May 18, 2015, 4:30 PM ETConference Presentation, Panel

Can Hollywood Speak Chinese?

Market Scale: Chinese audiences account for 50% of U.S. theater receipts; box office revenues have risen sharply, prompting Hollywood to seek local partners for the Asian market.
Exhibition Ownership: Major U.S. theater chains, such as AMC, are now Chinese-owned.
Shift in Capital: China has transitioned from a potential revenue source to a primary source of capital and financing for U.S. films intended for global distribution.
Exponential Growth: The number of movie theaters in China grew from approximately 2,000 in 2005 to 20,000 by the time of the panel discussion.

Relationship First: Business in China requires extensive "face-to-face" time and relationship building (e.g., multi-month dinners, toasts) before discussing deal terms, contrasting with the U.S. "deal first, know later" approach.
Perceived Seriousness: American firms rushing to negotiate are often viewed by Chinese counterparts as unserious, as trust is established through shared experiences rather than immediate contracts.
Corporate Presence Strategy: Establishing a physical U.S. office early (e.g., Disney, Universal) can backfire if not accompanied by deep, consistent relationship building; some executives avoided opening Relativity offices for years to respect local protocols.
Decision Authority: Chinese partners require counterparts with final decision-making authority and are unwilling to invest months in relationships if the American side must frequently return to a board for approval.

Import Quotas: There is a limit of approximately 36 slots per year for foreign films (flat fee or revenue-sharing); Chinese co-productions bypass these quotas.
Oversight Body: The State Administration of Radio, Film, and Television (SARF) regulates all content, reviewing films for cultural sensitivity, historical accuracy, and themes (e.g., banning ghosts or excessive blood).
Co-Production Requirements: To qualify as a co-production and avoid the 20% box office cap on imports, films must include specific Chinese crew, cast, or narrative elements, though they can remain in English.
Censorship Evolution: While films are no longer pulled entirely for single offensive lines, SARF mandates specific cuts; the system is designed to encourage foreign investment within China rather than just extractive distribution.
Digital Regulation: The expansion of digital streaming faces hurdles as content monitoring for non-physical distribution is strictly regulated by SARF, with many platforms shutting down for non-compliance.

Currency Convertibility: The Renminbi (RMB) is non-convertible; moving significant capital out of China requires approval from SAFE (State Administration of Foreign Exchange), which can restrict outflows to protect the economy.
Fund Structures: Approximately 70% of major Chinese film funds are government-affiliated, subjecting them to extensive bureaucratic checks; non-government entities like Hony Capital offer a faster, less regulated path.
Financing Models: Unlike Hollywood's structured film financing, the Chinese industry often relies on "syndication" of high-net-worth individuals or direct studio/government funding.
Capital Repatriation: Profits earned in RMB cannot be easily converted to dollars; companies must treat these assets as sellable within China or find creative ways to move value out.
Strategic Deals: Partnerships (e.g., Lionsgate with Alibaba/Hunan TV) are often driven by strategic access and distribution networks rather than immediate capital needs.

Regional Shifts: Filmmaking talent and capital have migrated from Hong Kong to mainland hubs (Beijing, Shanghai) due to government pressure and the focus on the massive mainland audience.
Soft Power: Beijing is consolidating the film industry to support a government agenda of exporting Chinese culture and "soft power."
Local vs. Global Audience: Current Chinese productions prioritize the domestic market; future growth may require a shift toward stories with universal themes to monetize internationally.
Digital Evolution: Digital video players are transitioning from ad-supported models to subscription services, with major players like Alibaba launching streaming platforms rapidly.

Creative Co-Production: Experts predict a breakthrough when a "global story" with universal themes and Chinese elements succeeds, moving beyond current speculative co-productions.
Distribution Window Reform: The industry bottleneck is the reliance on box office (92% of revenue); growth depends on opening regulated digital channels for TV and streaming.
Localized Content Strategy: Successful future films may be China-centric narratives (e.g., "The Long March") designed to resonate with both Chinese and global audiences through correct cultural storytelling.
Market Maturity: China's box office is projected to exceed U.S. revenues within 1–2 years, but the overall film industry size remains constrained by distribution regulations.
Talent Exchange: Companies are now sending production executives to work within Chinese studios to bridge the "term of art" gap and develop mutually relevant content.