Entertainment, Talking Point

Hurray for Hollywood

America’s big movie studios are clamouring for China deals

Xi  with  Murdoch

Still chasing the China market: News Corp's Rupert Murdoch meets with Xi Jinping in Beijing

We are not enemies, but friends… The mystic chords of memory… will yet swell the chorus of the Union, when again touched, as surely they will be, by the better angels of our nature.”

With this Abraham Lincoln concluded his first inaugural address as American president at a time when his country was on the verge of civil war. A century and a half later an American filmmaker is invoking the same spirit, this time to improve ties between the world’s two most powerful nations: China and the US.

Better Angels is directed by William Mundell, son of Robert Mundell, one of the architects of the euro. For the upcoming documentary Mundell junior has interviewed prominent figures including property-to-movie tycoon Wang Jianlin. But he also talks to ordinary Americans, like the two women from Alabama whose lives were changed when a Chinese firm opened a copper factory in the poverty-stricken state (see WiC243).

Mundell thinks that it is here – at the grassroots – that understanding between the two countries most needs to be improved.

“All the recent summitry, the endless conferences… did little to move the needle on the US-China relationship. I think that is because we have been putting the cart before the horse,” he told the China Daily last week. “Our objective in making Better Angels is to shatter the myths that Americans have about China and vice versa.”

A film about closer ties won’t break box office records in either country. But it’s also a theme that Hollywood bosses have spent a lot of time thinking about lately. Indeed, ahead of the state visit to the US by President Xi Jinping this week, the studios have announced a slew of deals in the Chinese market. Such is the level of commercial activity that observers are wondering whether Hollywood might play more of a role in bridging some of the differences between the two countries.

The promised land?

Media moguls have salivated over the commercial prospects in China’s entertainment industry for years. One of the first to make his pitch was Rupert Murdoch and the aging head of News Corp and 21st Century Fox was back in Beijing last week, where he was granted a private meeting with Xi Jinping.

Xi told Murdoch that China’s market is open to foreign media to help “the world grasp the opportunities afforded by China’s development”. The comments will have come as a surprise to some, given that censors have previously blocked the websites of the New York Times, Bloomberg and Murdoch’s own Wall Street Journal (which ran a lengthy written interview with Xi this week). But Murdoch doesn’t seem to have been too discouraged – even when his early efforts to get a foothold in the market were stymied by local regulators (see WiC74).

In fact, the tycoon was singing China’s praises again this week on his new weibo account. Murdoch shared with his 50,000-plus followers photos of his meetings with Xi, as well as with Xiaomi boss Lei Jun, and made jibes about the “boring diet” and “third rate US infrastructure” in New York.

Following his divorce from Wendi Deng and the sale of a controlling stake in his main Chinese TV operation to China Media Capital (CMC, see WiC218 for a profile of the state-backed media investor) many thought Murdoch’s love affair with China was fading. His entertainment businesses have lagged behind the other Hollywood majors. Talks on an amusement park have come to nothing and 21st Century Fox is still working on finding a production tie-up similar to those formed by Disney (with Shanghai Media Group) and DreamWorks (with CMC).

Indeed, News Corp’s planned takeover of Time Warner last year was seen – in part – as a way of bulking up for another run at the Chinese market.

But the $80 billion buyout lapsed (as too did Comcast’s $45 billion merger proposal with Time Warner, which would have combined its Universal Pictures studio with Time Warner’s Warner Bros).

Paradoxically, with these M&A battles failing to produce a clear winner, Hollywood bosses may see success in the fast-growing China market as a way of tilting the balance back at home. Hence Murdoch was not the only arrival in Beijing this month. Senior executives from Comcast and Time Warner were both there too, trying to seal their own landmark deals.

Universally liked?

Comcast’s Universal Pictures was another early mover in China – but it too found the going tough. In the five years prior to 2014 it accounted for just 10% of the imported films shown, in part due to difficulties securing release dates. Its animated sequel Despicable Me 2 was pulled in 2013 and then delayed for nearly a year, becoming the only Universal release last year.

This year’s business is looking considerably better, with Comcast’s chairman and CEO Brian Roberts signing off on a joint venture last week to build a Universal Studios theme park near Beijing, partnering with Shouhuan, a state tourism firm.

The plans for the park are huge: covering an area six times the size of its Tokyo’s theme park, it will be the largest Universal Studios ever.

China Daily says the total investment could top Rmb50 billion ($8 billion) and the park is expected to open in 2019. It will be located in Tongzhou, the eastern gateway to Beijing. Not a prime location currently, the site falls in line with the central government’s focus on dispersing economic activity away from central Beijing to its outlying areas (see WiC294 for more on the Jing-Jin-Ji strategy).

Universal is also enjoying itself as the top-earning foreign studio in China this year, with three blockbusters as of September. Furious 7 took $380 million, briefly becoming the best- grossing movie in Chinese history (it was narrowly dislodged by domestic animation Monster Hunt this month). Jurassic World also made a killing with a $230 million take. And the animated movie Minions is doing spectacularly well, not just in terms of box office earnings but also with commercial tie-ins (for example, Mengniu Dairy is using the little yellow characters to advertise its milk).

“Universal Pictures is having a bull run in China this year,” Southern Metropolis Daily applauds. “Its strategic ‘tilt’ towards China since last year has been much more notable than other Hollywood majors.”

These “tilts” included setting up a Beijing office in late 2014. And much to the approval of local cinemagoers, Jurassic World opened in China ahead of its first screening in the US too.

A political thriller?

When Xi Jinping wrapped up his US tour in 2012 with a stopover in Los Angeles (he was just about to become President), one of the accompanying announcements was the creation of Oriental DreamWorks.

This Shanghai-based studio was said to symbolise greater cooperation between the US and Chinese media industries, with DreamWorks and CMC as co-investors. The first fruits of the partnership will appear next year with the release of Kung Fu Panda 3.

Following a similar script – i.e. timed to coincide with another of Xi’s American trips – Time Warner has cast itself in the lead role this time round.

Just a day before Xi arrived in Seattle this week, Warner Bros announced it will team up with CMC to set up a joint venture of its own. Flagship Entertainment, headquartered in Hong Kong, will develop a variety of films for distribution in China and worldwide. Warner Bros will take a 49% stake, while a CMC-led consortium will own the rest.

Hong Kong’s leading TV operator Television Broadcast will also participate in the deal. The involvement of the Hong Kong firm is intriguing. The former British colony was once the ideological frontline in the stand-off between mainland China and Taiwan. Investment flew into the entertainment sector from both sides of the Taiwan Strait for movies packing a propaganda punch. This laid the foundation for a thriving industry and Hong Kong grew into the world’s second biggest movie exporter in the 1970s and 1980s.

The sector withered as 1997 approached and China resumed sovereignty over the former colony. But the new Warner Bros-CMC partnership comes at a time in which Hong Kong’s entertainment industry has the feel of a frontier market once more. Online video provider Netflix is setting up shop in the city next year, for example, and this week its Chinese counterpart LeTV won the broadcasting rights to English Premier League football in a deal believed to be worth up to $600 million (see WiC296).

Hong Kong’s media sounds hopeful that the Flagship tie-up will boost the city’s movie mojo. The deal will bring together the biggest American studio and the most influential Chinese media investor, Hong Kong Economic Times has noted, while the choice of Hong Kong for its home base is a clear collaboration of mutual interests. “Warner Bros can find more creative freedom [in Hong Kong],” the newspaper suggests. “And CMC would like to make more A-list Chinese movies that woo the global market.”

More entertaining deals to come?

Also in Hong Kong, IMAX Corp’s China division is planning to raise about $280 million in an IPO next month. One of its key shareholders is, again, CMC. In the prospectus for the fundraising IMAX says it expects China’s box office to surpass America’s by 2017 (when Chinese cinemas will gross $11.7 billion, up from $4.7 billion last year, according to EntGroup, the film sector specialist).

With current revenue growth of 30% a year, China is the holy grail for the American producers, which is why Vanity Fair magazine says it got a “glimpse of the future” when it saw the logo for Alibaba Pictures pop up at the beginning of Mission: Impossible – Rogue Nation.

Alibaba isn’t even the senior Chinese investor in the Tom Cruise movie. According to CBN, Paramount Pictures has partnered with 1905.com (a unit of state broadcaster CCTV, named after the year China’s first-ever movie, The Battle of Dingjunshan, was produced). For Rogue Nation, Paramount allocated a 10% stake of the movie to 1905.com, which subsequently sold its commercial rights to three Chinese firms including Alibaba and Dalian Wanda. There was similar cooperation between Paramount and 1905.com for Transformers: Age of Extinction, which was China’s top grossing movie last year.

More blockbusters are likely to open with Chinese title cards in future. Huayi Brothers and STX have agreed to co-produce 18 movies before 2018, while Hunan TV, the second-largest broadcaster in China, has signed a $1.5 billion deal to co-invest in upcoming production at Lionsgate, the studio behind The Hunger Games trilogy.

And this is good for Sino-US ties ?

CCTV aired a documentary this week shedding light on how the film sector has contributed to cultural exchanges between China and the US (again, seemingly timed to coincide with Xi’s trip). Li Bingbing, the Chinese actress who has appeared in both the Resident Evil and Transformers franchises, featured heavily. But CCTV also pointed out that more American actors are being lured to China, including Mel Gibson, who has signed on as a consultant on The Bombing, a World War Two tale about Japanese air raids on Chongqing. Bruce Willis was said to have a role in the same film.

Not all the partnerships have gone to plan, of course. Hollywood’s “road to China” is “littered with broken deals”, the Los Angeles Times warned this month, citing the disappointment surrounding China Railsmedia, which announced a partnership with the Ministry of Culture to provide import and distribution licences to foreign movie firms (see WiC233).

The announcement, made last year via a stock exchange filing in Hong Kong, stirred hopes that China Railsmedia would help Hollywood break the current cap (which permits 34 foreign releases in China per year). However, government officials have since claimed they had no knowledge of it, the LA Times notes, and the plan seems to have died a natural death.

But despite the setbacks, the domestic media has high hopes that greater collaboration in the movie industry will bring China and the US closer together.

“Chinese firms and Hollywood have fallen passionately in love,” gushed state-backed website ThePaper.cn of the recent run of deals, while other media outlets regarded the partnerships as heralding a more constructive era of Sino-US relations. Xinhua praised Time Warner’s Flagship venture just days ahead of Xi’s trip “as a concrete move in China-US cultural exchange and cooperation”. The final inking of the Universal Studios project in China, Beijing News said, had created a “good atmosphere” before Xi’s visit.

A columnist at the Hong Kong Economic Journal then made a more practical observation, noting Hollywood’s role as an important source of campaign funds for US politicians. “If Chinese companies and American studios go on honeymoon, then China-US relations simply can’t turn too sour,” he suggested, referring to perceived linkages between donations and future policy direction.

There are also the more nakedly commercial considerations in securing closer ties. Under a deal with the World Trade Organisation, China has to renegotiate its quota system on movie imports by 2017. So for the local firms, the tie-ups with American producers should soften the competitive impact of Hollywood’s getting greater access to Chinese screens.

“As cooperation broadens [with Hollywood], Chinese companies will be able to avoid going out of business,” The Diplomat magazine predicts.

For the American studios, even if China stands firm on the ceiling of 34 foreign titles a year, their bets are now better hedged. Movies by Oriental DreamWorks in Shanghai, or Warner Bros’ Flagship Entertainment in Hong Kong, are both unlikely to be classified as foreign productions, for instance.

Yet for all the talk of finding common ground in the movie world, there are clearly rival interests at work too. The Chinese government has long envied Hollywood’s role as a global ambassador for American values and is desperate to exert similar ‘soft power’ of its own. There will also be warnings for the movie moguls from American firms in other sectors, who have given up many of their commercial secrets in hope of winning over millions of new Chinese consumers. Often it doesn’t work out, with their local partners opting to strike out on their own, rather than share the profits with their international colleagues.

In a revealing diagnosis of how the country’s creative output still lags Hollywood’s global appeal, Li Ruigang, the head of CMC, pointed out this month: “There is a long way to go before China’s cultural products can be exported worldwide,” Li acknowledged. Our market is growing and has started to have an influence on Western cultural products but it is in a very early stage. From now on the key is if we can learn from the creativeness of the West, as well as the entire content production process.”

Tinseltown can take comfort that that’s a harder thing to master than learning how to make a high-speed train.

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