Hollywood steps up its China game

Studio-government relations make outcome tricky

BEIJING -- After last year's Olympics drew global attention to China's shining modernity, 2009 proved a year of firsts for Hollywood studios trying to break into -- and ring serious returns from -- the planet's fastest-growing movie market.

Boxoffice is booming, up an average of 25% during each of the past five years. The screen count is expected to reach 6,000 -- by comparison, there are about 40,000 in the U.S. -- by the end of next year. With 1.3 billion people, there's plenty of room for growth: The country's overall economy is set to expand 8% this year, its banks are granting film loans and the government is encouraging co-productions.

Hollywood prospectors began mining in January, when Sony Pictures Home Entertainment opened its first Blu-ray factory in China -- in Shanghai -- with the aim of releasing 100 titles by year's end to tempt the growing number of Chinese willing to spend up to $30 a disc, a fortune compared with $1 bootlegs and free illegal downloads.

Then, weeks after Paramount said in July that it would open a Shanghai office, "Transformers: Revenge of the Fallen" became the first Hollywood film to gross more money in China than in any other territory outside the U.S. The film's 19-day haul of 423 million yuan ($62 million) boosted it, briefly, to the all-time record long occupied by James Cameron's "Titanic" in 1998. (Still, the Hollywood studio at best will repatriate only 15% of that sum, with the local Chinese distributor pocketing the bulk.)

Another glint of 2009 gold, albeit from a different vein, was tapped by Sony when its Michael Jackson tribute, "This Is It," became the first imported feature documentary to get wide Chinese theatrical distribution on a revenue-sharing basis. After a day-and-date October opening with the U.S., Chinese Jackson fans shelled out 46.5 million yuan ($6.8 million) for tickets.

In another sort of first, the Coen brothers' 1984 film "Blood Simple" became perhaps the biggest U.S. movie to be remade by a marquee Chinese director. Olympics opening ceremony designer Zhang Yimou's version, "A Simple Noodle Story," is due out today, kicking off the holiday season that will last through the Lunar New Year week that starts Feb. 14. Sony Pictures Classics boarded the film in exchange for distribution rights in North and South America.

Hoping to repeat its "Slumdog Millionaire" success in India for Asia's other huge movie market, Fox made its first production investment in China this year, partnering with Huayi Brothers Media to make the romantic comedy "Hot Summer Days," which is set for a Feb. 11 release.

The year's Hollywood-in-China trend continued last month, when Disney said it will build its first theme park in mainland China, in Shanghai, and revealed it's shooting the first localized version of "High School Musical" with partners Shanghai Media and Huayi, which went public in October -- the first Chinese studio to sell its shares.

All these firsts reflect the market's hard-won upside.

"I'm always impressed about how much excitement there is about the potential for the industry in China," says Jason Reed, GM of Walt Disney Studios International Prods., who comes here three or four weeks each year. "Everybody is dreaming big, and the excitement is infectious."

These days, however, the studios' relations with China's government, film-industry power brokers and increasingly proud consumer class feels much like relations between China and the rest of U.S. business: very much in the balance.

In a country that caps revenue-sharing film imports to 20 a year and uses opaque censorship guidelines in lieu of a ratings system, Hollywood is up against a one-party system whose leaders are acutely concerned with controlling the county's economy and image of itself, which means controlling what it allows its people to see.

The sheer amount of positive attention that the rescuing Chinese-built arks in "2012" received in the state-controlled press indicates editors' interest in how much Hollywood is willing to abandon its historical vilification and fantasization of China in favor of helping it look good to the world.

China's film elite arguably suffers the same inferiority complex Japanese carmakers once felt when first taking their wares to Western markets. After all, apart from a handful of kung fu pics and historical war dramas, the industry has little of interest to show mainstream international distributors.

It doesn't help that Hollywood often exports an arrogance that rubs the Chinese the wrong way.

Director Chen Daming, who spent seven years as an actor in Hollywood, returned to China in 1998 and found work between his own films consulting on visiting Hollywood studio projects.

Chen recalls an assistant from Hollywood working on the period film "The Painted Veil" asking aloud in the company of a mixed Western and Chinese crew why the movie couldn't simply be shot in Los Angeles' Chinatown.

"Hollywood always has the attitude that they are the best," he says. "Companies like GE or Volkswagen come into China and try to get used to the way Chinese people think and do businesses. That's why they've succeeded."

So it's not surprising it's often tough for Hollywood and China film folk to get along.

It also doesn't help that it's hard to work creatively when both groups must take care not to offend the industry's 800-pound gorilla -- the State Administration of Radio Film and Television -- and its kids the Film Bureau and the state-run China Film Group, the country's largest studio and only licensed film importer.

On Aug. 12., the longtime iron grip these state players held on China's film industry was loosened when the World Trade Organization ruled -- eight years after Beijing signed up for the group -- that China's markets weren't open to copyrighted cultural materials like films. China appealed the ruling, though it is expected to be rejected in Geneva before Christmas.

MPAA chief policy officer Greg Frazier says he's confident the ruling will be upheld and will begin to level China's playing field. "It's a breakthrough by any definition, but it does not mean the work is finished," he says. "Getting the ruling implemented successfully will be a challenge."

For David Wolf, co-author of a new report on the WTO ruling for Beijing-based consultancy China Media Monitor Intelligence, "breakthrough is too positive a word." Even if China Film's import monopoly must end on paper, the hoops facing would-be competitors are too difficult, drawn-out and expensive for any but a few other state-run entities to navigate, he says.

Considering just one of many tools at the Chinese bureaucrats' disposal that will facilitate the circumvention of the WTO ruling, Beijing's control of film-release dates means that James Cameron's "Avatar" -- though honored as the first Hollywood film allowed into China for the new year -- will release Jan. 2, well after a Dec. 18 worldwide release that includes such Chinese-language territories as Hong Kong, Taiwan and Singapore, all possible sources for pirated copies.

"What the Chinese government is trying to do here is not throw up a brick wall but to throw up obstacles that will slow up the opening to allow the domestic industry to catch up, both qualitatively and quantitatively, to the industry overseas," Wolf says. "It's not so much a blockage but a series of tank traps."