China and Hollywood: Is the romance over?
By Jiayun Feng | December 12, 2019
Illustration by Derek Zheng
It would be an understatement to say that 2016 was a killer year for Chinese billionaire Wáng Jiànlín 王健林. In October, Wang, the founder and chairman of the Dalian Wanda Group, a sprawling Chinese conglomerate that has evolved well beyond its roots in real estate since its establishment in 1988, hosted an extravagant, invite-only gala in Los Angeles attended by the elite of the American entertainment industry, where he unveiled a number of partnership plans with major Hollywood studios.
The gathering was an affirmation of Wang’s Hollywood ambitions, and an unabashed flex of how much Wang had achieved since his history-making purchase of AMC Theatres in 2012, which was then the largest acquisition made by a Chinese private enterprise in the United States.
Wang then appeared on the October cover of the Hollywood Reporter. Introducing him as “Hollywood’s most coveted business partner,” the magazine flew a journalist to Beijing, where Wanda was headquartered, to have an in-depth conversation with the tycoon. In the interview, Wang doubled down on his commitment to pouring capital into Hollywood. “I might as well start from wherever I can, such as through investment with all six,” Wang said, revealing that his ultimate objective was to purchase major, possibly controlling stakes in Hollywood studios such as Fox, Warner Bros., and Universal.
Chinese billionaire Wáng Jiànlín 王健林, pictured at the peak of his influence in Hollywood in 2016.
The bold statement, however, hasn’t aged well. Less than a year after Wang’s breakthrough, he abandoned plans for further overseas acquisitions, reportedly due to a rebuke from the Chinese government, which viewed Wang’s previous purchases as exorbitant and irrational. It all went downhill from here as more deals that were once in the pipeline evaporated amid Wanda’s financial woes.
Wang’s adventure in Hollywood has tracked China’s unprecedented push into the U.S. entertainment sector. The trend began nearly 10 years ago in the form of individual filmmaking projects, and intensified over the years thanks to a handful of deep-pocketed Chinese companies. But as U.S.-China trade frictions fester and Chinese capital dries up, the Hollywood-Beijing connection is hitting a wall.
The Great Wall, one of the most ambitious (and least successful) U.S.-China co-produced films.
Why Hollywood needs China
In 2015, nearly 100 new theater screens were set up every week in China. That year, the Chinese box office surged by almost 50 percent over 2014, reaching a record $6.78 billion. Since then, China has been selling more movie tickets than any other country. And while the Chinese market has proved challenging in recent years, as the country’s economic growth has suffered a major slowdown that negatively affected consumption and investment, many experts predict that by 2020, China will become home to the globe’s top moviegoing audience.
In comparison, movie theater attendance in the U.S. has been on the decline, and fell to its lowest point since 1992 in 2017. The panic among American filmmakers caused Hollywood to set its sights on China’s market of 1.4 billion people.
But like many economic sectors protected by the Chinese government, the film industry in China is notoriously unfriendly to foreign companies and productions. Foreign films need to compete in a quota system that limits the number of imported films to around 34 a year. The main way to get around the quotas was pioneered in the 1990s — “co-productions” between China and Hollywood that the government deemed sufficiently Chinese to allow into the domestic film market.
In the early 2010s, big film studios and production companies adopted the strategy, and so began nearly a decade of China-Hollywood deals, big and small.
Wanda’s Qingdao Oriental Movie Metropolis.
Wanda broke ground, other Chinese firms followed
In 2012, the Dalian Wanda Group, helmed by Wang Jianlin, made its first big splash in Hollywood when it shelled out $2.5 billion for the acquisition of AMC Theatres — the second-biggest cinema chain in the U.S. Since then, the real-estate-developer-turned-media-empire has been on a buying spree, including purchasing Jurassic World production company Legendary Entertainment for an eye-popping $3.5 billion in January 2016 — which made Wanda the first Chinese company to own an American studio or production house.
The Wanda-Legendary marriage was widely seen as a landmark triumph in the eyes of Hollywood insiders. In a 2016 interview with The New American, Jeffrey Katzenberg, the CEO of DreamWorks Animation and producer of blockbusters like the Kung Fu Panda series, seemed to be completely enamored of Wang’s Wanda magic. “Wanda is one of the biggest, most aggressive, most successful movie and media enterprises in China today,” he said at the time. “For them to make this kind of investment in a Western company is a game-changer.”
Wanda was no doubt the most aggressive and relentless investor on this front, but it was hardly the only one. Between 2012 and 2016, growing mutual interest between China and Hollywood led to a flurry of deals that varied drastically in scale and commitment.
Other notable China-Hollywood alliances and partnerships
Perfect World and Universal Pictures
In a deal unveiled in January 2016, Perfect World, a Beijing-based games and film group, made an initial $250 million equity investment in Universal Pictures for a five-year financing agreement to back some 50 Universal titles. In 2017, Perfect World raised a further $250 million as the second installment in its commitment. Per Variety, rather than focusing on immediate profits, Perfect World intended to take a cautious approach with the multi-year project.
Huayi Brothers and STX Entertainment
In April 2015, Chinese film studio Huayi Brothers Media closed a three-year pact to co-produce and distribute 12-15 films per year with STX Entertainment. Prior to the deal, STX Entertainment had established strong ties to several Chinese investors such as equity firm Hony Capital, tech behemoth Tencent, and Hong Kong telecom giant PCCW.
Fosun International and Studio 8
With an investment that was valued at $200 million in 2014, Chinese conglomerate Fosun International acquired majority ownership of Studio 8, a startup launched by former Warner Bros executive Jeff Robinov. After Ang Lee’s Billy Lynn’s Long Halftime Walk in 2016, which flopped at the box office despite generally positive reviews among movie critics, Fosun seemed to have lost confidence in the company. In 2017, news came that Fosun was exploring options for disposing of its stake in Studio 8. One year later, the startup reportedly looked for some $200 million of fresh capital in a new fundraising round that Fosun had no interest in.
Hunan TV and Lionsgate
In April 2015, Lionsgate sealed a three-year pact with Hunan TV, China’s leading provincial broadcaster, which agreed to provide $375 million of capital in financing for about 500 Hollywood movies and cover a quarter of those films’ production budgets. Films that were made under the deal and listed Hunan TV as a co-producer include the Oscar-winning La La Land and the war drama Hacksaw Ridge.
Alibaba Pictures and Paramount Pictures
In 2015, Alibaba Pictures, the Chinese film studio backed by Jack Ma’s ecommerce giant Alibaba, unveiled an agreement to invest in Paramount’s Mission: Impossible – Rogue Nation. As Alibaba’s first Hollywood project, the collaboration allowed Alibaba to leverage its Taobao Movie mobile ticketing service and Yulebao crowdfunding platform to market the movie. In 2016, Alibaba teamed up with Paramount again on the promotion of Teenage Mutant Ninja Turtles: Out of the Shadows and Star Trek Beyond.
China Media Capital (CMC) and Warner Bros. Entertainment
In 2015, Warner Bros. announced its major agreement with China Media Capital (CMC), a giant investment fund backed by the Chinese government, to form an international joint venture called Flagship Entertainment Group Limited. According to a Warner Bros. press release, the new entity will develop, distribute, and produce a slate of films that specifically target China’s booming film market.
CITIC Group and Dick Cook Studios
Former Disney chairman Dick Cook created Dick Cook Studios in 2015 with a $150 million investment from Citic Guoan Group, a division of the state-owned Chinese conglomerate Citic Group. Mainly focusing on family-friendly entertainment, the Los Angeles–based company landed another deal in 2016 with Film Carnival, a film producer and distributor located in Zhejiang Province, which agreed to finance 100 percent of the movies developed, produced, distributed, and marketed by the studio.
Bona Film Group and TSG Entertainment/Twentieth Century Fox
Chinese studio Bona Film Group stuck a deal in 2015 to invest $235 million in TSG Entertainment Finance, which has a long-standing relationship with 20th Century Fox. The deal effectively allowed Bona to invest in six live-action tentpoles and participate in TSG’s slate financing arrangement in the long run.
Illustration by Derek Zheng
Beijing cuts off the money supply
While the $3.5 billion Wanda-Legendary deal received predominantly positive feedback among people in Hollywood, it raised some serious eyebrows among high-ranking officials in China. In early 2017, the Chinese government implemented stringent currency controls that have substantially crimped Chinese acquisitions overseas, especially when it comes to the American entertainment industry.
One of the high-profile deals that fell apart under the new austerity was Wanda’s $1 billion acquisition of Dick Clark Productions, which produces the Golden Globes and American Music Awards. According to people close to the matter, the deal collapsed due to mounting regulatory pressures from Chinese officials, as well as Wanda’s teetering financial condition.
Other casualties of China’s tightening restrictions on money leaving its borders include a $1 billion investment in Paramount Pictures by the Beijing-based Huahua Media. After months of anticipation, Paramount announced in November 2017 that the promised investment had failed to materialize.
Earlier that year, a $2 billion agreement by Chinese tech and entertainment conglomerate LeEco to acquire LA-based TV maker Vizio was called off due to — according to LeEco — “regulatory headwinds.” The failed merger prompted a lawsuit filed by Vizio, which accused LeEco of committing fraud and faking interest in building a joint venture to elevate its profile overseas.
America fears Chinese influence
On the U.S. side, Chinese firms’ takeover of Hollywood has attracted a fair share of scrutiny from U.S. lawmakers concerned that the tie-ups, some of which received direct support from the government, are part of China’s strategy to extend its outward reach and accumulate soft power.
Back in 2016, 16 U.S. congressmen signed a letter calling for greater scrutiny of Chinese investment in American industry. One specific example cited in the letter is Wanda’s Hollywood dealmaking, which — per the letter — might have “profound implications for American media” given Wang’s close relationship with the Chinese government and the Communist Party.
Prior to the letter, Richard Berman, a lawyer and public relations executive, launched a campaign called “China Own Us,” which funded a billboard at the center of Hollywood that read, “China’s Red Puppet: AMC Theatres.” In an article published by Politico, Berman warned, “When you control the movie experience, you can subtly influence public opinion.”
Abominable and the controversial map
In most cases, when an American studio removes content that might be deemed offensive by Chinese authorities, it’s nearly impossible to put a finger on what exactly caused the deletion without official explanations. Nonetheless, the phenomenon has been extensively reported and is likely to continue.
Earlier this year, Abominable, an animated film jointly produced by DreamWorks and Shanghai-based Pearl Studios, stirred up controversy for a scene that has a map supporting disputed Chinese claims to the South China Sea. Around the same time, the upcoming sequel to Top Gun, a 1986 American action drama film, made headlines following the release of its first trailer, where two patches that had originally shown the Taiwanese flag appear to have been swapped out. Produced by Paramount Pictures, the movie has Chinese tech giant Tencent as its investor and primary promoter in the Chinese market.