Seats and screens are seen inside a lounge at the SoReal virtual reality park in Beijing, China (Photographer: Gilles Sabrie/Bloomberg)

Hollywood Has 1.4 Billion Reasons to Play Nice With China

(Bloomberg) -- The gatekeeper of China’s film industry has a few Do’s and Don’ts he’d like to share with Hollywood movie makers. There are 1.4 billion reasons they may want to listen to him.

Do partner with a Chinese film studio, cast more native Chinese and include enough “Chinese elements” in the overall look of the film, advises Miao Xiaotian, president of China Film Co-Production Corp., which handles foreign studios’ applications to make movies with the Asian nation. Don’t just plan to shoot in China and call it a Chinese movie.

“I’ve seen applications where there was a completely foreign screenplay, a foreign crew and a foreign cast,” Miao said on a panel at the Beijing International Film Festival on Wednesday. “Such efforts lack good faith.”

The number of boxes that foreign studios have to check to qualify as a Chinese co-production may seem onerous, but the payoff can be huge. Films from major Hollywood studios are capped at 34 titles per year and given a only short notice on the window of release. Co-productions, however, are treated as domestic films and enjoy greater flexibility in marketing and distribution. They also include a better revenue split for the foreign studio: 43 percent of after-tax ticket sales compared with just 25 percent without the co-production stamp of approval.

Co-production is growing in popularity as a way for Hollywood studios to tap the world’s second-largest film market and its 1.4 billion people. China issued a record 89 co-production permits in 2016, up 11 percent from 2015, according to the official China Film News. Of those 54 were ventures between mainland China and Hong Kong, and 10 were partnerships between Chinese and U.S. companies.

To qualify as a co-production, a movie must be jointly financed by Chinese and foreign studios, with Chinese actors cast in at least a third of the leading roles, Miao said. It also has to have a sufficient amount of “Chinese elements,” he said.

The biggest example yet is “The Great Wall,” an action fantasy released last year that starred Matt Damon and cost $150 million to make. While that was a step in the right direction, Miao doesn’t think big-budget films like it will be the mainstay of Chinese-Hollywood partnerships. Box Office Mojo says the film garnered $330.7 million in its 3 1/2-month run, short of the $400 million in ticket sales that estimates it needed to break even.

While Miao didn’t elaborate on what, exactly, constitutes a “Chinese element,” he cited the French-Chinese venture “Wolf Totem” as a recent success. That film, released in 2015, was adapted from a Chinese novel about an urban young man sent to live with Mongolian herders who adopts a wolf cub during a cultural revolution. It was directed by Jean-Jacques Annaud of France, but the story is told in the Chinese language with a majority Chinese cast.

Bennett Pozil, who structured the financing for the 2000 breakout "Crouching Tiger, Hidden Dragon,” said a good starting point for Hollywood producers is coming to China to produce and finance local content.

“Come to China, work with a Chinese partner, invest in Chinese movies, and from that cooperation we can figure out how to make Chinese movies travel,” said Pozil, executive vice president of East West Bank, a lender for China-Hollywood productions.

Too often, that hasn’t happened, he told a panel on co-production at the Beijing Film Festival.

“What I see, sadly, is most Hollywood producers are only interested in themselves and their own particular picture," said Pozil, executive vice president of East West Bank, a lender for China-Hollywood productions. “Most companies I work with are not taking my advice.”