U.S. and China Film Industries Forge a Path Forward in a Time of Uncertainty

As Hollywood and China sit down for their latest round of negotiations, both sides fraught with uncertainty given the current political landscape, it’s a prudent time to look back at the nearly 25 years since China first opened its cinemas to revenue-sharing Hollywood imports.

In 1994, China’s Ministry of Radio, Film & Television, faced with a depressed domestic film market, approved a proposal to import 10 Hollywood films per year using a revenue-sharing model. The films were to be chosen on the basis that they “basically reflected the finest global cultural achievements and represented the latest artistic and technological accomplishments in contemporary world cinema.”

On November 12 of that year, The Fugitive became the first-ever revenue-sharing Hollywood import, opening in 56 movie theaters in six major Chinese cities. A runaway success with 1.4 million admissions nationwide and RMB 25.8 million ($3.15 million) in ticket sales, The Fugitive single-handedly ushered in the age of the Hollywood blockbuster in China.

But the film’s unprecedented box office achievement would also elicit anxiety among regulators and cultural scholars. Worried that an influx of Western popular culture would erode China’s own traditional heritage, authorities pulled The Fugitive from screens in Beijing before its release license expired. Remnants of this protectionist behavior, though now more financially motivated than cultural, can still be seen to this day through unofficial “blackout” periods when imported films, in favor of domestic fare, aren’t allowed entry into the market.

The years following The Fugitive’s release were a boon for Hollywood, with successful runs from True Lies, The Lion King, and The Lost World: Jurassic Park, and while the slice of box office revenue from China was still negligible in terms of those films’ global box office, Hollywood got a taste of the Chinese market’s huge potential when Titanic exploded with $44 million in ticket sales in 1998. Unbelievably, James Cameron’s film would hold the title of highest-grossing imported film for more than a decade, even weathering the doubling of China’s import quota to 20 when Hollywood and China met for a second round of talks in 1999 as the country prepared to enter the World Trade Organization.

The negotiations in 1999 also wielded an agreement to give Hollywood studios a 13 to 17 percent share of box office revenue from China. At the time, the Chinese film market was still in its fledgling stages and Hollywood, in the throes of its own robust growth spurt, was yet to attach significant importance to what would suddenly rise to become the world’s second-largest film market.

Government incentives for cinema expansion and a burgeoning consumer class drove the box office boom to double-digit yearly growth in the first decade of the new millennium. In 2008, with the RMB 1.3 billion ($204 million) breakout performance of yet another James Cameron–directed blockbuster, Avatar, as well as China’s annual box office breaking through the RMB 10 billion threshold, Hollywood was eager to grab a bigger slice of the Chinese market. Concerns over rampant piracy also drove closer collaboration in negotiating a push for an opening of the film quota. China, for its part, was apt to return as well, with their sights set on improving their own domestic movie industry through reinvestment from Hollywood’s growing box office returns and by learning storytelling techniques and gaining technological skills from a more mature market.

In 2012, then vice presidents of China and the U.S., Xi Jinping and Joe Biden, along with representatives of both film industries, reached an agreement to raise the import quota to 34 films per year. The additional 14 films would be classified as “special format” films and would be screened in 3D and/or IMAX, giving added box office revenue to both sides. Moreover, Hollywood studios would now receive 25 percent of their films’ Chinese box office revenue. The bilateral agreement, endorsed in 2012 but not fully implemented into a contract until 2015, expired in February of this year, setting the stage for a new round of negotiations.

NEWS FROM THE CHINESE MARKET

Recon Acquires Millennium Films

Recon Holding, a Shenzhen-based manufacturer of cable and wiring equipment, acquired a 51 percent majority stake in Millennium Films for $100 million. Millennium’s China-friendly catalogue includes The Expendables, Olympus Has Fallen and London Has Fallen, and Jason Statham’s The Mechanic series, films that have all performed more strongly at the Chinese box office than in North America. Up next for the Los Angeles–based Millennium is The Hitman’s Bodyguard starring Ryan Reynolds and Samuel Jackson, Escobar with Javier Bardem and Penelope Cruz, and Hunter Killer featuring Gerard Butler and Gary Oldman. Recon also owns the Aston Villa Football Club, which it purchased in May 2016 for just under $75 million.

Wanda’s Dick Clark Productions Deal Hits Regulatory Wall

Real-estate conglomerate and entertainment behemoth Dalian Wanda’s $1 billion acquisition of Dick Clark Productions has hit a regulatory snag according to TheWrap.com and Reuters, who cite new Chinese government restrictions limiting capital outflow. The deal to buy the producer of the Golden Globes Awards and the Miss American Pageant was first announced in November 2016 and was the latest move in Wanda’s ambitious advancement into Hollywood following its purchases of AMC Entertainment in 2012 and Legendary Entertainment in early 2016. Concerns that the acquisition would not receive regulatory approval from the Trump Administration also seem to have played a role in the failure of the deal.

Huahua Media & Shanghai Media Group (SMG) Invest $1 billion in Paramount Slate

Paramount first worked with Huahua Media as its local marketing partner on Transformers: Age of Extinction, which became the highest-grossing imported film of all time in China before ceding that title to Furious 7. The two companies continued their relationship through partnerships on Spectre and Mission Impossible: Rogue Nation. The $1 billion investment will give Paramount a strong foothold in the Chinese market through Huahua’s knowledge of local tastes and SMG’s exhibition and distribution prowess in the country.

xXx: The Return of Xander Cage Breaks Out at China Box Office

In February, the Paramount Pictures action-sequel xXx: The Return of Xander Cage, starring China heavyweight Vin Diesel as well as local actors Donnie Yen and Kris Wu, scored a $61.2 million opening weekend in China, tripling the film’s North American debut a month earlier. Contributing to the Chinese box office coup, Weying Technology leveraged its position as China’s leading online ticketing app to market the film across its platforms. Key to the success was Weying’s ability to target key opinion leaders in third- and fourth-tier Chinese cities to express their opinions about the movie and generate organic word of mouth.

Lunar New Year Box Office Hits Record Highs Buoyed by Subsidized Tickets

The weeklong Chinese New Year holiday has become the busiest moviegoing period on the planet in recent years, with Chinese families turning out to cinemas in record numbers. The 2017 holiday earned RMB 3.38 billion ($492 million), a 14 percent increase over the previous year’s record haul. Top-grossing movies were the Tsui Hark–directed / Stephen Chow–produced sequel Journey to the West: Conquering the Demons and the Sino-Indian co-production Kung Fu Yoga starring Jackie Chan. Despite the record numbers, audience reception for this year’s crop of Chinese New Year films paled in comparison to last year’s when Stephen Chow’s The Mermaid became the first film outside North America to gross $500 million in a single territory. The increase in ticket sales this year was therefore attributed to cheaply subsidized tickets flooding the market and incentivizing hordes of moviegoers to attend.

Dadi Cinemas Scoops Up Orange Sky Golden Harvest As China’s Exhibition Sector Consolidates

Dadi Cinema Group, currently China’s second-highest-grossing cinema investment company behind Wanda Cinema Group, bought Orange Sky Golden Harvest’s entire China operation for a sum just below $500 million. The deal solidified Dadi’s market share position and will result in Dadi cinema having 426 cinemas across the country with 2,442 screens. It will also expand the company’s reach into lower-tiered Chinese cities currently fueling the box office boom.

Jonathan Papish

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