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CHINA: The View From 40,000 Feet

Posted By Bennett Pozil, Monday, June 8, 2015
Flying back from Beijing on Air China flight 987, a route I know far too well, I normally take this time to write up meeting notes from the trip for my colleagues at East West Bank, where I serve as head of the corporate banking division. But this time I have the great fortune of writing my China notes for the esteemed members of the PGA. 

With the 2015 Beijing International Film Festival winding down, Cannes is less than a month away, and shortly thereafter the Shanghai International Film Festival will take center stage. While Beijing and Shanghai are not known for having the market power of Cannes, AFM, Toronto or Berlin in terms of the worldwide buying and selling of films, their Chinese counterparts do offer Westerners a chance to see these great cities in action. Being here on the ground offers a closer look into how this tight-knit industry operates—and a chance to experience the explosive energy propelling the China film business on its meteoric rise. 

Landing in Beijing last week, the big news was Furious 7, which should end up with a larger theatrical box office in China than the U.S. as it crosses the billion-dollar mark in worldwide theatrical receipts.  Meanwhile, news of the two landmark cross-border collaborations from a few weeks earlier are still the talk of the town: Hunan/Lionsgate and Huayi/STX. 

While many are looking at the sheer size of the investment to measure these partnerships, these deals are not about that. They are about "access.” Lionsgate is certainly better positioned as a worldwide company by accessing Hunan Broadcasting’s reach as the second largest broadcaster in mainland China. On the other side, Hunan benefits from Lionsgate’s distribution machine as it takes its first significant steps toward becoming an international player. 

From the government’s perspective, nothing would please them more than seeing Chinese films travel the world and shrink the imbalance between what studio and Western film product takes out of the local box office compared to what Chinese films earn abroad. Longing to return to that too-brief window in the early part of this century when Crouching Tiger, Hidden Dragon and Hero were box office winners stateside, regaining a competitive foothold internationally remains the most prized breakthrough in Chinese entertainment today. Hence, investing in Western companies is a key way for China to learn firsthand how to exploit content on a global stage. 

Another fascinating trend taking shape on the mainland is the expansion of the non-theatrical revenue base in the form of internet streaming. Baidu, Alibaba and Tencent (collectively referred to as BAT) plus other platforms like LeTV are busy acquiring local and foreign content. While the acquisition price for online rights still falls short of home entertainment and television values in the U.S., it’s a huge step in the right direction. 

These four companies in particular are aiming to become the Netflix of China by enticing subscribers to pay a reasonable monthly fee for access to their online libraries, accessible across multiple devices. Given that not too long ago access was readily available to consumers at no charge, we see streaming as the first step toward sustainable growth as the local market matures and gravitates toward offering more flexible viewing choices. 

This past week I happened to be on four panels and presented a lecture at the Beijing Film Academy. The #1 topic in all of these sessions was the disruptive impact of the internet. The fact that paying for online access is now gaining traction with consumers is phenomenal, especially considering where market consensus was just over a year ago. 

Flying back, the gentleman to my left had visited Beijing for the first time. He was bringing two independent pictures to China to enter in the Film Festival screenings. Both films were nominated for Academy Awards at this past year’s Oscars (one picking up multiple statues), but neither film was acquired for release by Chinese distributors. 

Our conversation turned, then, to how independent producers can benefit from China. His initial thought was that this market simply wasn’t a match for his company. But as our discussion turned to the concept of access, relationships and connections, it became clear to my friend in 14C that the #2 market in the world is worth cultivating because China is more than just about selling independent movies to a local distributor. 

Recognizing that only a finite number of Western pictures will receive a theatrical release in China due to slots, quotas, competition from other Western titles and censorship related issues, producers can also attract direct investment from Chinese companies. Such investment can still be in Western titles that never see China. Or it can be from Chinese counterparts looking for coproduction partners for international or even local mainland product, where the Western producer’s past production titles are used as a resume to attract potential suitors. 

With that knowledge at hand, it is difficult to think of a Chinese film company that would not want to collaborate with our independent producer in 14C. Making inroads in China is not just about how Western producers can access the market for their own benefit—but more about how Western producers can form meaningful relationships with their Chinese counterparts for mutual benefit. 

For Westerners, the goal is often about accessing the mainland box office coin, and for many a Chinese film company, it’s about developing global reach and learning to make international movies. So let us all work together, collaborate and help each other out using the fine example set before us by Hunan Broadcasting and Lionsgate Entertainment. 

As the 777 lands at LAX, I look forward to my next trip to China in June for the Shanghai International Film Festival. See you there! 

Bennett Pozil has structured the financing of several hundred motion pictures over the course of his career, including titles such as Crouching Tiger, Hidden Dragon, Hero, Fearless and Lost In Translation. 

Things to Know About Working in China (or Trying to!)

Written By Elizabeth Dell, Independent Producer, Head of PGA China Task Force
There are numerous opportunities and benefits to working in and with China. It’s a vast market with a huge, sophisticated and growing audience for content. But going from the U.S. to China is not the same as going from Los Angeles to Louisiana, so here are a few insights from the Producers Guild’s China Task Force.  The content needs to work. With so much attention focused on U.S.–China co-productions, a lot of people are hoping that if they "make the girlfriend Chinese,” pots of money will fall from the sky. Not true. It has to be content that Chinese audiences want to watch, and the Chinese think just as highly of their culture as we do of ours. A simple experiment to decide whether your co-production idea works? Imagine it with all the Western characters made Chinese and the Chinese characters made Western. Would an American audience watch that movie? If not, a Chinese audience probably won’t get behind your current co-pro script. 

It will take longer than you think. This is an adage for everything in the content business, but it is especially true in China. Trust means a lot in Hollywood, but it means everything in China. So expect to take many more months and many more visits overseas before you can get your project moving. And yes, you will need to go to China in order to develop a real relationship with a Chinese partner.  Silence doesn’t always mean no. Westerners tend to talk to stay connected. We update each other when there’s nothing to update, just so everyone knows that we’re still in this together. The Chinese tend to talk when they have good news. So if you haven’t heard anything, it may just mean that there’s currently nothing to say. (Unfortunately, it also might mean "No.” No one likes to give bad news.)  

The people at the dinner party maybe aren’t on your project. In the West, if a business partner invites you to a dinner and other people join, there is a natural assumption that the new people must be involved in the business project, since they were also invited. Dangerous assumption! A Chinese dinner party is a host’s chance to maintain networks, repay favors, earn future opportunities, etc. The person sitting next to you may not know anything about you and might even be someone you shouldn’t tell about your business. They are there because of their relationship to the host, not because of their relationship to a mutual project. So have fun, meet new people, but be circumspect. 

-Written By: Bennett Pozil, Illustrated By: Elena Lacey

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