China buys soft power with hard cash in Hollywood

China buys soft power with hard cash in Hollywood

Companies are snapping up US film studios, which all want a piece of the mainland’s booming box office. But there is no such thing as a free lunch, warn observers

PUBLISHED : Tuesday, 15 March, 2016

With cash flowing faster than the Yangtze River, Hollywood is awash with expanding volumes of Chinese funding, but analysts are warning the film industry there’s no such thing as a free lunch.

The Beijing-based Wanda Group’s deal in January to buy US film studio Legendary Pictures finally confirmed the long-heralded emergence of the world’s second-biggest box office as a major player in Tinseltown.

The US$3.5 billion agreement is the largest cultural takeover by China, with American studios keen to capitalise on its burgeoning cinema market at a time when Beijing is pushing entertainment as a source of “soft power”.

Legendary, the maker of Jurassic World, Godzilla and the latest Batman trilogy, has grossed more than US$11 billion worldwide since it was founded in 2005, mostly with the kind of big-budget blockbusters popular with Chinese audiences.

It’s a win-win situation ... because the China market is really incredibly taking off and Hollywood has a real interest in that

STANLEY ROSEN, POLITICAL SCIENCE PROFESSOR, UNIVERSITY OF SOUTHERN CALIFORNIA

“It’s a win-win situation ... because the China market is really incredibly taking off and Hollywood has a real interest in that,” said Stanley Rosen, a political science professor at the University of Southern California. It is an arrangement that benefits both sides financially, with movies becoming increasingly expensive to produce but the Chinese hungry for Western-made films.

But China, which has yet to make a global hit, is also buying expertise. “Hollywood has what China lacks, which is storytelling ability, marketing, distribution,” Rosen said.

Wanda owner Wang Jianlin, who bought US cinema chain AMC Entertainment for US$2.6 billion in 2012, says the Legendary deal makes his company the highest revenue-generating movie unit in the world. It also gives future Legendary films direct access to China’s booming market, which has become crucial to foreign filmmakers, with North American ticket sales stagnant.

PricewaterhouseCoopers has projected China’s box office to rise from US$4.3 billion in 2014 to $8.9 billion in 2019, meaning it would outstrip the US within two years.

Underlining the shift in power, Chinese box office monitor EntGroup announced that cinemas took a record US$1.1 billion in February – a 70 per cent year-on-year jump – overtaking the North American monthly revenue for the first time. The trend looks set to accelerate, with Huayi Brothers planning to produce at least 18 films with LA studio STX Entertainment, and Shanghai-based Fosun International taking a stake in US media company Studio 8. Hunan TV has signed a US$1.5 billion deal to fund Lionsgate movies and Perfect World Pictures is investing US$250 million in Universal’s slate over five years.

Only 34 foreign films are given cinema releases on the mainland each year, and all are subject to official censorship over content deemed politically sensitive or obscene. Co-produced movies can bypass the quota as long as they contain significant Chinese elements, such as characters, plot devices or locations.

Jonathan Landreth, managing editor of the New York-based online magazine China File, has warned that Wanda and Legendary are operating under President Xi Jinping’s “looming encouragement” and said the deal could not have gone ahead without the approval of the Communist Party.

“While Wanda invests in Hollywood to make money, the deal sees Legendary unwittingly becoming one of the most powerful channels for Beijing’s world view, a world view that bars open discussion of the jailing of dissidents and the disappearing of booksellers,” he wrote.

The first co-production from Legendary will be the US$150 million sci-fi action movie The Great Wall, starring Matt Damon, Willem Dafoe and Cantopop singer and actor Andy Lau Tak-wah. Directed by filmmaker Zhang Yimou and due for its China release in December, two months ahead of the US opening, the film will be entirely in English.

Christopher Spicer, a film financing expert at international law firm Akin Gump, said the film, the most expensive shot in China, could serve as a litmus test of public appetite for Chinese-American joint projects.

“I’ve been doing film and television for eight or nine years and at different times in history primary funding sources of film and, to a lesser extent, television have come from different countries all over the world,” he said. “But certainly for the time being I would expect the trend of Chinese financing to continue.”