The Strategist

Why Hollywood film studios bow and scrape to Chinese business

01/20/2017 - 14:42

American film studio Paramount Pictures signed a partnership agreement with Chinese companies Shanghai Film Group and Huahua Media, for which the movie maker will receive $ 1 billion investments over three years.

According to The Wall Street Journal, the investors will help the studio distributing its movies in the Chinese film market, the second largest in the world after the United States.

Shanghai Film is the second largest distributors in China after Dalian Wanda Group. Huahua studio, in turn, collaborated with the studio during creation of "Transformers: Age of Extinction". This movie was created with a particular eye to the Chinese audience: the last third of "Transformers: Age of Extinction" was shot in China with participation of local actors. As a result, its fees in China reached $ 320 million, that is, $ 75 million more than in North America.

The most famous Paramount’s movies are "Titanic," "Forrest Gump" and "The Godfather". In recent years, the studio has dramatically reduced costs and number of films produced, so that its grosses have fallen substantially. In 2016, according to BoxOfficeMojo, Paramount became the seventh in this index with 7.7% market share in the United States. Its most popular film of the past year was " Star Trek Beyond", which earned $ 158.8 million in the US and $ 343 million in the world. 

Now, Chinese businessmen are involved in production and distribution of films worldwide.

Before 1994, foreign movies had been banned in the PRC. Even later, when the restrictions were lifted, the government severely restricted number of movies shot abroad. Until 2009, watchdog agencies set a limit of no more than 20 foreign movies a year, and the figure is just 34 now. All along, however, number of cinemas in China and demand for tickets boomed as Chinese "middle class" enlarged. In 2015, movies distribution brought more than 6 billion dollars from China. Today, it is the second largest movie market after the US, and promises to become the first in the world by 2018.

Giant Hollywood studios have long been struggling for an opportunity to enter this market, but Beijing set them back. For a long time, distribution of movies was carried out exclusively in Chinese companies. Many right holders are offered minimum royalties or even no right on a share in the box office. At the same time, a producer must obtain permission from local Chinese authority. Admission requirements are strict: no religion, minimum of eroticism, good must overcome evil.

To circumvent the quota of 34 films, foreign studios conclude co-production contracts with the Chinese side. The Government encourages the idea. First, this approach ensures that box office revenues will go to domestic producers. Second, China gets access to latest technologies of American competitors. Third, script of a co-produced movie must be approved by Chinese censors before shooting. This way, China regulates foreign movie production in exchange for access to its moviegoers and their money. Such deals are beneficial for American filmmakers, too. Movies shot in collaboration with Chinese partners are granted with status of national movies in China, so that the rolling restriction shall not apply. Such partnership also contributes in amount of royalties.

Any American film, intended for distribution in China, has to be censored. The main claim is no criticism towards China, and there’s no surprise that movie makers have mastered their skills. Watching a new Hollywood blockbuster, we do not even suspect that the movie has been made in compliance with all rules established by Chinese authorities.

Media regularly criticizes American moviemakers for their adulation of China. Comedian Stephen Colbert makes fun of Hollywood's passion for delicious "sweet and sour Chinese yuan." In September, 16 worried members of Congress even submitted a plea on China's growing influence on American cinema. However, movie makers themselves regard this just as a new business opportunities and continue to adapt to requirements of the Chinese partners.