the party?

By Julie Makinen

June 18, 2016 7:09 AM PT

Reporting from Shanghai — China’s box office numbers continue to boggle: Just look at Legendary’s “Warcraft,” which took in $158 million on the mainland last week, six times more than its opening weekend in the U.S. and Canada. China’s screen count, meanwhile, is still climbing by the day, and box office receipts on the mainland may pass the U.S. market as soon as next year.

But could the cinematic party be over just as it’s getting started? A raft of Chinese companies is working to convince consumers that the ultimate viewing experience is not on the big screen, but on the small ones already in their pockets — thanks to the burgeoning technology of virtual reality.

For the record:

2:00 p.m. June 25, 2016June 26, 6 a.m.: Due to a translation error, an earlier version of this story said Digital Domain chief executive Daniel Seah believes virtual reality technology will replace traditional film. He said he thinks VR will never replace traditional film.

“China is going to have 30,000 cinema screens by the end of this year,” Thomas Tang, vice president of Xiaomi Pictures, told an overflow crowd of industry players who packed into a movie theater this week during the Shanghai International Film Festival to hear three hours of discussion about virtual reality. But Tang’s company is a popular Chinese producer of mobile phones, TVs, routers and even air purifiers, and he noted with a pregnant pause: “Our company alone already has 220 million phone users.”

Hardware makers like Xiaomi are touting virtual reality as a superior experience to traditional moviegoing for Chinese consumers. The company, known for sleek designs at budget prices, plans to introduce its own VR headset in August, going head-to-head with devices like the Oculus Rift and HTC Vive.

“When you go to watch a 3-D film in a theater, the glasses may be scratched. The people behind you might be eating loudly or kicking your chair,” Tang said. “With VR, we can achieve a great ‘watching it alone’ experience.”

Already, virtual reality arcades are popping up in major cities like Beijing, giving customers the opportunity to watch VR films and play VR games for about the same price as a discount movie ticket.

And online streaming video sites like Youku, which in recent years have been key distribution platforms for Hollywood films and TV shows, are rapidly moving into the VR distribution space, launching their own VR apps and channels.

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China has more than 700 million smartphone users, and a large percentage of them already are more than willing to download and watch TV shows and even full-length films on their handsets, potentially making them more willing to delve into VR content than Americans or Europeans.

Chinese smartphone users also have embraced so-called microfilms — or short online films — making the barrier to entry for VR shorts even lower.

But it’s not just Chinese device makers and video websites that are banking on the notion that VR will suck viewers away from movie theaters. Production companies that for years have been involved with blockbuster films created for cinemas also are warning that disruptive change is around the corner.

Virtual reality is going to transform as much in the next 10 years as cellphone technology has in the last 10.

— Daniel Seah, chief executive of Digital Domain

“Virtual reality is going to transform as much in the next 10 years as cellphone technology has in the last 10,” predicted Daniel Seah, chief executive of Digital Domain, the special effects company co-founded by James Cameron in the early 1990s and sold to Chinese investors a few years ago after Chapter 11 bankruptcy proceedings. Augmenting its VR capabilities, Digital Domain last year acquired a 360-degree camera-maker that originally was working in the military and drone space, Seah said.

“Virtual reality will never replace traditional film,” he said, “but watching in VR, we can really engage people.”

In conjunction with the film festival, Digital Domain erected a large display in a Shanghai mall, showcasing its VR technology being used in video games and short films like Chris Milk’s “Evolution of Verse,” which was produced by Megan Ellison’s Annapurna Pictures and debuted at the Sundance film festival last year. (Digital Domain also showed off its life-size hologram of dead Taiwanese pop diva Teresa Teng.)

Maureen Fan, chief executive of the Silicon Valley VR start-up Baobab Studios, brought her company’s animated short “Invasion,” a light feature about aliens outwitted by a cute bunny, to Tribeca in April and to Shanghai this week.

“I think China is even more excited about VR than the U.S. is,” said Fan, whose parents are from China and who has worked in both Beijing and Shanghai for eBay and games-maker Zynga. “People here are really hungry for entertainment, and particularly family entertainment.”

Eugene Chung, the former head of film and media at Oculus and now founder of Silicon Valley VR start-up Penrose, told the Shanghai film festival crowd that the field is evolving much more rapidly than he expected — in significant part because of Facebook’s purchase of Oculus in 2014 for $2 billion.

“What I thought would take 10 years has happened in one or two,” he said. Penrose’s film “The Rose and I,” inspired by the classic tale “Le Petit Prince,” showed at Sundance and is now available in China. A second film, “Allumette,” debuted at Tribeca and also was featured in Shanghai.

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But Seah said what continues to be lacking is content. “It takes a village to make an industry,” he said. “Today, the technology is there, but we badly need the creativity.”

Because much of the content produced for VR is wordless — including travel-type documentaries, games and animated films — it may move more rapidly across borders than TV shows and movies that require extensive subtitling. That could be a factor in advancing the development of the field, industry players said.

But Fan believes what’s really needed is more storytellers, to move VR beyond a fad or a niche product and into the mass market. She predicts it will take at least another 18 months before VR truly becomes adopted by the broader public — in China or the United States.

“There’s a certain amount of good content, but there needs to be more,” she said. “What we would love to see is more storytellers in the scene.”

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