Hollywood’s Looming China Syndrome


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By Robert Cain for China Film Biz

September 11, 2012

In the 1979 Oscar nominated thriller “The China Syndrome,” a pair of journalists played by Jane Fonda and Michael Douglas stir up a hornet’s nest when they expose a nuclear plant accident that they fear could result in a “China Syndrome,” a worst-case scenario where the reactor core melts through its containment structures and drops into the underlying earth, “all the way to China.” The nasty end result would be a nuclear explosion that would render Southern California completely uninhabitable.

The film’s frantic tension arises from the conflict between the journalists’ efforts to obtain justice, and the nuclear plant operator’s self-preserving, sometimes violent attempts to maintain a cover-up of the accident. Fonda and Douglas characters’ righteous ambition winds up getting Jack Lemmon’s well-intentioned plant supervisor killed, and ultimately jeopardizes their own lives and careers, with the film’s final shot suggesting that nothing has really changed.

Hollywood’s major studios have set in motion a similarly risky and probably fruitless course of action by complaining publicly about what they feel is unfair treatment of their films in China. In pressing the U.S. Trade Representative to take diplomatic steps, the studios are escalating tensions in a situation that, if continued, could well result in a “China Syndrome” of their own that would poison their long-term prospects in the world’s fastest-growing and soon to be largest movie market.

The source of the studios’ discontent is their perception that recent moves by China Film Group have aimed to reduce the grosses of American films at Chinese multiplexes, by setting “blackout periods” during which Hollywood movie releases are limited, and by pitting at least two of these movies, “The Amazing Spider-Man” and “The Dark Knight Rises” against each other on the same weekend.

According to the Los Angeles Times, MPAA Chief Policy Officer Greg Frazier admits that the Chinese haven’t really done anything illegal. “Are they violating WTO obligations? Probably not.” To his credit, Frazier has been much more restrained and diplomatic in his statements than his studio counterparts have been.

The timing and tenor of the Americans’ complaints betray a complete disregard for the facts, a pronounced insensitivity about current events in China, and an alarming level of ignorance about how to win favor and get things done there.

Let’s take a look at what’s been happening with American movies in China:

  • In the first half of 2012, U.S. movies took a 68 percent share of China’s box office receipts. After the summer blackout, their share now stands at 60 percent. Domestic Chinese films have a 15 percent share, and China/Hong Kong co-productions another 23 percent. The rest of the world: 2 percent.
  • “The Amazing Spider-Man” and “The Dark Knight Rises” had China’s third and fourth best opening weeks, and after just 14 days in release the two films are already China’s 9th and 10th highest grossing pictures of 2012.
  • As I pointed out in an article last month, American films enjoy wider distribution, more screens and longer runs in China than do Chinese films.
  • During the past two weeks, U.S. films have taken 98 percent of China’s nationwide movie ticket revenues.
  • Of the 11 highest grossing movies in China this year, 10 are American.

Get the picture?

Now let’s look at China’s domestic scene:

  • The economy is experiencing an epic slowdown, one that is putting tens of millions out of work and raising serious questions about China’s financial viability.
  • The country’s communist party leadership is embroiled in the midst of an unwieldy succession crisis. With a once-in-a-decade power transition about to begin, one of the party’s top political stars has been disgraced with murder and corruption charges, and presumed president-to-be Xi Jinping has completely disappeared from public view, possibly due to a heart attack.
  • Territorial disputes over islands in the South China Sea and East China Sea have escalated to frightening levels, with diplomatic and trade relations between China and Japan deteriorating to post-WWII lows.
  • The party’s legitimacy is under threat from rifts within its ranks and also from the public via social media. As Dr. Cheng Li, a research director at the Brookings Institute recently put it, “This legitimacy crisis is worse than in 1989, and may be the worst in the history of the Communist Party. People are afraid that it could lead to revolution if it is not handled well.”

With all this turbulence, do the studio heads really think this is a good time to complain about movie schedules? Last weekend, the studios made almost as much money in Chinese theaters as they did in U.S. ones. To the Chinese they must seem like unwanted houseguests who, after living in the guest house for a while, have commandeered the master bedroom, eaten almost everything in the fridge, and now they’re screaming bloody murder because the homeowners have told them to stay out of the kitchen on weekends and marked a couple of food containers as off-limits.

Meanwhile, the Chinese homeowners are overwhelmed with problems: uncle and auntie have murdered a foreigner in the living room, the phone is constantly ringing with calls from bill collectors, major cracks have appeared in the foundation, and the neighbors have figured out how to open the windows from the outside and hurl insults at them about their previously private bodily functions.

And what are these ungrateful Americans doing for them anyway? Only a few companies—most notably IMAX, Fox, and Dreamworks Animation—have made efforts to appease the PRC’s political leaders and make a contribution, by producing and distributing Chinese language films.

Xenophobia is on the rise in China, and anti-American sentiment has climbed to levels not seen in decades. The communist leaders can gain much-needed legitimacy at home by standing up to pushy foreigners. If the studios aren’t careful they could easily precipitate their own nuclear meltdown, with China Film Group punishing the studios by shifting their imports toward American indies and non-U.S. films. And a nationalistic boycott of American movies isn’t unthinkable; the territorial disputes with Japan appear to have resulted in lower car sales in China recently for Toyota, Mazda and Nissan.

It’s natural during tough times to scapegoat foreigners; both the Americans and the Chinese are guilty of that. The studios should back off and leave things alone until the 18th Party Congress has chosen its new chiefs and the dust has settled on other current crises. The MPAA has done a marvelous job so far and they should keep their powder dry for the times ahead when they can have a meaningful impact with the next generation of leaders. And all of us should learn to take a more conciliatory tone in our conversations with the Chinese. We may not like their style, but they hold the keys to the future of our business. Triggering a nuclear reaction won’t benefit anyone.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com

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Is Big Bad China Picking on Poor Lil’ Hollywood?


By Robert Cain for China Film Biz

August 16, 2012

If you’ve read my previous columns you know that I’m no fan of the Chinese government’s film production- and distribution-related policies, and I’m certainly not a defender of the country’s tactics with regard to Hollywood. But I feel compelled to take exception to a recent series of articles in the American press that I believe unfairly characterizes China Film Group (CFG) as being single-mindedly devoted to curtailing the theatrical revenue of American studio films in the PRC.

In several recent articles (like this and this and this) the Los Angeles Times has decried China Film Group’s ‘aggressive steps’ to ‘curb the grosses’ of Hollywood tent-pole films by releasing pictures like The Dark Knight Rises and The Amazing Spider-Man against each other on the same weekend.

The Times and Variety also cite CFG’s decision to open Ice Age: Continental Drift on the same date as Dr. Seuss’ The Lorax, and a possible Bourne Legacy versus Total Recall showdown in September as further damning evidence that the Chinese are out to get Hollywood movies and put them in their place.

There’s no denyng that China’s film authorities wish to promote a healthy domestic film industry, and that part of making this possible means allowing room for locally made films to find an audience among Chinese filmgoers. Because few Chinese films this year have proven capable of competing head-to-head with American blockbusters, CFG has taken to coordinating release schedules to protect local films from Hollywood competition during key seasons like the summer school break, the October Golden Week holidays, and the year-end holiday season. As part of this effort, back in late June SARFT initiated a ‘film protection month’ (which will actually last for about two months) during which China will allow only 7 American imports to open at its multiplexes, and only two of these films—both 3D animated features—will be from major studios.

A key effect of this tactic is that it pushes back the releases of a handful of Hollywood tent-poles, squeezing several openings closer together than they might otherwise have occurred. But is China really targeting Hollywood films, as the Times put it, “to depress the box office receipts”? Is there a systematic campaign to punish American movies and drive down their grosses? I’m not seeing it, and on the whole the evidence doesn’t support this assertion.

Through the first 32 weeks of 2012, Chinese theaters released 54 films that were made in foreign territories. Of these, 25 were American films, and 7 more were U.S.-foreign co-productions like Killer Elite and Lockout. That works out to an average of exactly one American film every week, compared to barely one film every other week from the entire rest of the world combined. During this period American films took a 57 percent share of the nearly $1.6 billion in total PRC box office receipts, with the vast majority of that amount going to major studio pictures.

These are big numbers given that China’s obligations under the WTO don’t specifically require it to allow any American films into Chinese theaters. Yes, China must allow 34 imported revenue sharing ‘quota’ films annually under the updated (as of February, 2012) WTO agreement, but there’s no law that says these movies must be from major Hollywood studios.  If the Chinese were really intent on depriving Hollywood of renminbi they would be allocating a lot more of their quota slots to films from places like Iran, India and Brazil, or to indie films from specialty distributors like Magnolia Pictures and Strand Releasing. But they’re not doing that.

If anything, it seems to me that China has been surprisingly permissive with and solicitous of Hollywood’s studios. That such graphic films as The Dark Knight Rises (MPAA: “intense sequences of violence”) and The Hunger Games (MPAA: “intense violent thematic material and disturbing images”) are being allowed to screen at all came as quite a surprise to many Chinese filmmakers who would never be allowed, under China’s strict censorship rules, to indulge in the levels of violence and political commentary that these films enjoy. If China Film Group wants these films to fail, why is it going to so much trouble to bother releasing them, when it could easily and legitimately deny their releases on censorship grounds?

The truth is that China has rolled out a big fat welcome mat for Hollywood movies for most of this year. The average major Hollywood film opens on nearly 50 percent more screens during its opening week than the average major Chinese film, and is allowed to run for an average of 6 more days, or 15 percent longer, than the biggest Chinese movies. And let’s not forget that all these Hollywood movies are squeezing out domestic films; more than three-quarters of the movies made in China never receive a theatrical release.

 

*Chinese and China/Hong Kong co-productions indicated in RED

*Chinese and China/Hong Kong co-productions indicated in RED

Yes, the Times is right that for a few weekends this summer and fall, a handful of U.S. studio tent-poles will be forced to compete with each other for the same audiences. But China Film Group routinely does the same thing with Chinese films. One only has to go back as far as last week to find a comparable example, when four new Chinese animated films were released against each other.

And back in December, two hotly anticipated Chinese language tent-poles, The Flowers of War and Flying Swords of Dragon Gate, opened on the very same day. Both films did just fine, becoming respectively the 2nd and 4th highest grossing films released in China in 2011.

As much as China’s government authorities would like to see local films dominate the PRC’s multiplexes, they know that Hollywood movies are good business all around. Ticket sales from U.S. films help to build the country’s exhibition industry, which is still one of the most under-screened in the world. CFG makes far more money on each American film they release than they do on Chinese films, and that pays a lot of salaries and helps CFG build a war chest to fund domestic production. And tax revenues from ticket sales of American movies contribute to SARFT’s operating budget. In short, there are plenty of good reasons for CFG to maximize the revenues of Hollywood films.

SARFT and CFG do want to keep up appearances, and part of keeping up appearances is to help domestic films maintain a respectable share of China’s box office, ideally around 50 to 55 percent. When Hollywood movies squeezed Chinese films’ share down below 20 percent during the first half of this year, CFG was forced to take action, with the result that the major studio films will get a little less leeway for themselves for the rest of this year. Describing this shift as an attempt to ‘depress’ the grosses of American films overstates the situation and improperly encourages the impression of a hostile Chinese attitude.

The Dark Knight Rises and The Amazing Spider-Man will be just fine. Each of these pictures will release on several thousand screens in China, and each will earn at least $50 million in box office receipts there, which will be more than they earn just about anywhere else outside North America. The time to raise the alarm will be when China starts rejecting studio films that it should allow, or ghettoizing them to small numbers of screens in lower-grossing secondary markets. None of that has happened yet, and so long as the studios are respectful and play fair with the Chinese authorities, China’s welcome will remain wide open.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com