Sleepless in Hollywood: Tales From the New Abnormal in the Movie Business (10 page)

If there is an indigenous market to support, we will help finance it, then distribute the product and make money out of it. If there is money out there in a global movie industry, the studios need it. Dwindling cash means that any income is crucial.

WHAT WORKS BETTER THERE THAN HERE?

3D: The Great Conundrum

At first 3D was thought to be the savior of the business, the technological breakthrough that would compensate for the DVD disaster. But it was overused, slapped on pictures that weren’t shot in 3D. Some insiders were investors, which complicated matters so much
that at one point a famous mogul-investor suggested to Paramount and Scorsese that they release
The Departed
in 3D.

It was such the rage that every movie that was being made in the wake of
Avatar
and
Alice in Wonderland,
the medium’s first two blockbusters, was going to be in 3D. But the onslaught of lousy conversions gave the process a black eye and exhausted the sophisticated young audience in the United States, and many very young kids in the domestic family audience rejected it as well.

But in emerging markets, 3D is another story. In China and Russia, they
Just Can’t Get Enough
. The studios soon faced a puzzle in the wildly divergent appetites for 3D domestically and internationally. In the United States the appetite is diminishing from over-saturation; in the critical international audience, it is crack. Now it is necessary to make two versions of films, both 3D
and
2D, so the 3D doesn’t keep the U.S. audience away.

Then, in February 2012, something huge happened. The future president of China, Xi Jinping, ended his first trip to America in Los Angeles with a meeting with Vice President Biden and the MPAA’a chief lobbyist, former senator Chris Dodd. It’s not where you start a trip, it’s where you end a trip that counts; it’s like
The Last Dance.
The fact that the meeting included Biden and was Xi’s last stop indicated the importance of our industry’s trade for both China and the United States. The subjects were our movie quota for Hollywood releases in China—twenty-one per year—and the revenue ceiling for American movies, now 13 to 17 percent. In a groundbreaking deal, which was not all of what everyone wanted but a great start, Xi raised the profit ceiling to 25 percent and added fourteen more American movies to the quota over the next five years. There is one restriction: Each has to be 3D or IMAX. “I think, overall, people feel like it’s important to get movement here and then go back to the drawing board and push for more openers,” said Dodd.

The fact that nothing but 3D and IMAX is allowed into China
will critically affect what we as an industry will produce as China pushes itself to become the number-one movie market in the world over the next five years. They want fantasy and action, and they will get fantasy and action. Line up those tentpoles and fire.

ALL ROADS LEAD TO CHINA

With its 1.5 billion newly minted capitalists, China is the dream girl of every dashing entrepreneur’s business plan. But it has had no more ardent suitor than the entertainment business. Rupert Murdoch was an early trailblazer in the march on China, investing heavily in a satellite system, but left without the partnership he was aching for. Many less formidable suitors followed, to be greeted by opaque rules and customs and many layers of bureaucracy to penetrate.

My image is Hollywood as the Road Runner, bashing his head on the Great Wall until he could finally leap over to see who or what would greet him. Then he’d get the slow kind of runaround. And we courted China, even as it continued to be our most virulent pirate of DVDs. But gigantic progress has been made, especially in 2011 (though not so much on the piracy front). Even with the old quotas and caps on revenues in place, China’s box office profits surged 64 percent to $1.5 billion in 2011, and are projected to be $5 billion in the next five years. You can see what all the road running has been about.

DEALZ, DEALZ, DEALZ

Last year some major American companies made early coproduction deals with Chinese entrepreneurs as partners, and that made big headlines in the industry trades. Things are moving so fast
that this year Chinese moguls have come a-courting to us and look like our new white knights. China’s Dalian Wanda Group bought AMC Entertainment in a deal that is worth $2.6 billion, so they are now American distributors. There is a new deal and a new partnership announced monthly. So vast is this new market that everyone wants a piece of this trade deal. It will be the focus of a large part of the studios’ efforts.

A Chinese media mogul named Bruno Wu, educated in America and married to a gorgeous media star in her own right known as “the Chinese Oprah,” is bringing $800 million of financing money to the United States to buy companies, finance filmmakers and get into the content business for both the United States and China. He made a play to buy Summit Entertainment (
Twilight
franchise), at the time the only studio on the block, but Summit chose instead to merge with the more familiar Lionsgate Studios, like itself a minimajor (as we call studios without lots). Wu is advised by the Creative Artists Agency (CAA; one of Hollywood’s top movie agencies) at their Beijing headquarters, and is said to be looking at many different avenues into the U.S. market. Until I read the announcement, I didn’t even know that CAA
had
a Chinese headquarters. Things are getting seriously global around here.

Among the big production companies that got into the China game last year was Legendary Pictures. Its CEO, Thomas Tull, has invested in the
Dark Knight
franchise,
Inception,
and the
Hangover
movies, so we expect his decision-making to be refined, despite the first choice for his venture, an epic about the building of the Great Wall. I take this as a getting-to-know-you kind of gesture. It will be directed by Ed Zwick, but is currently on hold. I don’t know how these historical-epic coproductions go, but I have my doubts.

Ryan Kavanaugh of Relativity Media has a penchant for trouble (two alleged DUIs and many angry ex-financiers), which was extended to China early in his first coproduction there,
21 & Over.
Their central location turned out to be in a verboten city, Linyi, where famous human rights defender Chen Guangcheng, a blind self-taught lawyer, had been detained since 2005. Worse, unbeknown to Relativity, they had become partners with the local party secretary who was responsible for his repression. Human rights activists went ballistic, and Relativity came under fire in the press—just what Kavanaugh didn’t need. When you’re working with the government, and by extension the party, you don’t always know with whom you are dancing.

These clashes and confusions happen because the cultures couldn’t be more dissimilar. The only similarities are capitalism and our mutual love for dumplings, and the Chinese seem to be better capitalists than we are. They are great at picking our products as they choose, like from a dim sum menu, while keeping two-thirds of the profits. Those capitalists in China who want to get their money out and who now have the new coproduction deals have to depend on Hong Kong’s transparent financial market to get paid.

In the meantime, they are reaping all the benefits of the infrastructure and technology we offer them and using them to distribute their own created content as well as limited international fare.

It is critical that we remember that they are fundamentally self-interested (who isn’t?), no matter how much money we may reap from their new cinemas—a lesson Warner Bros. and Sony learned in 2012. Both studios were shocked when China scheduled
The Amazing Spider-Man
and
The Dark Knight Rises
on the exact same weekend. This would have slashed the performance of each U.S. movie to the benefit of a homegrown Chinese contender. Dismayed, Warners refused the date, and at this writing, their international blockbuster, one of the biggest of the year, has not yet been given a mutually agreeable opening weekend in China. Tricky partners.

It was announced soon after this debacle that
Iron Man 3
would be a Chinese-American coproduction, and many a wise man was
seen stroking his beard, thinking, Ah, this is the way to escape the summer blackout! But no sooner was it announced than the partnership was thrown into doubt, with the arcane rules of what qualifies as a “Chinese-American coproduction” being brought into question. That is, can those rules be reconfigured to apply to a Paramount tentpole?

IMAX made a deep commitment to China, building theaters, buying real estate, and making a partnership with China’s largest movie chain, Wanda. All this was on the basis of the phenomenal success of
Avatar
. Richard Gelfond, IMAX’s CEO, tripled the number of IMAX theaters he was building, even before he had any idea that a new deal would lift the quota. But he hedged his gigantic bet just a little and is working, like Fox International Productions, with local filmmakers. The first IMAX film not shot in English,
Aftershock,
made $100 million in China, half of what
Avatar
did, which is pretty remarkable for the first Chinese IMAX movie. Two more Chinese-produced IMAX films have been shot and are to be released. The first is
The Founding of a Party
(about guess what?), and the second,
Flying Tigers,
is about how the United States and China kicked Japanese butt in the 1930s and ’40s. Gelfond seems to have a very good thing going in China, and this newly cut deal justifies his prescience.

Now they have the theaters we built together. They need our content (until they don’t, a moment they are hastening as fast as they can). We need their screens and audience. We will lobby to raise the quota and the revenue cap even higher than in the recently cut deal. We will trade with the Middle Kingdom. There is no choice. They are our biggest partner in the New Abnormal.

FICKLE FRIENDS

In midsummer 2012, right in the middle of our vital tentpole season and in the wake of our groundbreaking deal with the soon-to-be president of China, Xi Jinping, there was a bad bump on Alliance Avenue. Some studios would call it a crisis if they were among those whose blockbusters were forced to be released on the same weekend, like Warner’s
The Dark Knight Rises
and Sony’s
The Amazing Spider-Man
. The studios brayed and cajoled and begged and fought for one to get a September release, to no avail. Instead of relief, American studios were greeted in June with strict enforcement of a new blackout policy for American films, whereby no U.S. movies could be released over the critical summer months. Therefore, the two valuable franchises were forced to go head to head on the same weekend, hurting both, though likely Spidey more. This was of course intentional, designed to discourage U.S. film viewership and encourage attendance at Chinese-made films.

Around this time a member of the powerful state-run China Film Group was quoted in the
People’s Daily
newspaper saying: “We [SARFT]”
²
are “making a series of transitional protection measures, which we hope can provide for the development and growth of Chinese films by supporting their roots, and increasing their ability to defend themselves against imported films.” He went on to say that he “hoped that one day Chinese audiences would tire of American robots and superheroes.”

What’s going on? A studio head told me that China, unlike other countries, doesn’t have the patience to grow its local film community in the way so many other countries have as its movie appetite grows. “It is clear that the indigenous market always climbs to the top of the local box office after a growth period,”
he told me. “But it takes time, subsidies and development. China doesn’t want to wait that long.”

Apparently it doesn’t have to. It’s all happening faster than a speeding bullet, maybe faster than the government can control. Shocking even itself, China had its first self-created blockbuster, which surpassed
Titanic
in the Chinese box office in 2013, grossing 1 billion yuan. And it was a
comedy,
kind of a Chinese
Hangover,
made for the equivalent of $1.6 million, called
Lost in Thailand,
about a bumpkin pancake maker and his travails on a trip in Thailand. The people loved that it was free of religion and politics, and that it was funny. It opened in a slot cleared of American competition (
Skyfall
and
The Hobbit
had been pushed) but still very much not how the Chinese Film board planned it. It was an indie—not a state-made film—a tadpole! No 3D!

A forward-looking new Sino-American model emerged recently with the film
Looper,
a futuristic sci-fi actioner made as a Chinese-American coproduction of Sony/TriStar/Endgame and China’s DMG Entertainment. This movie was
not
a victim of the summer blackout; it opened simultaneously in China and the United States. This is certainly the way the Chinese would like to play the Hollywood derby: not with our imports, but by reaping the greater percentages of our coproductions until they can take over the means of production themselves.

There is another, deeper factor: If you read the news out of China, it is clear that the country is experiencing a serious economic slowdown, and seeing 68 percent of its box office gross eaten by American product may not be popular in the politburo or in the streets. The summer blackout reduced that number to 60 percent, a step in the right direction. Sanford Panitch told me that it is always wise to think of China as a huge corporation looking for market share, not as a country. Additionally, it is undergoing a political transition that entails some instability: Our deal partner, Xi Jinping, went missing in the summer before his
ascension. He may have been practicing his acceptance speech, he may have had a heart attack, or could merely be suffering a bad back, as was rumored in the press. He is now the president. Hooray for Hollywood. But what we know about our partners is that we know nothing. There are those movie people who understand the Chinese better than others and take Sinosensibilities and sensitivities into account. They read the political winds carefully and give back as well as take out profits. These long-term players will reap more long-term profits out of their deals. Fox, of course, with its savvy indigenous production wing, is initiating a huge coproduction deal and will be able to release its Chinese-made films even during blackout periods, as
Looper
was. DreamWorks Animation and IMAX are also listening more and complaining less. As Jim Gianopulos, whose studio has been working with them the longest, told me, they are fickle friends.