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The Rise of China's Box Office Market and Its Implications for Hollywood

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Hollywood's looking to exploit the growing Chinese market, but some worry about the undue influence China will have on American movies.

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MINYANVILLE ORIGINAL China is typically known as the world's factory, producing everything from Gap (GAP) jeans to all things Apple (AAPL). Because wages are still relatively low there, domestic consumption is weak and the country exports most of what it makes, with the US being one of its biggest export markets.

However, the "China producers, America consumes" truism does not hold in the movie industry. In fact, it is the exact opposite. In a deal that underscores the increasing importance of China to Hollywood, Chinese theater company Dalian Wanda recently announced its plan to acquire AMC Entertainment, the second-largest cinema chain in North America behind Regal Entertainment Group (RGC), for an eye-popping $2.6 billion.

Indeed, with the North American box office having stayed stagnant over the past decade (with admissions actually falling), Hollywood has had to turn to the international market, and China in particular, for revenue growth.

The Middle Kingdom is now the second-biggest film market globally, behind only the US. In 2011, its box office take grew 35% to over $2 billion, according to the Motion Picture Association of America, with the number of cinema screens having doubled in five years to about 11,000, behind only America once more. The Economist estimates that China could overtake the US in box office revenue by 2020.

Combine the robust growth of the Chinese box office with the gradual decline of the American box office, and you can see why Hollywood is scrambling to appeal to the Chinese market. For one, Hollywood studios are increasingly getting together with their Chinese counterparts to co-finance and co-produce pictures with China, as this is one way of getting around China's strict annual foreign films quota.

The Increasing Chinese Presence in Hollywood Movies

Typically, China features heavily in these co-productions. Disney's (DIS) Iron Man 3, co-produced with Beijing-based DMG Entertainment, will be shot partly in China, and will also feature a Chinese character. Iron Man creator Stan Lee has also come up with a new Chinese superhero character, The Annihilator, who will be the protagonist of a new movie co-financed by National Film Capital, China's state-run fund management company, which is backed by the Industrial and Commercial Bank of China.

Unsurprisingly then, there's been, the Guardian notes, a gradual de-Americanization of big Hollywood blockbusters, with a sense of cultural neutrality taking its place so that these movies can sell tickets outside of North America.
The USA of the collective unconscious – LA storm drains, NYC fire escapes, Midwest horizon roads, and speedboat-parted Florida wetlands – is almost extinct at the global box office. Last year's top five had one film, the fourth Twilight, with a US setting; two, if you count the last Transformers, which really belongs to the multimillion-dollar globetrotters that rule the roost now. The new orthodoxy is: If a film is set in America, with strong American themes, the less chance it stands in the new globalized mainstream.

Whitewashing China?

Additionally, Hollywood has also started to specifically edit content to cater to Chinese tastes. The LA Times describes how movie studios have "added scenes ingratiating to the Chinese while also excising anything that might be deemed offensive by the country's censors (including Chinese baddies)."

For instance, there was Sony's (SNE) disaster film 2012 where the White House Chief of Staff exalts the Chinese after the country's scientists saves the world by building an ark (which met with standing ovations in Chinese cinemas), and the upcoming remake of the 1984 war movie Red Dawn, where the foreign army invading the US was digitally altered from Chinese to North Korean after the state-run Chinese press sharply criticized the film's plot line.

Most recently, another Sony feature, the Will Smith blockbuster Men in Black 3, excised a scene to appease Chinese censors. In the three-minute sequence, Will Smith's Agent J and Tommy Lee Jones' Agent K have a shoot-out with aliens in Manhattan's Chinatown. A Chinese paper, the China Southern Daily, postulated that the scene was interpreted as an allegory on Chinese Internet censorship and was thus cut.

Some media experts are concerned about the effects of Hollywood's myriad attempts to appeal to the Chinese market. When interviewed by the LA Times, Stanley Rosen, director of the East Asian Studies Center at the University of Southern California, was concerned that "a generation of moviegoers could emerge with a skewed, sanitized view of China in which human-rights abuses and even the grittiness of everyday life are swept under the rug."

However, Larry Namer, CEO and co-founder of Metan Entertainment Group, a firm that develops and distributes entertainment content for Chinese-speaking audiences globally, says that there is nothing new in what Hollywood is doing and that it is nothing to be worried about.

"Yes, now when you make a movie and you're thinking it through, the thought process has to include questions like, 'How do I structure this deal in a way that I can maximize its chances in the market?' That thinking must take in things like subject matter, actors, storyline, etc.," he tells Minyanville.

"When films started to get financed by the Japanese, then Arabs, then Russians, we saw some changes to reflect respect for -- and the box office need from -- those countries. It's no different here – you don't curse out your banker and then ask him for a loan."

Perhaps it is a good thing that China and its people are enjoying a greater presence in Hollywood films, Namer says. "Will some movies' subject matter have to be about China? Yes, of course. But China makes up a pretty big part of the world, so why shouldn't movies reflect life on Earth as we know it?"

Towards a More Nuanced Depiction of the Middle Kingdom

Also, instead of worrying that Hollywood will be whitewashing its portrayal of China, maybe it is cause for celebration that Hollywood executives will have to pause before engaging in reductive representations of China and that they will have to portray China in a more nuanced manner.

Take the original version of the Red Dawn remake with the Chinese as villains, for example. Abe Sauer of The Awl called it a "bald example of how one-dimensionally America generally, at all levels, thinks about China and Chinese people." Over at Salon, Andrew Leonard quipped sarcastically, "If we can't reduce foreign cultures to menacing cartoon stereotypes, then how dare we call ourselves the world's preeminent superpower?"



The Hollywood Colonization of China

In so far as there is a winner in the Hollywood-Getting-A-Foothold-In-China versus China-Becoming-Increasingly-Influential-In-Hollywood narrative, it might be, at this point at least, Hollywood. US-made blockbusters now dominate the Chinese box office.

As of May 30, when Men in Black 3 topped the chart, Hollywood films had been No. 1 for 19 weeks in a row, as Robert Cain at The Wrap points out. From February to May, Hollywood's share of the Chinese box office was an overwhelming 77%, powered in large part by blockbusters like Fox (NWS) and Paramount Pictures' (VIA) production Titanic 3D and Warner Bros.' (TWX) Wrath of the Titans. With the annual foreign film quota recently upped from 20 to 34, this Hollywood domination, notes Cain, is likely to continue and even increase.

Consider also the influence of American blockbusters. Even though they are getting de-Americanized and are including more of China and Chinese characters, the subtext of Hollywood big budget extravaganzas is still the championing of American values. Hainan University professor Bi Yantao writes in the state-owned China Daily, "Hollywood movies seek to build a national image characterized by freedom, equality, prosperity, and other positive aspects. Concepts such as 'freedom' and 'equality' are reinforced through the story lines."

He points out the examples of Avatar, Harry Potter and the Deathly Hallows: Part 2, and The Lord of the Rings: The Return of the King, saying:

All three of which are well-crafted examples of one of Hollywood's favorite tropes: The leader who embodies American values and his allies confronting and overcoming the "forces of evil" in pursuit of the principles of the Declaration of Independence that "all men are created equal" with "certain unalienable rights" among them "life, liberty, and the pursuit of happiness."

Ostensibly, it can be argued that instead of Americans getting a whitewashed view of the Chinese, it is the latter who will be affected by the soft power influence of American films and be encouraged to, as Stephen M. Walt, author of Taming American Power, says, "embrace [the US'] particular vision of a liberal-capitalist world order."

China and Movie Piracy

Where there is an uncontested win-win situation for both Hollywood and China is surely in the realm of intellectual property rights. Hollywood is known to be uptight about movie piracy, what with its steadfast support of the Stop Online Piracy Act, so you might think that it would be a bit squeamish about increasing Chinese access to its products. However, though China is infamous for its piracy issues, it has actually cleaned up its act by quite a bit, says Namer, who says that there's been a noticeable improvement in the movie piracy issue in China in the last two years.

"I wouldn't say the problem is solved, but clearly we see that many of the big online portals like Sina (SINA) and Sohu (SOHU) have gone public, so they do many more legal licensing deals and are now paying to stream videos. As such, they too have a vested interest in improving piracy because it affects their business," Namer observes. "So I think it's the beginning of a process, but change has been very dramatic and noticeable."

It's All About the Money

Ultimately, Namer says that perhaps too much has been made about the possible effects China might have on the movie-making business, and that when it came down to it, Hollywood is just all about the numbers game.

"I think movies get made in Hollywood based on what people think will sell tickets. People get too much credit for thinking deeper than they actually do. In the movie business, they just think: What movies will get people to place their butts in seats? What movies can I sell tickets and popcorn to? I don't think the industry moves as much in the political sphere as people might think."

Twitter: @sterlingwong
No positions in stocks mentioned.
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