China and Hollywood go from deal frenzy to decoupling
From Deal Frenzy to Decoupling: Is the China-Hollywood Romance Officially Over?

					In the run-up to Chloé Zhao’s historic best director win for Nomadland at the 93rd Oscars, Disney began tiptoeing around potential land mines with regard to China, the director’s home country and the studio’s most important international market. “Please note in your ongoing coverage of Nomadland that Chloé Zhao is a Chinese filmmaker,” an executive for Disney-owned Searchlight emailed members of the Hollywood press on March 4. “You may accurately refer to her as Chinese or a Chinese National.”
A number of news outlets, including The New York Times, had mistakenly referred to Zhao as Asian American, but the bluntness and blanket nature of the proviso was conspicuous. As it would turn out, Disney had abundant reason to be concerned over how the provenance and perceived allegiances of its rising star director, who was also helming the studio’s forthcoming $200 million Marvel tentpole Eternals, were being portrayed to the world.




For months, the studio had been making clandestine efforts to avoid agitating the Chinese Communist Party when it came to Zhao, who was born and raised in Beijing but attended high school in London and Los Angeles and college in Massachusetts and New York. The simple fact that she now lives in Ojai, California, was certain to irk the CCP and provoke China’s notorious internet ultranationalists, whose M.O. is to aggressively scrutinize any Chinese artist who achieves significant success in the West — searching for hints of disloyalty to the motherland.

Sources say that in late 2020, a Searchlight publicist persuaded the small, New York-based Filmmaker magazine to remove a quote from a 2013 Zhao profile in which the budding auteur explained the inspiration for her first feature film, Songs My Brother Taught Me, about a Native American teenager looking for escape from the tough conditions of South Dakota’s Pine Ridge Indian Reservation. “It goes back to when I was a teenager in China, being in a place where there are lies everywhere,” she said. “You felt like you were never going to be able to get out. A lot of info I received when I was younger was not true, and I became very rebellious toward my family and my background. I went to England suddenly and relearned my history. Studying political science in a liberal arts college was a way for me to figure out what is real. Arm yourself with information, and then challenge that too.”


In most contexts, Zhao’s remarks — an ambitious young artist reflecting on the memories of teenage angst and rebellion that inform her work — would be innocuous. And if it weren’t already de rigueur for the American film industry, Disney’s behavior would be a scandal — the United States’ most iconic media brand, going out of its way to preemptively aid an authoritarian government in censoring an artist’s interview with an American media outlet. (Disney and Filmmaker declined to comment.)


	



			

	
			
			
			
	
	
	
						
		
			

			After years of dominance by Hollywood tentpoles, China is now producing its own blockbusters, including Detective Chinatown 3, which has grossed $703 million.
		
									Warner Bros. / Courtesy Everett Collection
					
			
	

					
			






But as it turned out, the studio’s efforts were for naught, while its risk assessment was indeed accurate. While the quote has been removed from Filmmaker‘s website, archived versions were unearthed in China shortly after Zhao’s best director win at the Golden Globes, setting off a social media backlash that prompted Chinese authorities to cancel the local release of Nomadland in April and expunge most mentions of Zhao from the internet. The controversy reached its zenith with the Oscars being fully censored in China, just as a homegrown hero was capturing the film world’s biggest prize. While Zhao has a great many admirers in the Chinese film industry and among local movie buffs, her achievement nearly doesn’t exist to the 1.4 billion people living within China’s internet firewall. The prospect of an Eternals release in China is murky. The CCTV6 China movie channel recently aired the U.S. release dates for a number of upcoming films but omitted Eternals as well as Marvel’s Shang-Chi and the Legend of the Ten Rings. (Insiders say Chinese regulators were equally upset by the Oscar nom in the short doc category for Do Not Split, which chronicles the 2019-20 protests in Hong Kong against encroaching Chinese authority.)
The case of the missing quote — and its abject failure as a minor conspiracy in the annals of studio chicanery — is indicative of the dense thicket of sensitivities that U.S. media companies must navigate as they attempt to maintain their enormous business interests in China.
As the U.S. film sector emerges from the COVID-19 pandemic — not to mention the Donald Trump administration and its aggressive trade war — the Hollywood-China relationship is at a crossroads. U.S. market share is on a downward trajectory as local fare is finding greater traction at the Middle Kingdom multiplex than Hollywood imports. (In 2019, the last pre-pandemic year of business normalcy, the Hollywood studios’ collective total revenue in China fell 2.7 percent compared to the previous year, the first such direct decline in a generation.) Meanwhile, Hollywood is facing criticism stateside for bending over backward to appease the authoritarian regime.
Amid a new climate of direct geopolitical rivalry with China, many analysts believe the U.S. studios will be lucky if they can retain the foothold they once had there, let alone make any meaningful progress toward expanding market access or growing revenue.




	



			

	
			
			
			
	
	
	
						
		
			

			The comedy Hi, Mom has become China’s highest-grossing release of 2021, taking in $841 million.
		
									Courtesy of Beijing Culture
					
			
	

					
			




“For decades, there’s been the promise of cooperation with the West across all sectors trying to enter the Chinese economy, but it’s never happened with any sort of security, safety or confidence for the investors,” says Jeff Robinov, whose Studio 8 was launched in 2014 with a reported $1 billion in backing from China’s Fosun Group before an unexpected trade war prompted Fosun to renege on the deal (it still has an ownership stake in Studio 8).


At the same time that Hollywood’s foothold in the Chinese market appears to be slipping, the reputational risks associated with the realities of doing business there are rapidly on the rise. While U.S. companies are increasingly taking principled stands on social issues ranging from voter disenfranchisement in Georgia to cases of police brutality throughout the country, Hollywood has remained mum when it comes to Chinese human rights issues. Judd Apatow stood out as the exception when he summed up the state of affairs during a September interview on MSNBC: “Instead of us doing business with China and that leading to China being more free, what has happened is that China has bought our silence with their money.” All the while, even the most outspoken celebrities have said nothing about the brutal crackdown on pro-democracy protesters in Hong Kong or the forced internment of over a million of China’s minority Muslims in the province of Xinjiang. (The U.S. is among several countries to label Beijing’s mistreatment of the Uyghurs, which includes credible accounts of forced sterilization to reduce the ethnic group’s population, as a “genocide.”)


	



			

	
			
			
			
	
	
	
						
		
			

			Hong Kong’s Do Not Split was nominated for an Oscar in the short doc category, upsetting Chinese regulators.
		
									Courtesy of Sundance
					
			
	

					
			




Despite routine tongue lashings from U.S. politicians of both parties, so far the studios appear to have calculated that they have much more to lose by crossing China’s red lines and speaking out on such issues — essentially, they risk giving up their entire China business in an instant. After all, China can giveth and China can taketh away. Beginning in October 2019, the NBA — the most popular and profitable U.S. sporting league in China by far — was banned from broadcast in the country for a full year after the Houston Rockets’ general manager at the time, Daryl Morey, put out a single, seven-word tweet voicing support for Hong Kong’s pro-democracy movement. (“Fight for Freedom. Stand with Hong Kong.”)


In late 2020, The Walt Disney Co. lost an option to expand its Hong Kong theme park after local authorities opted not to renew an agreement. The decision came at a sensitive time for Disney. #BoycottMulan was trending in the city after the Disney tentpole’s mainland Chinese star, Liu Yifei, made a social media statement of her own supporting the Hong Kong police force and its crackdown on protestors. Later, Disney came under fire for shooting scenes in Xinjiang and putting a thank you in Mulan‘s credits to local authorities that have been linked to the abuses against Uyghurs. Disney never weighed in on Hong Kong nor the substance of the situation in Xinjiang — but if it had, precedent dictates that the lights inside the Magic Kingdom at its vastly larger and more lucrative Shanghai Disney Resort would have gone dark instantly.
“Disney should have the ability to say, ‘We don’t stand for what’s happening in Xinjiang province as a company,’ ” says Chris Fenton, the former U.S.-based president of DMG Entertainment, which was an active player in the Beijing boom period, co-producing Disney’s Iron Man 3. “And they should be able to make that statement without fearing that their theme park’s going to get shut down or they’re never going to be allowed to exploit their IP in that market again.” But how that ideal can be realized in a global industry of ruthless realpolitik is anything but clear.
Last summer, PEN America published the explosive report “Made in Hollywood, Censored by Beijing,” which detailed how the major studios and A-list directors increasingly are making decisions — including cast, plot, dialogue and settings — “based on an effort to avoid antagonizing Chinese officials.” Among the lowlights, Disney/Marvel’s Doctor Strange excised a Tibetan character from the comic books (and instead cast a white actress, Tilda Swinton) and Skydance/Paramount removed the Taiwanese flag from Tom Cruise’s flight jacket for its upcoming Top Gun: Maverick.


Many within the studios will argue — off the record — that such criticisms are overblown, insisting that examples are rare or trivial, and that tentpole entertainments are feel-good products that needn’t carry an agenda. In studio players’ own telling, if 30 percent to 50 percent of international ticket buyers come from a single market — which isn’t uncommon for some blockbusters — you’re naturally going to go out of your way not to offend them.
But as with all cases of self-censorship, the evidence is most apparent in what’s missing in the aggregate: During a decade-plus period in which China has risen to the status of a hegemon in waiting, with its business interests and political influence extending to every corner of the world, the Hollywood studios have not created a single film, big or small, that depicts the country with a whiff of critique or even real-world nuance.
Critics, often academics, argue that China has cannily leveraged its market heft to co-opt Hollywood’s global pop culture machine into effectively carrying the water for one of the country’s most important lines of strategic global messaging: that China’s rise as a global superpower is a benign or stabilizing phenomenon. To the suggestion that Hollywood isn’t in the business of art with an agenda, critics can take their pick of the dozens of films released in recent years offering direct critiques of the United States’ own foreign policy and social justice failures — from Adam McKay’s multi-Oscar nominee Vice, for example, with its energetic lampooning of the entire George W. Bush presidency; or even Zhao’s Nomadland, a sensitive depiction of the consequences of rising income inequality on those who’ve fallen through the United States’ tattered social safety net.


	



			

	
			
			
			
	
	
	
						
		
			

			Disney’s Bob Iger (left) met with China’s president Xi Jinping in May 2016.
		
									KIM KYUNG-HOON/REUTERS/AFP via Getty Images
					
			
	

					
			






***
For all the fretful hand-wringing over China in the industry today, as recently as just five years ago, sentiments were the exact inverse — emphatic optimism.


Throughout the Obama era, Washington foreign policy consensus held that the best way for the U.S. to avoid dangerous conflict with a rising China was for the two countries to become indispensably integrated economically. The consensus in Hollywood, meanwhile, was similar but slightly different: The best way to get rich was to extend your business into China’s burgeoning consumer market as deeply as possible — whether by tapping into the country’s overflowing pool of outbound investment capital, or by establishing novel ventures that would ostensibly bridge the world’s two largest entertainment markets for decades to come.
On the Chinese side, Beijing deployed its standard playbook for playing catch-up in a high-sophistication industry dominated by the West: Crack open the door to the local market just wide enough to entice experienced foreign firms to enter into partnerships and joint ventures with local companies — required in many sectors under Chinese law in exchange for market access — with the ultimate aim of facilitating rapid knowledge transfer to the Chinese side while limiting the foreign players’ potential dominance. The cultural influence of American movies was never desirable to the CCP, but the power of Hollywood movie magic to pull in consumers was well understood and leveraged strategically to fuel the construction of China’s domestic infrastructure. Indeed, a historic cinema building boom ensued, as China went from a little over 6,000 screens in 2010 to over 75,000 by the end of 2020.
China’s film trade barriers, poor revenue-sharing terms and persistent piracy problems were early and constant sources of complaint among studio executives and the Motion Picture Association of America — but there were also legitimate signs of progress.




	



			

	
			
			
			
	
	
	
						
		
			

			Xi met with Joe Biden, then both vice presidents, in February 2012.
		
									FREDERIC J. BROWN/AFP via Getty Images
					
			
	

					
			




In 2009, the World Trade Organization handed the U.S. a victory, ruling that Beijing had violated its international free trade obligations by limiting imports of books, music and movies. In 2012, that decision culminated in a landmark deal brokered by then-Vice Presidents Joe Biden and Xi Jinping to expand China’s quota on U.S. studio film imports from 20 titles per year to 34, while also raising the studios’ share of ticket revenue from 13 percent to 25 percent. Given how rapidly China’s box office was forecasted to grow, the agreement basically guaranteed the studios hundreds of millions in additional revenue over the ensuing several years. Thus, the deal was widely celebrated, while other important issues — including disruptive Chinese rules barring U.S. studios from setting their own release dates in the country, marketing and distributing their own films directly (instead the studios are forced to go through Beijing’s state-backed distributors China Film Group or Huaxia, which take a substantial cut), and setting up any form of local production entity within the country — were kicked down the road for renegotiation at a later date. The Biden-Xi agreement called for a review and renegotiation after five years — but most analysts and industry players believed China was already on the inexorable path of greater opening and liberalization anyways. Meanwhile, Beijing was encouraging China’s private firms to carry the nation’s flag abroad and learn from established foreign competitors by making strategic multinational investments and acquisitions.


Thus, the floodgates heaved open.
In the ensuing years, Chinese capital rained on Hollywood in the form of slate deals (Bona Film Group put $235 million into 20th Century Fox movies and Perfect World parked $500 million with Universal Pictures), landmark investments in production entities (Jack Ma’s Alibaba bought a piece of Steven Spielberg’s Amblin Entertainment, while Tencent took stakes in Skydance, and China Media Capital bought into Ron Howard and Brian Grazer’s Imagine Entertainment and Creative Artists Agency) and big-ticket acquisitions not seen since the Japanese descended on Hollywood in the 1980s. Real estate giant Dalian Wanda Group gobbled up North America’s largest exhibitor, AMC Theatres, for $2.6 billion and Legendary Entertainment for $3.5 billion, while promising to invest billions more throughout the U.S. industry.


In Los Angeles, enterprising studio veterans perceived the Hollywood-China nexus to be the natural future of filmed entertainment — the currents of world trade were unmissable. A flurry of new ventures were formed: Jeffrey Katzenberg partnered in 2012 with state-backed firms China Media Capital and Shanghai Media Group to launch Oriental DreamWorks, an animation company based in Shanghai that promised to produce animated features in English and Chinese for the world. In 2014, Robinov was promised his cool $1 billion by Fosun Group and made his ambitions abundantly clear by naming the new outfit Studio 8 — as in the coming eighth major. China’s longest-standing private studio, Huayi Brothers Media, meanwhile, co-bankrolled the first 18 films from the much-ballyhooed Hollywood startup STX Entertainment. In 2016, former Paramount motion picture group president Adam Goodman joined Chinese company Le Vision Entertainment as the president of a new venture set up to produce English-language features with Chinese capital. That same year, sibling directors Joe and Anthony Russo, then sitting at the pinnacle of the industry thanks to their wildly successful work on Marvel’s Captain America and Avengers franchises, were spotted in Beijing on an almost monthly basis, taking meetings across the Chinese industry in the hopes of setting up a Chinese studio to produce Chinese-language films.
There were scores of others, but Wanda, and its mercurial billionaire chairman Wang Jianlin, became the emblem of the moment’s excesses: In 2016, the company was in the process of buying the live TV event producer Dick Clark Productions for an outlandish $1 billion, building a $1.2 billion U.S. headquarters and real estate development in Beverly Hills, pledging to invest billions in every major Hollywood studio if it proved unable to simply buy one of them, and spending $8 billion to build the world’s largest production studio in Qingdao, China (as part of that process, the company hired former Academy president Hawk Koch as a special advisor and received help from Los Angeles Mayor Eric Garcetti in arranging for a new direct commercial flight route to be established between L.A. and Qingdao — all in anticipation for the coming global production boom at the company’s vast new facilities on China’s eastern coast.)
It was Wanda’s aggressive dealmaking during this era that first aroused the skepticism of U.S. lawmakers. In December 2016, Democratic Sen. Chuck Schumer sent a letter to the treasury secretary calling for greater scrutiny of Chinese acquisitions of American media companies. A longtime China hawk, Schumer argued that the Treasury Department’s Committee on Foreign Investment in the U.S., (known as CFIUS), which examines foreign deals seen as potential threats to national security, should be expanded to cover the entertainment sector, due to the industry’s vital role in championing American free speech and culture.
Jump-cut to today, and every one of the above ventures is effectively defunct or unrecognizable. Oriental DreamWorks is now a fully owned Chinese company called Pearl Studio; STX failed to go public in Hong Kong and instead resorted to a diminished merger offer from Bollywood studio Eros International; Le Vision Entertainment was starved of the Chinese cash it was promised and crumbled; Studio 8 is looking for new investors; the Russos stopped visiting Beijing and focused on their U.S. venture Agbo Entertainment (although they did score some seed capital from Huayi Brothers Media); and Wanda sold every offshore entertainment asset it could find a buyer for — offloading tens of billions in assets to avoid a full financial meltdown (today the company is said to be in talks to take Legendary public via a special purpose acquisition company, or SPAC, which would allow it an eventual exit from its last Hollywood asset of note).


“Clearly, a lot of very smart, well-connected people on both the Chinese side and U.S. side thought this collaborative vision of the film industry’s future was worthwhile enough to receive major investment,” says Aynne Kokas, the author of the book Hollywood Made in China and a nonresident scholar in Chinese media at the Baker Institute of Public Policy at Rice University. “More than anything,” she adds, “what all this wreckage underscores is just how rapid the descent in the U.S.-China relationship has been — as the result of both Xi Jinping’s policies and Donald Trump’s policies.”
“We’ve gone from a tsunami to a small trickling stream,” adds Stephen Saltzman, an attorney at Paul Hastings who regularly represents Chinese studios and talent in their Hollywood dealings, referring to the changes to dealmaking between the two industries.


The limited cross-border business activity that does persist tends to be focussed narrowly on servicing the domestic Chinese industry, rather than grand plans for globe-straddling businesses: remake rights sales to Chinese studios, postproduction work on Chinese tentpoles or content sales to Chinese streamers. And when such deals are reached, no one tends to hear about it. The feverish deal announcements of the past have largely given way to an effective industry Omertà. “You don’t have to be a brilliant business mind to realize that trumpeting the things that you previously trumpeted isn’t going to do you any favors given the politicization in both countries and the uncertainty of where the future lies for U.S.-China relations,” Saltzman adds. “It’s very hard to predict how anything will be received today.”
***
The first phase of the downcycle for Hollywood and China actually preceded Donald Trump’s arrival on the world stage — albeit only briefly. In late 2016, Beijing began hitting the brakes on Chinese companies’ pattern of aggressive pursuit of international trophy assets. Concerned over downward pressure on the Chinese currency and alarmed by the vast sums Chinese conglomerates like Wanda, Fosun and others were spending in nonstrategic sectors, Chinese regulators abruptly cut off their access to state bank financing for outbound investments, plunging several of the firms into sudden debt crises.


Further crackdowns within the domestic Chinese entertainment industry soon followed. In March 2018, China’s State Administration of Press, Publication, Radio, Film and Television (SAPPRFT), the long-standing government department responsible for the regulation of film and TV content, was scrapped, with full authority over the entertainment industry moved under the control of the Chinese Communist Party’s Propaganda Department, also known as the Publicity Department. After a period of uncertainty, industry fears that direct CCP oversight of content regulation would result in an ever more repressive grip on creative expression were soon borne out. In the coming year, several high-profile Chinese film projects that had been approved by SAPPRFT — such as Zhang Yimou’s passion project One Second and Huayi Brothers Media’s $90 million war epic The Eight Hundred — were hit with sudden censorship complaints that caused them to be pulled from coveted film festival competitions at the last moment and then languish for months in reshoots and censorship back-and-forth.
Then the country’s most famous actress, Fan Bingbing, disappeared into police detention amid a high-profile crackdown on tax evasion in the film industry (her detainment followed a dramatic personal spat among other industry figures that spilled over into public view spectacularly after contracts for her work on a Feng Xiaogang film were posted on social media, showing that she and others on the project had engaged in a common, albeit illegal, industry practice of double contracting to reduce tax obligations). Fan emerged four months later to issue a groveling, scripted apology, while also getting hit with a government bill totaling over $100 million in back taxes and fines. Regulators put out the call that other violators would face the same fate if they didn’t swiftly right their accounts. Chinese film companies large and small then faced a fresh wave of financial distress as they scrambled to make tax payments that essentially amounted to tribute money — all after years of the authorities effectively looking the other way.
“This is very much a hallmark of Xi Jinping’s political strategy as he’s sought to assert the central role of the Communist Party over most aspects of Chinese life, including entertainment,” explains Kevin Rudd, Australia’s Mandarin-fluent former prime minister, who is now CEO of the Asia Society and president of its Asia Society Policy Institute think tank. Although often overlooked amid the now-fiery rhetoric of U.S.-China diplomatic relations, Beijing’s multifront crackdown on its domestic entertainment industry has been one of the primary dampeners of private Chinese film companies’ appetite and ability to forge new collaborative partnerships with U.S. entertainment companies. “It’s progressively becoming a more challenging environment for international film producers given the various new restrictions on content, which apply within China itself,” Rudd adds.
And then came Donald Trump. Despite a whirlwind state tour of China early in his term that seemed to enamor the new U.S. president to his counterpart and “dear friend” Xi Jinping, Trump soon instigated the radical reorientation of U.S.-China relations that he had promised on the campaign trail. In the summer of 2018, the president began implementing hundreds of billions of dollars’ worth of tariffs on Chinese goods — from which there would seemingly be no going back.


Although the entertainment sector was spared by Beijing’s direct tariff retaliation, Trump’s trade war had an immediate effect. Throughout late 2016 and early 2017, the MPAA had been laying the groundwork for the long-planned renegotiation of the U.S.-China film trade agreement, which was set to expire in February 2017. Sources close to the talks at the time told The Hollywood Reporter that the MPAA had reached a tentative agreement with Chinese officials that further concessions would have to be made. Two major priorities — opening up the Chinese market to a larger number of U.S. film imports and raising U.S. studios’ share of revenue closer to international norms — were thought to be within ready reach. But Trump’s belligerent rhetoric and aggressive actions on trade instantly subsumed such progress, as sectors of vastly larger national security and economic consequence took precedence. Trump’s avowed dislike of “liberal Hollywood” — as well as the voting patterns of California — further guaranteed that the film industry’s priorities were unlikely to ascend the ladder of trade priorities while he remained in office.
The election of Joe Biden has brought a glimmer of optimism to some quarters of the industry. Many wondered whether the new president’s track record of dealmaking with Xi on behalf of the movie business might create space for a new film agreement. Perhaps the trade dispute would find a more balanced footing and cultural exchange could be presented as low-hanging fruit?
“America and China are at a bit of an impasse these days, but I think that’s temporary,” says attorney Joseph Calabrese, global chair of Latham & Watkins’ entertainment, sports and media practice. “Two major economies can’t ignore each other for very long. I think under the Biden administration, you’ll see some rapprochement. I am still paying attention to and making investments in the China practice because I believe it’s got a long-term future.”
Others are more skeptical and expect Biden to keep his campaign trail promises to maintain much of Trump’s hard-line position on China. Indeed, the current political environment in Washington would seem to leave little room for an alternative path. “The bottom line is that President Biden has already made clear that he is not in any hurry to remove existing U.S. tariffs against Chinese exports,” says Rudd.


Although Biden’s team is attempting to identify narrow areas of clear mutual benefit, such as climate change, where meaningful collaboration might be possible, China’s red line issues such as technology that touches national security, human rights, Taiwan, Hong Kong or the South China Sea, are expected to remain immovable. At the same time, the Biden administration is in the process of devising and communicating where the United States’ red lines lie. Trade progress on semi-sensitive sectors that sit somewhere in the middle — such as cultural imports like film and television content, which communicate values and touch hearts and minds — also appears challenging amid the heightened tensions. “It’s a framework we try and describe as managed strategic competition as opposed to unmanaged strategic competition, which is what we had in the roller-coaster ride of the Trump administration,” Rudd adds. “The real fundamental strategic question for all U.S. industry sectors,” he says, “is can the Biden administration, through a restabilization of the U.S.-China relationship at a strategic level, create the basis for a restabilization of the economic relationship as well? It will be difficult.”
As the U.S. entertainment industry begins to make strides toward a resumption of business as usual post-COVID, there are numerous, deeply fraught questions concerning China that require answering. Foremost: What should media and entertainment companies’ new stance toward China look like given the tectonic geopolitical and technological shifts of recent months and years?
Untangling precisely how the relationship has changed, however, has its own challenges, says Rich Gelfond, CEO of Imax, one of the exceedingly few Western entertainment brands that has continued to generate sizable earnings in China during the later stages of the pandemic, thanks to its network of 734 giant-screen theaters there. Especially unclear is how both the Chinese audience and officialdom will regard U.S. film imports in the new, rivalrous era. “We have to sort out what’s pandemic-related and what’s policy-related. And I think at this moment, with U.S. exports of theatrical films to China sort of at a standstill, it’s hard to know what’s going to happen when things ‘get normal’ in terms of releasing U.S. films globally,” he says.


	



			

	
			
			
			
	
	
	
						
		
			

			After negative comments about China surfaced from a 2013 interview with Nomadland director Chloé Zhao, Chinese authorities canceled the local release of the film.
		
									Courtesy of Searchlight Pictures
					
			
	

					
			






***
Some fundamental trends can be appertained, though. In 2020, for example, for the first time ever, China ranked as the world’s largest theatrical market, with total ticket sales of $3.1 billion, topping North America’s $2.28 billion total. Analysts had been anticipating China’s ascendance to the global box office throne for years, but it’s safe to assume that no one predicted when and how the moment would actually arrive — amid a global pandemic that crippled the U.S. exhibition business.
So far, China is on track to again dominate North America in theatrical revenue in 2021. Thanks to the enormous performance of Chinese New Year blockbusters like Hi, Mom ($841 million) and Detective Chinatown 3 ($703 million), China’s 2021 running total sits at $3.5 billion compared to just $472 million in North America.
Legendary and Warner Bros’ Godzilla vs. Kong, the first Hollywood tentpole to receive a full-scale release in China during the pandemic era, has earned an encouraging $188 million to date there. And sources say Legendary’s upcoming sci-fi tentpole Dune already has scored a China release. But analysts close to the market say Hollywood shouldn’t take too much comfort in Godzilla vs. Kong‘s performance.


“If you have really straightforward, recognizable IP and the story is well executed, Hollywood tentpoles will continue to do good business here,” says James Li, president of Beijing-based film market research firm Fanink. “But on the whole, I think the Hollywood brand has taken a significant hit over the past year. U.S. movies that have a somewhat fuzzy selling point for the Chinese audience are going to earn a lot less than they have in the past; the audience has matured, and they aren’t automatically getting excited about a VFX-heavy Hollywood movie.”
Amid China’s speedy recovery from the pandemic and the country’s rising global profile, the Chinese audiences’ enthusiasm is tending to gravitate towards storytelling that encourages pride in Chinese culture and achievement, or nostalgia related to the rapid changes the country has undergone, Li explains. Marvel tentpole and Fast & Furious installments will do just fine, he says, but movies that are more culturally remote, or related to Americans own nostalgia trips could fall flat (keep a wary on Top Gun: Maverick, Dune, Ghostbusters: Afterlife, future Star Wars installments and other reboot efforts, he says).
The continued scale and vibrance of China’s theatrical market, nonetheless, will ensure that improving revenue share and eliminating Beijing’s arsenal of barriers in the theatrical sector will remain a priority in film trade discussions for years to come.


	



			

	
			
			
			
	
	
	
						
		
			

			Skydance/Paramount faced accusations of self-censorship when a Taiwanese flag was removed from Tom Cruise’s flight jacket in a trailer for its upcoming Top Gun: Maverick. The move reportedly was an attempt to appease China, which views Taiwan as Chinese territory.
		
									Scott Garfield/Paramount Pictures
					
			
	

					
			






Meanwhile, the ongoing streaming revolution underway in the U.S. industry — turbocharged by the lengthy theater closures and stay-at-home conditions of the pandemic, as many have noted — is rapidly remaking the way U.S. media and entertainment giants allocate resources toward storytelling forms and mediums. If streaming is indeed the future of the business, as recent restructurings at Disney, WarnerMedia and their peers suggest, then fighting the old battles solely for theatrical market access in China would seem myopic in the extreme. The issue waiting to be worked out: What role should streaming services play in future entertainment trade negotiations with China, and what should the industry’s new recommendations to the U.S. Trade Representative be?
China currently forbids foreign ownership or investment into any video platform operating within its borders, so any meaningful trade concession in the category would require a rewriting of Chinese law. The country’s stance on consumer data also is highly protectionist, while technological independence is one of Beijing’s central policy priorities. Together, such factors augur direly for U.S. streamers, analysts say.
China’s usual M.O. in such negotiations would be to agree to let foreign video platforms sell slightly larger (but still strictly limited) quantities of content to counterpart Chinese video services, as Netflix did with a small batch of its originals to leading Chinese streamer iQiyi in 2017 (Netflix, now a paying member of the MPAA, has never been able to establish its service in China; and the monetary value of the iQiyi deal was thought to be very low). But the limitations of this arrangement for the U.S. side are immediately apparent: The power of streaming’s direct-to-consumer business model revolves around amortizing content costs by leveraging data and revenue from a global subscriber base, not secondary sales to under-developed ancillary markets.


“That would be a Pyrrhic victory,” explains Kokas. “So you get a little bit of money from selling content to iQiyi, but that also helps iQiyi grow its own subscriber base, and then they become a bigger global player and enter the U.S. and other developing markets that are competitively important to you, because there are no reciprocal regulations preventing them from doing that? Not a great deal.”
Adds a studio insider based in Asia: “As a member of the WTO, what’s China’s argument for why they should be able to totally block a family-friendly streaming service like Disney+ — while their own streaming services are free to establish themselves in foreign markets all around the world? We’re habituated to accepting their restrictions, but I don’t see a strong case for it.”
Others in the industry who are bearish about the business complications in China see the reorientation toward streaming as a potential offramp for the studios’ reliance on Chinese box office revenue — and with it, a tapering of Beijing’s leverage over them. If the future of the business is indeed in streaming, and the studios thus become more like tech companies, perhaps their global outlay will come to resemble the U.S. tech giants too. After all, Netflix, Amazon and Alphabet’s YouTube have had little trouble building thriving multinational businesses despite being almost entirely blocked from Chinese consumers.
Within the U.S. government, meanwhile, the push for a hard-line approach to China is the only major policy area where there is deep bipartisan political agreement. Such sentiments are now broadly reflected among the U.S. public as well.
In the wake of the Trump administration’s abrupt reframing of China as an urgent economic and geopolitical rival, American perceptions of the country have shifted as quickly as trade policy did. A Pew Research Center survey published March 4 found that 67 percent of Americans feel “cold” toward China, up 21 percentage points from the 46 percent who said the same in 2018. Roughly nine in 10 U.S. adults (89 percent) consider China a competitor or enemy, rather than a partner, while 48 percent — up from 32 percent three years earlier — think limiting China’s power and influence should be a top foreign policy priority for the U.S.
While Hollywood continues to look the other way when it comes to China’s human rights abuses, Congress does not. In February, Sen. Jeff Merkley, D-Ore., introduced to legislation the Senate that would require President Biden to create an interagency task force to develop and execute a “government strategy to monitor and address Chinese government efforts to censor or intimidate individuals and entities in the United States, including attempts to censor or intimidate U.S. companies doing business in China.”
The bill also would require a nonpartisan research organization to develop a report detailing “major trends, patterns, and methods of China’s censorship and intimidation.” And that report would be required to include “best practices for industries in which freedom of expression issues are particularly acute, including the media and film industries.”


The bipartisan legislation was introduced and referred to the Committee on Foreign Relations on Feb. 24 with support from Sens. Marco Rubio, R-Fla.; Elizabeth Warren, D-Mass.; and John Cornyn, R-Texas.
“When you get Elizabeth Warren and Marco Rubio getting behind the same bill together, then you really know Hollywood and China have got a bit of a problem in Congress,” says Stanley Rosen, a professor at USC who specializes in soft power and the Chinese film industry.
A Democratic Senate aide involved with the bill told Reuters at the time of its introduction that the drafters recognized it was a sensitive issue for companies, and did not want to make bad guys out of “victims of economic coercion.”
“We want to help provide focus in the U.S. government to address this problem,” the aide said. “In a certain sense, we are trying to help insulate companies from pressure rather than raise the temperature further.”
Industry experts believe the passage of such a bill might achieve quite little besides upping the heat, however. And even if the drafters are unsuccessful, Hollywood’s strategy of keeping its head down in the face of abuses in China could eventually become untenable.
Says Rosen: “We live in an era of surprises, but in the near term, there are a lot of ways I can foresee this relationship getting worse — and very few where it gets better.”


	



			

	
			
			
			
	
	
	
						
		
			

			Source: Artisan Gateway
					
			
	

					
			




A version of this story first appeared in the May 19 issue of The Hollywood Reporter magazine. Click here to subscribe.
				