ENTERTAINMENT – Time For China To Open Box Office Wider
Bottom line: China should completely up its film market to foreign participation, following recent liberalizing steps that have resulted in a boom in cross-border tie-ups.
The mayor of Los Angeles called on Chinese leaders to ease their restrictions on imported movies during a visit to Beijing last week, seeking better access for a product that is one of the most lucrative US exports to China.
The fact is that China has already taken big steps over the last 2 years to open its movie theaters to overseas products, as both foreign and domestic producers chase a fast-growing market that is now the world’s second largest behind only the United States. At the same time, a growing number of foreign filmmakers are getting improved access to the market through co-investments with Chinese partners, including joint ventures and joint production agreements.
China should be lauded for its recent efforts to open its film market to more foreign products, marking a huge advance over just 3 decades ago when the sector was closed to all foreign products.
With China now home to a vibrant domestic film-making community that can both compete and cooperate with foreign counterparts, Beijing should consider taking the next step in its opening process. That would see China completely open the market to all foreign films that comply with its content requirements, demonstrating the country’s commitment to fair trade and welcoming of competition that will improve the industry for everyone.
During his trip to China last week, Los Angeles Mayor Eric Garcetti noted the country’s recent big strides in opening its entertainment market, a move that has produced an explosion of new tie-ups between Hollywood and local Chinese partners. (English article) He added that the growing ties should ease Beijing’s concerns over any cultural threat posed by US films, and called the ongoing movement an integration of the world’s two largest economies, both culturally and economic.
The big prize being eyed by everyone is China’s booming box office, which is now the world’s second largest after generating $3.6 billion last year, up 27 percent from 2012.
This new wave of cross-border investment began to take shape in 2012, when China lifted its quota for the importation of foreign films to 34 each year, a 40 percent increase over the former figure that had been in place for years. Around the same time, Beijing also approved 2 major film production joint ventures, one between traditional media giant Shanghai Media Group (SMG) and DreamWorks Animation (NYSE: DWA); and the other between Internet powerhouse Tencent (HKEx: 700) and Disney (NYSE: DIS).
Because they are joint ventures with local partners, movies produced by both of these new tie-ups won’t be subject to the import quota restrictions, even as they draw heavily on the expertise of their foreign partners. In addition to these major new ventures, the landscape has seen a growing number of tie-ups on individual movie production that may also be exempt from the quotas.
Internet entrepreneur Robin Li, founder of leading online search site Baidu (Nasdaq: BIDU), made headlines in February this year, as he and a group of investors set up a Los Angeles-based animation studio to make movies aimed at the China market. Also this year, leading private equity firm Fosun International (HKEx: 656) made news when it became a founding investor in a major new film production company being set up by a former top Warner Bros (NYSE: TWX) official.
The flow of co-production tie-ups has also moved in the opposite direction, with major foreign studios teaming with Chinese partners to make individual movies. Leading that charge was the latest “Transformers” movie, which was co-produced with 2 Chinese partners and achieved huge success at the local box office this summer by becoming the first-ever movie to earn more than $300 million in China. In October, media reported that Warner Bros itself was in talks for its own tie-up with SMG for a locally-based film production fund with around $100 million in capital.
This sudden explosion in tie-ups could mean the actual number of foreign-backed films in China each year could be well above the 34 movie limit when many of these co-productions start screening in the market over the next few years.
The growing number of cross-border tie-ups not only helps foreign companies to avoid the quotas, but is also often a preferred path by providing overseas film-makers with strong local connections and market expertise. Such partnerships are likely to remain a favored choice for Hollywood in the years ahead, which should give Beijing the confidence to completely remove all import restrictions as the lines increasingly blur between purely foreign films and cross-border co-productions.
Bottom line: China should completely up its film market to foreign participation, following recent liberalizing steps that have resulted in a boom in cross-border tie-ups.
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