In terms of its impact, Cape No. 7 was truly "all of the above." Taking Taiwan's theaters by storm, it also raised the following question: Is the film's great success a fluke, or does it present an opportunity for the Taiwan film industry to permanently right itself?

After Cape No. 7 became a smash hit, its director Wei Te-sheng would be asked the same question wherever he went: How were you able to make such a commercial success of the film?

"I had control over making the best film I could, but I feel reluctant to offer Cape No. 7 as a model for the future distribution and marketing of domestic films." Sounding somewhat lost for words, he says his situation resembles that of someone who hocks all his furniture to buy a lotto ticket. When the number he picks really does win NT$500 million, everyone asks him how to pick the winning number. "I really don't know!"

Before Cape No. 7 hit Taiwan's screens, Wei would tell his friends about his theory of box-office success, but no one took him seriously. He believed that most Hollywood blockbusters were released during summer vacation in Taiwan, with a second wave of big films released in October for the Double Ten national holiday. He observed that the films that hit the screens before the end of summer vacation in 2007 were all "safe bets" at the box office. For instance, Secret, directed by pop star Jay Chou, raked in more than NT$26 million.

Although Cape lacked a big cast, an upbeat film on a music-related theme hadn't been released in a long time. Wei figured that as long as promotion of the film was handled well, it would have a good shot at reaching NT$30 million at the Taiwan box office. After the film won the Taipei Award Grand Prize in July 2008, the American company Buena Vista became very interested. Believing the film was well suited to all age groups, the company was confident that it could be marketed like a Western film. In one go, Buena Vista made 50 copies of the film (at a cost of NT$60,000 per copy). It hoped the film would create a sensation in theaters throughout the island.

With one part confidence and one part gamble, this gust of sea wind from Hengchun blew at the right time, supplying a fun spirit the public hungered for. Cape No. 7 played for a record 115 straight days in Taipei, longer than any Western film ever. Even Wei can't put a finger on the source of its relentless and contagious power to in the crowds.

"NT$30 million is what we deserved. Earning up to NT$50 million required us to be grateful to the public. For everything over that, there's only the Lord to thank," says Wei, who is a Christian. "Thank you for these blessings!"

(ARS Film Production)

Hollywood butterfly effect

Behind this "miracle" of NT$520 million is a complex mesh of factors, some directly connected to the local film industry and some not.

Economically and politically, Taiwan was a mess in 2008. News about the corruption scandal involving former ROC president Chen Shui-bian dominated headlines day after day. Then the dream that newly elected President Ma Ying-jeou would promptly make everything better was shattered. The global financial crisis hit like an economic tsunami, and the unemployment rate grew and grew. A great sense of despondency settled over society. Even New York Yankee Wang Chien-ming-"the glory of Taiwan"-injured himself running the bases and was unable to play during the second half of the season. And a gambling scandal once again shamed Taiwan's professional league. Dispirited fans needed another release.

But why did the crowds choose a local, not a Western, film? In part, it is connected to the writers' strike in Hollywood.

In July 2007 the Writers Guild of America, which has 12,000 members, protested that its members' wages were too low, and demanded that they share in the DVD and webcasting proceeds from films and television shows. The guild tried to negotiate an agreement with the Producers Guild of America but wasn't satisfied with what it was offered. In November the Writers Guild called for a strike and its members formed picket lines. Writers control the source of Hollywood's product, and as a result of their three-month strike, many talk shows, TV serials and films had to shut down. The public was eager for new content, but all television networks could do was broadcast reruns. The strike also resulted in a "butterfly effect" of unintended consequences in nations that import the Hollywood product.

"Cape No. 7's path to box-office success was related to the Hollywood 'vacuum,'" says Robert Chen, an assistant professor in the Department of Radio and Television at National Chengchi University. "But as far as the Taiwanese film industry is concerned, this was accidental, not inevitable."

In years past blockbusters had come one after another, he analyzes, but in the summer of 2008 Hollywood only offered Tomb of the Dragon (the third installment in the The Mummy franchise) and The Dark Knight (the sixth Batman film). The distributors of Cape No. 7 intelligently decided to hold back its release until after the "typhoon" whipped up by The Dark Knight had passed.

For students who see two or three films a month, once they had already watched The Dark Knight, that left Cape No. 7, which also had good notices in the media and on the web. The film started to draw crowds. Yet, with a de facto "quota system" for entertainment expenditures that leaves room for only one domestic film, viewers' chief consideration for selecting a film then reverted to the perceived quality of its special effects. As a result, the domestic films that followed Cape No. 7 did far less well at the box office.

(ARS Film Production)

A homerun

"Cape No. 7 was a towering homerun; but that doesn't mean that it will be followed by lots of hits," says Chen.

For the past 20 years, he explains, Taiwan has been making "low-budget" films with the director at the center of the production process. The director usually writes the script, starts the search for funding and actors, oversees the production planning and the post-production work, and then assumes much of the responsibility for promoting the film. The process takes too long to run its course and let directors move on to their next films. With two or three years needed to finish a project, too few films can get made.

Apart from the overreliance on just a few directors to handle everything themselves, there are even more obvious issues with weak stories, scripts and content.

"Films should be about weaving dreams and wild fantasy," says Chen. "Taiwan's film education fails on this score." Many films by talented young directors over the past three years-including Formula 17, My Football Summer, Exit No. 6, Island Etude, Secret, and last year's Winds of September-have almost exclusively dealt with coming-of-age issues. Strictly speaking, they are all films dwelling on nostalgia for one's youth. New directors lack abundant experience, so all they can write about is their youth. "Our education and culture have always prohibited wild imaginings. It's a problem that requires long-term changes."

Orz Boyz, which describes the friendship of two mischievous elementary school boys, and Winds of September, which depicts high-school rebellion, were among the outstanding domestic films of 2008. Both were coming-of-age films.

Focus on marketing

What people tend to criticize most about Taiwan-made films is that some directors wallow in their own artistic pretensions while ignoring the demands of the market. But in fact, during this period of the director being "commander-in-chief," there have been some attempts to bring more of producers' concerns about marketing into the production and distribution process.

In 2003 thirtyish producers Michelle Yeh and Aileen Li and 23-year-old director Chen Yin-jung made Formula 17, aiming for a film that was bright and upbeat. They calculated precisely, setting limits of "86 scenes, 20 locations, 30 working days, and 60,000 feet of film." Taking control of every step in the process, they successfully kept costs under NT$4 million. To recoup their investment, they focused their marketing on the audience with whom they knew the film would resonate most: filmgoers under the age of 30. With box-office receipts exceeding NT$8 million, they achieved big bang for the buck.

In 2006 that model was successfully used by the same team with Catch, and by other filmmakers for the ghost flick The Heirloom and the gay film Eternal Summer, which were also released that year.

Yet these small films that put a tight lid on expenses ultimately found it hard to truly ignite the passions of film buffs, and they may have caused film companies to keep too tight a hold on their purse strings.

In 2006 Silk, a big production sci-fi ghost fantasy that was regarded as an industry bellwether, hit Taiwan's screens. CMC Magnetics, a leading producer of optical discs, invested NT$150 million, and hired Su Zhaobin to write the screenplay. Su had previously written the script for Double Vision (an American-financed film). It offered an outstanding model in terms of production values for the Taiwan film industry, which too often creates films with shaky foundations.

Unfortunately, the fashion for thrillers in Japan, Korea and Hong Kong had already passed by the time Silk came out, and despite being the highest-grossing domestically produced film that year (pulling in about NT$60 million), it still lost a lot of money.

With the ever-shifting tastes of the public, the film market operates on a complicated logic that makes it hard to adopt a formula for producing films. The poor box-office numbers over the past ten years would suggest that it's hard enough to get people in Taiwan to see locally produced films-never mind trying to reclaim the glory days of the 1990s when Taiwanese films were setting the standard for Chinese-language cinema.

"If domestic films are going to become money makers, they've first of all got to raise their domestic box-office take," says Patrick Mao Huang, managing director of Flash Forward Entertainment. This isn't a mission impossible. Domestically produced films in Japan, Korea, and Thailand, and even in Singapore and Hong Kong (which have smaller populations than Taiwan) account for about 30-40% of the take at their box offices. In comparison, local films only accounted for 7.3% here (in 2007). That's far too low, so there is a lot of room for improvement on this score.

Fundraising skills

To shoot films, you need funding. Where to find that money poses the biggest problem for Taiwan's film industry.

Although the Government Information Office (GIO)-the domestic film industry's "greatest benefactor"-increased its total support of local films from NT$180 million in 2002 to NT$440 million in 2008, the amount it provides per film, which ranges from NT$4 million to NT$15 million, represents just a drop in the bucket for a film with a big-name cast and lots of special effects.

The government knows it's not easy for the film industry to raise money, so it started a film financing system in 2006, hoping to increase the number of channels through which money can be raised to produce films.

For instance, the GIO once asked financial institutions to consider establishing a "film financing seed bank" for the film industry. But due to a lack of familiarity with film production business models, not a single bank was willing to participate. Later, the GIO came forward as a loan guarantor. Moreover, if a film proposal earned the recommendation of its panel of judges, filmmakers could apply for a standard bank loan that the GIO would subsidize by 3% interest over the first three years. After an application process that took seven months, Cape No. 7 borrowed NT$15 million from two banks in this manner. So far it represents the only successful example.

But banks, as businesses, take a business perspective. How much a financial institution is willing to lend depends upon the financial situation of the film production company. Most of these firms are small with low levels of capitalization, and few can obtain much money through these financing channels. For instance, to raise the NT$50 million that it cost to produce Cape No. 7, director Wei Te-sheng ended up having to mortgage his own home to the tune of NT$14 million to finish the film.

Apart from assistance to filmmakers via subsides and bank loans, in 2006 the Executive Yuan decided to appropriate NT$20 billion from the National Development Fund, imitating the venture-capital model used to fund high-tech companies. The money was targeted at cultural and creative industries, as well as digital content, software and other industries connected to film production. How has this initiative worked out so far?

"After feeling our way forward for three years, the total amount invested has been NT$700 million," says James Ho, deputy executive secretary of the fund. "We're still gaining experience."

The fund has invested in Double Edge Entertainment alongside the computer technology firm BenQ. The government put up NT$150 million out of a total of NT$500 million invested in the venture. The plan is for Double Edge to produce ten films in five years. Its ambitions are lofty. It is hiring established Hollywood names for its screenwriters, directors, casts and producers. Its first independently developed project is still undergoing script revisions. But the firm has already invested in three Western films, including Meg Ryan's The Women. And it has also invested in the nearly completed Japanese thriller King of Fighters, an adaptation based on an arcade game that is heavy on special effects and has cost US$12 million to make.

The Double Edge model of taking money from Taiwan to invest in Western films seems to run counter to the GIO's aim of supporting domestic films. At the GIO's well-intentioned suggestion, Double Edge has turned its antennae back to Taiwan. Tango Time, the first domestic film in which it invested, is scheduled to hit theaters in March.

In comparison to the several billion NT dollars it has invested in the petrochemical and biotech industries, the government seems to have taken a less than aggressive approach to investing in film. That is the result of two principles guiding National Development Fund investments: the fund cannot be the chief investor, and its investments must be in joint ventures with trustworthy large firms. But most film production companies in Taiwan are small companies, and new directors are even less likely to know major investors. The bar for government investment in film is simply set too high.

"By investing, the government hopes to use capital to make money," explains Ho. "Under the rules of the game, the government can assume risk, but it cannot accept unfair treatment, such as when a filmmaker only wants to put up 10% of the cost and wants the government to put up 90%."

The Executive Yuan's National Development Fund invested in Double Edge Entertainment 's comedy Tango Time Scheduled to appear in Taiwan's theaters in March, the film depicts a caregiver at a nursing home who excites his charges' enthusiasm for ballroom dancing.

Spreading risk

A business of dreams, the film industry has traditionally required high levels of investment and a high tolerance for risk. But is there a way to spread that risk?

Learning from experience, the government has most recently invested in Hou Hsiao-hsien's martial arts film The Assassin, which has been ten years in gestation. Its investors, which put up money in a 4:3:3 ratio, are Hou's film production company Spot Films, a technology company, and the National Development Fund. Together they are supplying the capital and sharing the risk.

Apart from government investment, during these sluggish times for film production, a new trend has emerged in Asian nations: joint investment and joint production. It's the new prescription for what ails the Asian film industry.

Singapore, with a population of 4 million, produces only ten films a year. The average film budget there is S$1 million (about NT$20 million). In recent years the government has become conscious of the cultural economy, and has been actively guiding the film production industry. For instance, in 1998 the nationally owned Television Corporation of Singapore established Raintree Pictures, which, via joint productions with overseas companies, has stimulated story creativity and raised local production values.

By transplanting others' successful experiences, Raintree's I Not Stupid and Homerun outperformed imports from Hong Kong to become Chinese-language box-office kings in Singapore. Raintree has also invested in Hong Kong films, such as Infernal Affairs II and III and Turn Left, Turn Right, sharing in their box-office success throughout the Chinese-speaking world.

In June 2003 Hong Kong and mainland China signed a Closer Economic Partnership Agreement (CEPA). Now, Hong-Kong-made Chinese-language films can enter the mainland market without concern for the quota of 50 films per year for foreign releases. And when a film is a co-production between Hong Kong and mainland film companies, as long as mainland actors account for at least one-third of the principal roles the film will be regarded as a domestic production and can be distributed in the mainland free from the constraints put on foreign films.

Eyeing this larger market, Hong Kong industry stalwarts such as Shaw Brothers and the Emperor Entertainment Group, as well Bill Kong's Edko Films, which started the trend of transnational productions of Chinese films with Crouching Tiger, Hidden Dragon, threw themselves into co-production, making films such as The Promise, A Battle of Wits, Curse of the Golden Flower and The Warlords.

Ming Tu, managing director of 20th Century Fox, Taiwan, who is very familiar with large-scale Chinese-language film productions, says that Red Cliff cost US$70 million (about NT$2.3 billion), and included investors from Japan and Korea, as well as Taiwan's CMC Magnetics. In going to the mainland, these investors took an approach of "separating the revenue rights from the distribution rights" (theaters give an upfront fee to distributors, and the box-office receipts are later divided according to an agreed ratio). Because the production costs were so high, director John Woo was worried that one film wouldn't be able to recoup the entire investment, so they decided to split the footage into two films. So as to put investors' fears to rest, they first sold the rights to the films in certain nations. Meanwhile, the large amounts of money needed during three years of production came from Western banks. The financing structure and methods were extremely complicated.

Both the central government and local governments have invested large sums subsidizing film production. The Council for Hakka Affairs and Green Film Production invested NT$60 million to shoot 1895, an historical film which depicts Hakka resistance to Japanese rule. It is one of the few big productions of recent years.

To Greater China?

Observant filmgoers may ask: Why is it that all of the recent Hong Kong-PRC co-productions have been historical dramas?

It turns out that the mainland is very strict about the content of films set in a contemporary timeframe. You can't touch upon present-day politics, and can't make disparaging allusions to modern history. The censors there also have grave reservations about fantasy. The end result is that your creative freedoms are seriously constricted. For example, director Ang Lee won the Venice Film Festival's Golden Lion for Lust, Caution, but the film was criticized for "glorifying traitors" and for allowing "too much exposure of naked bodies." It had to be cut heavily before it could be screened on the mainland.

"There are advantages and disadvantages to joint productions with mainland partners," says Patrick Mao Huang, managing director of Flash Forward Entertainment. "In the past Hong Kong's gambling movies, erotic films, and ghost movies were all very popular, and filmmakers there shot whatever they felt like. Now they have to be concerned about the mainland market, its tastes and its censors' standards. It has slowed down the whole production process." If you want to enter the mainland market, you've got to respect the rules of the game there. As far as Taiwan is concerned, whether this cooperation is compromise or sacrifice depends upon your perspective.

Films are an expensive cultural product, and Taiwan's film industry has been suffering from a stubborn chronic disease. There are problems at every stage: with funding, content, production, promotion, and distribution. Whether Cape No. 7 reflects a turning of the corner remains to be seen.

(ARS Film Production)

(ARS Film Production)

Pop star Jay Chou, who directed Secret, and Lin Yuxian, who directed Exit No. 6, are among Taiwan's current crop of cutting-edge directors.

Both the central government and local governments have invested large sums subsidizing film production. The Council for Hakka Affairs and Green Film Production invested NT$60 million to shoot 1895, an historical film which depicts Hakka resistance to Japanese rule. It is one of the few big productions of recent years.

Orz Boyz, which describes the friendship of two mischievous elementary school boys, and Winds of September, which depicts high-school rebellion, were among the outstanding domestic films of 2008. Both were coming-of-age films.

Red Cliff: Part II, a big co-production involving Taiwanese, Japanese and Korean companies and costing US$70 million to shoot, is the second and final film in its series. John Woo (third from right) came to Taiwan to promote the film, along with big stars from China, Hong Kong and Taiwan. Red Cliff took in more than NT$2.4 billion at the box office. Big scenes in Part II depicting the stratagems employed by master military strategist Zhuge Liang, such as "burning linked boats" and "using straw boats to draw the enemy's arrows," should attract even more attention.

Pop star Jay Chou, who directed Secret, and Lin Yuxian, who directed Exit No. 6, are among Taiwan's current crop of cutting-edge directors.