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The tragic romance of China and Hollywood

The tragic romance of China and Hollywood

The movie damaged more than Zhang’s reputation. The Great Wall was seen by many as a bellwether for the China-Hollywood relationship at large. At the time, it was the most ambitious attempt ever at a blockbuster China-U.S. co-production (a film made in collaboration between a Chinese and U.S. studio).

The co-production industry had been skyrocketing since the ’90s. Hollywood studios were setting up offices in Shanghai and Beijing. And Chinese film companies were acquiring U.S. counterparts for billions of dollars. In 2016, Dalian Wanda acquired Legendary Entertainment for 3.5 billion dollars. Legendary was producing The Great Wall at the time of the deal.

The Great Wall was an ambitious project. Producers had to navigate two very different legal and regulatory regimes, understand different contract norms and accounting practices, and speak multiple languages on set. The Great Wall team took on these challenges at an unprecedented scale and complexity. In that light, its failure might have been seen as simple growing pains for a developing industry.

But the movie’s failure had ominous timing. Within a year of its release, the great China-Hollywood relationship, built on billions of dollars of investment, began its rapid collapse.

How does an industry die?

The first domino to fall in the China-Hollywood collapse was regulatory. For years, Chinese conglomerates had been investing heavily in overseas companies. In 2016 alone, Chinese overseas investments exceeded $200 billion. Hollywood was a popular investment target. Billions flowed into films, studio acquisitions, and cinemas.

In early 2017, China’s commerce minister Zhōng Shān 钟山 criticized this outflow of capital, which he called “blind and irrational investment.” Zhong announced plans for the government to strictly supervise and limit Chinese foreign investment.

Shortly thereafter, a number of large Hollywood deals collapsed. Wanda’s attempted $1.1 billion acquisition of Dick Clark Productions, LeEco’s $2 billion purchase of Vizio, and Anhui Xinke’s acquisition of Voltage Pictures all fell through. LeEco cited “regulatory headwinds” when it pulled its acquisition attempt. Regulators halted the free-flowing money from China into Hollywood.

The next domino to fall was political. Donald Trump’s White House was escalating its hawkish anti-China rhetoric. The foretold “trade war” was becoming a reality. This fueled crackdowns by Chinese regulators, and left Hollywood producers reluctant to make more investments in China.

Escalating tensions also coincided with a more conservative turn among Chinese censors. During Trump’s presidency, Hollywood films had a harder time getting censors’ permission for Chinese release. Only one more major co-production (Belle Avery’s The Meg in 2018) would be released in China during Trump’s presidency.

Finally, as COVID-19 broke out, China and the U.S. closed their borders. With that, what little fire was left in the industry was stamped out.

A tragedy of compatible partners

The industry’s collapse was a bitter experience for the filmmakers who had built their careers around the China-Hollywood relationship. Many had expected a bright future with more collaborations on the horizon.

There were real reasons for optimism: U.S. studios still wanted access to Chinese audiences, Chinese studios still wanted access to U.S. production capabilities, and investors on both sides of the Pacific were eager to profit from the exchange. The Great Wall notwithstanding, many co-productions were well-received and profitable for both sides. It was a win-win arrangement.

What’s more, many producers saw the China-Hollywood relationship as greater than just a commercial machine. Chris Fenton, the president of DMG Entertainment who oversaw the Chinese co-production of Iron Man 3 and Looper, put it simply in his book Feed the Dragon: the China-Hollywood business is “commercial and cultural diplomacy,” and “without it [China and the U.S. have] geopolitical failure.”

There’s substance to this view. For decades, film and television partnerships have given American and Chinese audiences exposure to each other’s cultures. When Miramax distributed Zhang Yimou’s Hero in 2002 — a film full of martial arts, calligraphy, and a strong Chinese moral — it was a box office success in part because it was so different from anything else in American theaters.

Both China and the U.S. gained from the collaboration — expanding business for Hollywood and helping the Chinese film industry to mature into the behemoth it is today. This created thousands of jobs and billions in economic value for both countries, while facilitating cultural exchange and diplomatic growth (see Stanley Rosen’s research on the impact of U.S.-China filmmaking on diplomacy).

There were massive incentives for the Hollywood-China relationship to hold together. Which makes the collapse all the more tragic.

Out with the old

Filmmakers from the U.S. and China are not optimistic about the future of collaboration, at least in the near term.

“If we can protect American interests while also engaging with China on cultural and commercial trade, we must,” Fenton told The China Project. “That said, we haven’t found that secret recipe yet, and China sure hasn’t helped.”

According to Fenton, “Beijing offered up access to its market in exchange for a decade-long tutorial from Hollywood on how to replicate its filmmaking process.” Now that China has caught up (somewhat), there’s less incentive to collaborate.

Beijing-based director Daniel Zhao agrees, with a caveat. “The overarching policy of the central government now is to build a self-reliant ecosystem (自循环 zìxúnhuán), but I do see gaps where China still needs to import international technology and personnel,” Zhao told The China Project. He has worked in China’s film industry for over a decade, including a stint with Fenton’s company DMG.

China’s film industry has made great strides, thanks in part to its Hollywood’s partnerships. It is now home to some of the largest production sites in the world. China is rapidly developing new virtual production capabilities and improving its 3-D animation quality. In recent years, China has demonstrated that it can pioneer fresh aesthetics and produce domestic successes without Hollywood’s guidance.

Pessimism about the Hollywood-China relationship is well-grounded. The Chinese government under Xi Jinping is moving in a more conservative direction. This direction was solidified at the recent 20th Party Congress. Culture and entertainment have been more tightly censored in recent years. And Hollywood partnerships are highly scrutinized.

Co-productions scholar Wendy Su describes the pre-2017 years as the “honeymoon phase” of Hollywood-China co-productions. Those years are over and unlikely to return. Hollywood studios won’t be reaping ticket sales from Chinese cinemas. And this is a great loss for Hollywood. It’s arguably a loss for China as well (some state-run Chinese studios even lobbied against the government’s protectionism as being bad for business).

But Hollywood imports and Chinese cinema screens are just one part of the broader media landscape in China, and they are a shrinking part at that. There are still opportunities for partnerships in other segments of the industry — segments that were peripheral 10 years ago, but are now growing rapidly even as box office revenues diminish.

In with the new

China’s media landscape has changed a lot since The Great Wall in 2016. Many filmmakers are turning away from traditional live action feature films (box office revenues are down, actors are getting canceled, and censors are unpredictable). For many producers, there are more exciting opportunities elsewhere: 3-D animation, video games, short-form video, metaverse, and made-for-streaming series, to name a few.

The media landscape is evolving. IP now crosses between formats more fluidly than before. In China, a web novel published last year can become an animated series this year, and then a video game the next. Producers are looking to NFTs as a potential revenue stream.

In this changing landscape, China has emerging opportunities and needs. Director Daniel Zhao thinks the metaverse may be one rising strength. “China has always excelled in developing tech that required a large user base,” said Zhao, whose current work focuses on 3-D animation and virtual production. “In China’s case, a highly-integrated metaverse is in line with China’s national security policies. I think WeChat’s growth into a ‘life app’ is a preview for how the government will push to adopt some form of centralized metaverse for the public.”

China’s VFX and 3-D animation studios are another important strength (see BaseFX, Light-Chaser Animation, or Coloroom Pictures). Animated content plays better with censors and the technology easily crosses over into video games and metaverse content. “COVID-19 actually helped animation to grow in China,” said Nikki Wang, a Beijing-based producer who has led animated projects for BaseFX and other studios.

“But one issue with animation,” Wang added, “is that the studios struggle to find good original IP to animate.” This is an important gap. China’s media industry struggles to generate original IP and develop it into commercially successful stories. Most IP is adapted from classical myths or (increasingly) from web novels. And China’s adapted screenplays aren’t developed with the same rigid story structures that are so standardized in Hollywood. This is one of the reasons that foreign writing and production talent is in high demand in China’s studios.

“Another challenge with Chinese animation is that the money from distribution is rarely enough to make projects profitable,” Wang said. For this reason, many series and films hope to be exported to the U.S. and other foreign markets for distribution (e.g., Netflix bought the rights to Light Chaser’s animated film Ne Zha Reborn). These deals are highly sought after among Chinese studios, but they are still rare.

“The keyword is 出海 (chūhǎi, literally ‘go to sea’),” Zhao said. “These exports will be out of bounds for censorship.” Plus, because it’s much cheaper to produce in China than in the U.S., these projects are relatively inexpensive for Hollywood distributors to license.

As Chinese production quality increases, Chinese studios could also be a place where U.S. filmmakers outsource costly operations (BaseFX has already done VFX and animation work for Aquaman, Star Trek, and Captain America films). Additionally, China may soon be positioned to export metaverse and 3-D animation into the U.S., where demand (and funding) for this content is growing.

With these opportunities for collaboration, the Hollywood-China relationship is far from dead. It is in a slump, and likely will be for years to come. China’s 20th Party Congress cemented a government more focused on media control than collaboration.

The old days of co-productions and box office hits are over for good. But this tragedy is looking smaller and smaller in the rearview mirror. Media is moving into the future. And the future of the China-Hollywood relationship will be very different from its past. New prospects are emerging. This article only names a few.

There are still opportunities at the intersection of the world’s two largest media industries. There is still commercial and cultural value in the China-Hollywood partnership. Now the question is: who will take on the challenge to bridge the divide?

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