China Comes To Hollywood
In a deal valued at $2.6 billion, China’s Dalian Wanda Group Co., Ltd. plans to acquire AMC Entertainment holdings, Inc. creating the largest cinema powerhouse in the world.
According to Richard Verrier (LA Times, May 20, 2012):
“The deal marks the largest investment to date by a Chinese company in the U.S. entertainment industry and gives Wanda a foothold into the U.S. movie theater business in what some analysts viewed as a “trophy” acquisition.
For Wanda, the acquisition of AMC gives the Chinese theater operator a pipeline into two of the world’s largest theater markets (USA and Canada), giving it more clout in negotiating with major Hollywood studios that are eager to expand into the rapidly growing Chinese market.
China saw a 30% increase in box office sales last year to $2.1 billion and this year passed Japan as the biggest foreign market for Hollywood films. The country is in the midst of a multiplex building boom to provide entertainment to a burgeoning middle class with the goal of having 25,000 movie screens in the next five years.”
Wanda, based in Beijing, plans to keep the AMC American management team in place, including CEO Gerardo I. Lopez, and maintain AMC headquarters in Kansas City with no impact on the 18, 500 people currently employed by AMC.
Wanda’s billionaire chairman and president, Wang Jianlin, said that Wanda will invest an additional $500 million in AMC over time to be used by Mr. Lopez for purposes such as debt retirement, theater upgrades to show IMAX and 3D films, and theater renovations to include bars and dining options.
Over the past couple of years, Hollywood has been looking to China for both audiences and production partners. Conversely, China has been trying to break into the US film market and find a successful formula for introducing Chinese films to American audiences.
“Progress has been slow for a number of reasons, including the soft U.S. economy, language issues and the differences between how U.S. and Chinese movies are structured.
For example, “The Flowers of War,” an ambitious Chinese production starring “Dark Knight” star Christian Bale, underperformed at the box office when it was released in the U.S. earlier this year and showed in only 30 theaters, according to tracking site Box Office Mojo.
The country has recently set up government-based film investment funds in Hollywood and several state-owned media companies are involved with animation giants such as DreamWorks Animation SKG Inc. and Walt Disney Co.”
According to Zachary R. Mider (Bloomberg, May 21, 2012):
“Disney, the world’s largest entertainment company, in April agreed to develop animation content with Tencent Holdings Ltd. (700), China’s biggest Internet company. The Burbank, California-based company will co-produce “Iron Man 3” from its Marvel unit with Beijing-based DMG Entertainment.”
“DreamWorks Animation, based in Glendale, California, and run by CEO Jeffrey Katzenberg, said in February it will form Oriental DreamWorks, a Shanghai-based joint venture to develop entertainment projects in China that will include theme parks and live productions.”
“Rupert Murdoch’s News Corp., owner of 20th Century Fox, this month bought a stake in Beijing-based Bona Film Group Ltd, a movie producer and distributor.”
(Kung and Black, WSJ, May 21, 2012) “AMC’s deal with Wanda Group isn’t the theater chain’s first interaction with Chinese film companies. In 2010, AMC signed an exclusive deal with China Lion Film Distribution Inc., which releases major Chinese films in the U.S. and Canada at the same time the films are playing in China …
The arrangement has included hit Chinese films like “Aftershock,” a 2010 earthquake epic.”
In February, 2012, China increased the quota of foreign studio films (IMAX and 3D only) allowed into China by fourteen and increased revenues from an average of 13% of ticket sales to an average of 25% of ticket sales. Previously China’s film quota was twenty foreign studio films per year, with an additional forty independent foreign films. Under the new arrangement, non-Chinese independent film producers, whose films do not receive percentages of ticket sales in China but rather license fees, will be able to negotiate fees up from the current (below standard) 2% – 3% of their films’ budgets.
“Some U.S. movies now gross well over $100 million in China, so the change in the revenue-sharing formula will make a substantial difference to studios’ bottom lines. Last year’s “Transformers: Dark of the Moon” grossed more than $159 million in the country. Under the new policy, distributor Paramount Pictures would have taken home an additional $11.9 million from the film.
I’m not sure I’d call this a big win, but it’s definitely a win,” said Andrew Cripps, a former president of Paramount Pictures International. “Given how many blockbuster films are made in 3-D nowadays, this means the industry will be able to get a lot more movies into China and earn more money on each one.”
But the trade deal also gives independent filmmakers, most of whom distribute their movies in China without any revenue sharing, something they’ve long coveted: the ability to negotiate license deals on commercial terms comparable with other markets …
Nicolas Chartier, the Academy Award-winning producer of the “The Hurt Locker,” said the new rules would make it easier for independent producers to finance their movies and distribute them in what could become the world’s largest theatrical market. “We’re all hoping the prices in China are going to end up at the level of Germany and the U.K.,” he said. “I think it’s a great step.”