However, this is still a relatively new concept in China, where box office returns account for more than 80 percent of a film's total revenues.

"The current Chinese film industry is experiencing a transformation period just like Hollywood did in 1950s and 1960s, breaking the film system into different specialized parts, like film production, distribution, marketing, research organizations and so on. So it is an opportunity to develop movie merchandising now," said Peng Kan, research and development director of Beijing-based consultation company Legend Media.

Although there is huge space for developing licensed movie merchandise, a few issues remain to be solved first.

At the moment even the most successful Chinese films fail to cash-in with spin-off products. Lost in Thailand, which took nearly 1.2 trillion yuan at the box office in 2012, promoted Chiang Mai as advertisements in the movie, however, besides those product placements in the film, there were no spin-off products to generate more revenue for the film.

Moreover, most domestic film companies lack the necessary talent to develop licensed merchandising strategies. There was a mask produced for Let the Bullets Fly, but the product was not well planned and sales of the mask did not contribute much to the films revenue. In Hollywood, film companies have specialized departments to manage licensed merchandise.

The pirating of products in the domestic market is also a reason for the slow development in movie spin-offs. In 2008, licensed merchandise was produced to accompany Stephen Chow's animated version of CJ7, however, the rapid growth of pirated CJ7 products squeezed the profits of the legal goods and effectively stunted the growth of movie merchandising in China. Tan Xiaofang, a marketing expert, says before movie merchandising can take off in the mainland, government policies and strengthened copyright practice are needed to fight pirated products.

The film industry in China should transform to a complete industrial chain and develop a better long-tail strategy for films to ensure the industry's future development.

The author is a writer with China Daily. zhujin@chinadaily.com.cn

(China Daily 08/15/2013 page8)