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  HOME | Arts & Entertainment

Movies Could Be Next Battleground in US-China Trade Dispute

LOS ANGELES – Chinese regulators have significantly slowed approving independent movies imported from the US, the latest sign of tension between Hollywood and its most important foreign market.

Producers and distributors say the regulators are keeping the smaller films mired in bureaucratic red tape for months longer than normal.

Meanwhile, money has stopped flowing out of China, and new Communist Party regulations have been enacted against non-Chinese programming. The result is that parts of the entertainment industry that once benefited from nonstop growth in China have now been hit by the same trade dynamic roiling goods from soybeans to semiconductors.

“Things have just ground to a halt,” said Kirk D’Amico, chief executive of Myriad Pictures, a Los Angeles production and distribution company.

As with most deal making in China, it’s hard to say with certainty what is behind the slowdown: Regulators never offer explanations for their decisions, and other actions by the Chinese government also have made it harder for Hollywood to do business. Still, producers and executives say getting movies into China and getting funds out has grown more difficult alongside worsening relations between the two countries.

A temporary truce between the two countries was formed at the G20 Summit this weekend in Buenos Aires. The US postponed a plan to increase tariffs on Chinese goods, but the two countries still have three months to resolve other trade issues, leaving those in Hollywood and other sectors still in limbo.

It is yet another example of the frustrating reality in Hollywood: China is too big to ignore, but doing business there means subjecting any deal to the whim of an increasingly unpredictable government. China’s box office – the second-largest in the world, behind the US – is expected to become No. 1 within a couple of years.

Major studios appear to be impervious to the crackdown, because their big-budget releases are crucial to China’s theatrical box-office growth.

But the slowdown is choking independent films, which rarely get a theatrical release in China but had recently found a new source of revenue there through streaming and television deals. In the past several years, companies such as Alibaba Inc. and Tencent Holdings Inc. have gone on shopping sprees for movies they can stream on Chinese smartphones.

“It’s the biggest, most massive place for growth, so when it takes a left turn, it affects all of our planning,” said Strath Hamilton, co-founder of TriCoast, an independent production and distribution company in Los Angeles.

TriCoast has had five movies stuck in censorship proceedings in China since July 2017 – about three times as long as it usually takes for approval, co-founder Marcy Hamilton said. The movies were sent to China via five-figure distribution deals with television stations or streaming companies.

TriCoast said it typically signs about 20 distribution deals with Chinese buyers at the annual American Film Market held each November in Los Angeles, and Chinese deals overall contribute about 20 percent of its gross revenue. At this year’s American Film Market, TriCoast signed just three distribution deals with Chinese buyers.

Big-budget imports, meanwhile, are seen as too valuable to box-office growth for China to turn away, Hollywood executives say. Walt Disney Co.’s “Avengers: Infinity War” grossed nearly $400 million in China, according to Comscore, a global box-office tracker, or 4.7 percent of China’s $8.4 billion in overall ticket sales so far this year.

Sony Pictures Entertainment’s “Venom” grossed $241 million in its first month in China, topping the movie’s domestic US sales, according to Box Office Mojo.

China’s theatrical box-office revenues rose 22 percent in 2017 and have exceeded 30 percent growth most years since 2011. The exception was 2016, when the box office grew less than 4 percent as a result of a large depreciation of the yuan against the dollar that year. For 2018, the theatrical revenues are on track to grow 17 percent, according to Comscore.

The major studios nonetheless face their own uncertainty in China. The US-China agreement limiting the number of foreign films released in China’s theaters came up for renewal last year, but talks have slowed significantly in recent months amid the broader trade uncertainty, according to people familiar with the matter.

Skittishness among Chinese buyers of Hollywood movies also is a product of countrywide investigations into tax evasion by entertainment companies and capital controls that are making it harder to do business.

Over the past year, China’s government became skeptical of money leaving its borders as officials worried outbound investment was weakening the Chinese economy. The scrutiny has made it more difficult for US studios to get fees known as minimum guarantees, which Chinese distributors pay for the right to release a given movie.

Executives in Hollywood say their issue, although a small slice of the much broader dispute, has been subsumed by the larger tensions. “There doesn’t seem to be anyone at a high-enough level [in the US] to talk the regulators through the difference between a minimum guarantee and mailing out $15 million in a tax-avoidance scam,” one executive said.

Jeffrey Greenstein, president of Millennium Films, said his company is waiting on seven payments for distribution deals in China. Millennium has produced numerous movies that have been successful there, including the “Expendables” franchise.

Last week, after White House economic adviser Lawrence Kudlow said trade negotiations were resuming at “all levels” between the countries, Greenstein sent a photo of the statement to his business partners on the Chinese messaging app WeChat.

Along with the photo, he texted, “Everything’s going to be fine,” hoping Kudlow’s remarks would assuage them.

“Because the truth is, we’ve got a slate of eight to 10 movies for next year,” he added.

 

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