How 'Avatar,' Obama's Personal Letter Helped U.S. Studios Gain More Access to China's Market

"Kung Fu Panda 2"

Executives Bob Iger, Jeffrey Katzenberg and Chris Dodd played a role in the backroom negotiation that will allow more 3D blockbusters into the country.

This story first appeared in the March 2 issue of The Hollywood Reporter magazine.

Hollywood can again thank Avatar. The James Cameron epic is being credited for helping to spark talks that resulted in the landmark Feb. 17 deal with China that will allow U.S. studios more access to one of the world's fastest-growing movie markets and a much bigger cut of revenue.

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When Chinese officials pulled Avatar from theaters in 2010 because of its huge success and replaced it with a film about Confucius, moviegoers stayed away in droves. The audience wanted Avatar back, and when the government relented, fans paid as much as $100 for tickets.

China's entrepreneurs responded by building more theaters, boosting screens in the country from 6,223 in 2010 to 9,200 in 2011, of which 5,000 are 3D. Box office hit a dazzling $2.02 billion in 2011, and the number of screens is expected to grow to more than 16,000 by 2015. "With the theaters built and owned by an entrepreneur class, there was upward pressure on the government to bring in more movies like Avatar," says MPAA chief Chris Dodd.

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Shortly before Christmas, President Barack Obama wrote a letter to China's president, Hu Jintao, suggesting that the U.S. and China work to resolve several disputes, among them the question of increased film distribution and compensation, a senior White House official tells THR.

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In January, two teams of dignitaries were dispatched to China to talk about increasing its quota of foreign films from 20 a year. As plans were under way to bring Chinese vp Xi Jinping to Los Angeles, Vice President Joe Biden called Xi, a film buff (Saving Private Ryan and The Departed are among his favorites), reminding his counterpart of the importance of the Hollywood issue. When Xi arrived in L.A. on Feb. 17, the Hollywood talks were all-consuming. The sticking point was the profit-sharing deal between China and the studios. It had been set at 13 percent for years. The U.S. asked for 27 percent; the Chinese countered with 23. White House officials consulted Dodd, Disney chief Bob Iger and Jeffrey Katzenberg of DreamWorks Animation, which on Feb. 17 announced plans to build a studio in Shanghai with two state-owned Chinese media companies.

Over lunch, Biden told Xi they could close the deal with a 25 percent profit-sharing agreement, plus an additional 14 3D or Imax films allowed per year. Xi told him he would call Beijing. By dinner, the deal was done.