Hollywood and China: How to Push a Deal to Actually Close
"Legal recourse is futile," warns one top lawyer as supposedly final transactions go down in flames and insiders offer tips like bringing a personal translator and opening an offshore account: "You need to have practical leverage."
With abandoned Beijing-Hollywood pacts piling up, dealmaking in China has never appeared more difficult. But even though the Middle Kingdom's regulatory environment has grown more nettlesome than ever this year, the growth potential that comes with forging strong partnerships in the world's most populous nation has never been more appealing. Follow these insider how-tos to help push a pact over the finish line in Beijing while guarding financial interests and building mutually beneficial Chinese ties along the way.
DO YOUR DUE DILIGENCE (AND THEN DO IT AGAIN)
The recent blowup of several cross-border deals involving Chinese companies that were virtually unknown to the international entertainment industry should ring the alarm for deeper vetting. "There are lots of middlemen with dreams of raising money from someone up the chain, and they promise everything to everyone and hope something works out," says Schuyler M. Moore, a partner in the corporate entertainment department of Greenberg Glusker who has represented Chinese firms including Alibaba Pictures. Adds Christopher Spicer, an attorney at Akin Gump: "We get calls all the time from people claiming to have hundreds of millions of dollars who want introductions to studios and large producers. Yet when it comes time to sign an engagement letter and put up a $50,000 retainer, they disappear, and we never hear anything again."
GET AN OFFSHORE ESCROW ACCOUNT
The best way for a Hollywood company to protect itself in the event of a deal that goes bust is to get a substantial deposit up front. "Require funds in an offshore escrow account or under your control in a neutral jurisdiction," advises Joe Calabrese, chair of Latham & Watkins' entertainment, sports and media practice. "Legal recourse is futile," adds Moore. "You need to have practical leverage, such as holding a deposit or not delivering whatever you have [that they need]."
PREPARE FOR BUSINESS ON THE FLY
If you're new to Beijing, expect to make some quick adjustments to the local lay of the land. "You'll always be late to your first meeting since traffic time will be double what you estimated," says Michael Ma, CEO of WME-IMG China. "And industry people are usually dressed casually, surprising people who show up in suits and ties." Adds Marc Ganis, president and co-founder of Jiaflix, a joint-venture Chinese streaming video service: "Prepare for dinner meetings to include many people and many toasts — and keep your passport with you."
BRING YOUR OWN CHINESE SUPPORT STAFF
"It is important to have your own translators and interpreters," explains Matthew Erramouspe, co-chair of O'Melveny's entertainment, sports and media transactional practice. But don't hire someone on the spot locally and expect them to do battle for you. Translation is never a neutral process, and you want the medium to be sympathetic to your view. Adds Michael Ma, CEO of WME-IMG China: "A third party who has a long operating history in both countries could be crucial to avoid some first-timer pitfalls. Having one should be a rule, not the exception."
PINPOINT THE REAL POWER PLAYERS
Chinese businesspeople are famous for showing up to meetings with an entourage. "Companies there tend to have a clear hierarchy, and thus it is equally, if not more important, to identify the key decision-maker as early as possible," says Lex Kuo, who works out of Latham & Watkins' Beijing office. "Note that, given the language barrier, key decision-makers may not always be the ones who speak up in the negotiation."
ADJUST IF YOUR PARTNER IS GOVERNMENT-AFFILIATED
If you're engaging with a state-owned enterprise (SOE) — of which there are many in the entertainment sector — know that the rules of the game change dramatically. "Hollywood tends to focus on money and expects everyone to be incentivized by the same thing," explains Ganis. "The risk/reward analysis for government is very different. Understanding this and truly respecting it from the Chinese perspective is key." Says Moore: "It is impossible to succeed unless there is an internal champion high up who wants the deal done, because SOEs are hierarchical, not profit-driven and, at root, political entities."
ALWAYS BE A GENEROUS HOST ON YOUR HOME TURF
The Chinese have a custom of always picking up the tab for out-of-town guests — return the favor when your partners touch down in L.A. "Be generous and welcoming," advises Lindsay Conner, a partner at Manatt Phelps & Phillips. "Chinese culture is very welcoming, and when that behavior is reciprocated by U.S. executives, it makes Chinese negotiators feel more comfortable — and that leads to more open, flexible and friendly negotiations."
This story first appeared in the Nov. 29 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.