It’s the elephant in the room; the thing everyone is talking about, without actually talking about it. It’s the trend that might not be a trend at all, but rather a portent of the future, a new reality in a business that has seen its share of sure things come and go through the decades.
But no matter how you look at the recent influx of Chinese money into the entertainment industry, there’s no escaping it. It really is just about everywhere. Individual films, production companies, studios, theater chains, media outlets, the tendrils extend to just about every facet of the business and have people alternately concerned and reveling in the situation. Some see it as a boon, others as a hindrance, but there are few who have no real opinion at all; no matter what station they might be in the hierarchy, they’re thinking about where the business is heading and what their role might be in whatever the future holds.
With all of this money being invested in so many places, it raises a lot of questions about what the ultimate end is for those spending the money. Is it just pure investment? Is it about propaganda? Control? Usurping a signature industry and making it its own? These are just a few, and there are many more. Depending on whom you ask, and what their position and exposure to such investments and participation, you’re going to get different answers, but put them all together and, slowly but surely, a picture starts to come into focus.
It’s a picture we’ll spend the next four weeks developing, and by the end, hopefully, we’ll have a clearer understanding of where this comes from, what it means, and where it’s all going, for better or worse.
First things first, though. In the grand history of Hollywood, perhaps the most revered tradition of all is that of taking other people’s money. It’s how Howard Hughes got into the film business (he’s one of the other people who bought his way in), as well as the Warner brothers, both the G (Goldwyn) and second M (Mayer) of MGM, and countless others. It’s a rich tradition unbroken over decades, as the coffers of both studios and independents alike have been filled by junk bonders, Middle Eastern oil magnates, Japanese technocrats, Eastern European kleptocrats, German tax shelter seekers, insurance company gap loaners, Wall Street slate financiers, the Silicon Valley nouveau riche and more, and that’s just over the last 30 years or so.
Thus, it shouldn’t have come as a surprise to anyone when the Chinese started spending their money here. It was the next logical step, really. There is so much money coming out of China, so many billions of dollars, and the need for entertainment there so steep, it made sense that they would turn their eyes to these shores. But whereas the previous waves had focused primarily on the funding of individual films or slates — with notable exceptions like Sony buying Columbia-TriStar, and internet billionaires like David and Megan Ellison, to name two, starting their own production companies (Skydance and Annapurna, respectively) — this new wave of investment quickly moved well beyond such limitations.
Just movies? Not big enough for this new wave of financing. No, for the Chinese investors, it’s about much more than that. Everyone knows that China is the most populous nation on Earth (though not for much longer, as India looks to overtake it in the coming years), with four times as many people as the U.S., and that its consumption of entertainment is only growing. It’s likewise common knowledge that, probably by 2020, possibly sooner, the Chinese box office will surpass North America and become the largest in the world. And while the Chinese film industry puts roughly the same number of films on screens each year as Hollywood (686 in 2015, compared to 705 here), there is a noted lack of blockbuster filmmaking on the other side of the Pacific Rim, hence a great desire to import a certain amount of American product.
On a surface level, it makes perfect sense for Chinese investors to get financially involved in an industry that does so much business there, not to mention the billions of dollars in revenue it produces globally in any given year. In fact, ask certain insiders about all this, and they’ll point to that directly. We’ll get to that in due time, but first, some more relevant numbers that back up this idea that, in fact, it’s all about the money.
Consider that there were roughly 4,100 movie screens in China just 10 years ago. Since then, that number has climbed to almost 40,000. No, that’s not a typo, there are 27 screens built every day there, and soon the number will eclipse the roughly 41,000 screens here at home. This, despite a recent slowdown in Chinese box office growth that might temporarily postpone that moment when it climbs past the U.S. to the global top spot. The key word there being “temporarily.”
But stop for a second and think about that level of growth. An increase by a factor of 10 in a decade is more than a little startling. Even more so when you consider that the Chinese film industry put 402 films on those 4,100 screens in 2007, which means growth of roughly 70 percent in film production, against the exponential growth in the number of screens. Thus, a great need for more content to fill those screens.
Consider, also, that just 34 non-Chinese movies are allowed on those screens every year (we’ll delve deeper into that, too), and that those movies were responsible for over 38 percent of the country’s box office grosses in 2015. A year, by the way, that saw a record $6.78 billion in grosses, up almost 49 percent from 2014. Which means that those 34 movies did over $2.6 billion just in China alone.
This also means that those 686 Chinese movies were responsible for approximately $4.1 billion in grosses. You don’t need to be too skilled in mathematics or the art of statistical analysis to recognize the sizable discrepancy there. Thus, it also shouldn’t be much of a leap to recognize that the concept of putting money into the companies that produce those 34 films is not, on the surface, a terrible investment.
It’s why companies like the Dalian Wanda Group, Tencent, Hunan Television and Broadcast, Tang Media Partners and others have invested those same billions of dollars. For them, it’s all about the bottom line. At least, it is according to a dealmaker for one of the major Chinese investment entities, who traded honesty and candor here for anonymity. (This will be a common theme over the next few weeks.)
“If you look at the broader Chinese economy,” the Dealmaker says, “if I were to create a bar graph chart and had along the Y axis things like manufacturing, media, consumer products, energy, healthcare, if you had a bar for each one that represented demand, then put another next to it for supply, all of those the bars are pretty equal. But if you use that same paradigm for entertainment media, the demand is very high, but the capability to fulfill that demand remains relatively low.
“Roughly half of the entertainment dollars are spent on foreign content, primarily from American studios,” the Dealmaker continues. “So, these Chinese companies look at this and say, ‘If so much of the market wants international content, why should I not try to acquire the ability to fulfill that side of the demand? Because if I’m not, then I am, by definition, limiting myself to half the market.’ So, with that in mind, you can start to rationalize the different investments they have made in these various Hollywood companies.”
So, think of it like this: Not only do these investments allow said companies to export their business and generate capital outside of China, but also to provide ancillary revenues from inside China because of the content imported. Thus, the investment pays off two ways.
A high-ranking executive at a media company with Chinese money invested has a similar attitude about the phenomenon. For one thing, the Exec does not believe for a second that it’s a phase, but rather that it’s the new normal. For another, the fact that the media company’s investors have no editorial control over the content the company produces makes the Exec shrug off any ideas that there might be other motivations besides the financial ones.
“We would not have made a deal in which there was any kind of editorial control,” the Media Company Exec explains. “And the investors we’re working with are not looking for that kind of input. As with any company making movies these days, we look at the Chinese market as an extraordinary opportunity and our investors can be hugely helpful with that, but they don’t have any creative influence over what we do or don’t do in-house.”
The Exec is also of the opinion that, in fact, having Chinese investment is a must these days, especially given the local climate.
“If you’re a modern global media company in 2014, ’15, ’16 and beyond, to not have smart Chinese partners would be ignoring the current and future realities of the world we live in.”
So there are certainly plenty of arguments to be made in favor of all this money flowing into the industry, but there are still a fair number of folks who argue against it entirely. There was a Washington Post editorial in the fall about this very thing, as well as several members of Congress who stood up and voiced grave concerns about the trend. There are lobbyists railing against it and conspiracy theorists insisting that this is an effort to infiltrate our culture and turn our own entertainment industry against us, as it becomes an instrument for foreign propaganda.
That last part might seem farfetched, especially in the current climate and the state of the American Mind, but while there are certainly more than a few people who firmly believe it, the concept of this country, at this moment in time, buying into that kind of thing is highly unlikely.
More realistic, though, is something a bit more sophisticated. The influence of the Chinese market is unquestioned, and of course, there is much more to discuss in the weeks to come. What’s at issue here, as we get rolling, is the influence of the Chinese dollar, and the head of a major multimedia company with Chinese money invested has a lot to say — both from professional observation and personal experience — about how important the Chinese market has become so quickly, and with that, some chilling words that should act as something of a cold shower to those who believe there is a difference between the two.
“Whether this is the new reality or not, and this money is here for the long haul, is a good question, and remains to be seen,” the Company Head explains. “The simple fact that everyone feels that China is in for the long term and is building infrastructure and making decisions with that in mind is a powerful thing. The reason that what I’m saying sounds like it’s about the influence of the Chinese market, is that — and it took us a little while to figure this out — there really is not a separation between investment of Chinese money, and the influence of the Chinese market, which is essentially the Chinese government. They’re one and the same.
“The Chinese have been very smart about building up the perception of a division,” the Company Head continues, “in the way that we have in the United States, where there’s government policy, and then there’s market forces. There’s corporate interests and state interests. In China, you cannot separate the two, simply because anyone who has any kind of corporate influence has that influence because of the Chinese government.”
Which is not to say that the Dealmaker or the Media Company Exec are wrong. There is no right or wrong here, necessarily. Really, it’s about perspective, and all three people quoted here have a lot more to say on the subject, as do others who will appear in later segments. The thing is, while we might ultimately have a better understanding of all this, there is no one, concrete answer to anything, but rather several different viewpoints that add up to increased enlightenment about an increasingly complex situation.
We’re not going to get to the end of this series with a quote from Wanda’s Chairman, Wang Jianlin, China’s richest man, with a clear-cut statement about his “true” intentions, nor will we have something from the president of China laying out his plan for world domination by using the Hollywood Entertainment Complex as his primary instrument of subversion, because nothing is quite that simple.
What I’m saying is that, perhaps, it’s a little more nuanced than we might initially think it is, and we’ll start taking a deeper dive into that next week.