[…] after a two-year run in which seemingly every major and minor studio inked a coproduction deal with Chinese financial partners and Chinese companies agreed to a series of increasingly eye-popping acquisitions, including Dalian Wanda Group’s $3.5 billion purchase of…
This story first appeared in the Cannes issue of TheWrap Magazine.
Tinseltown has a long tradition of extracting healthy sums of money from flashy foreign financiers who can’ t stay away from the world’s most glamorous industry. Most recently, much of that cash has come from China. But after a two-year run in which seemingly every major and minor studio inked a coproduction deal with Chinese financial partners and Chinese companies agreed to a series of increasingly eye-popping acquisitions, including Dalian Wanda Group’s $3.5 billion purchase of Legendary Entertainment in 2016, the firehose of Middle Kingdom funding abruptly dried up.
The Chinese government’s State Council instituted strict capital controls limiting Chinese investment in overseas companies; along with other tightened regulations, the restrictions killed off several major cross-border deals, including Dalian Wanda Group’s planned $1 billion acquisition of Dick Clark Productions.
Furthermore, a combination of a disappointing slate of Chinese films and the reduction of generous online-ticketing subsidies left the country’s box office essentially flat last year after surging nearly 50 percent in 2015. All of that could loom over Cannes, where plenty of heavy hitters on the harbor’s mega-yachts are likely to be talking about what’s happening in waters much further east.
However, even though Chinese acquisitions have ground to a halt, sales of rights to individual movies shouldn’ t be affected much, Schuyler Moore, a partner at Stroock & Stroock & Lavan who has worked on numerous deals involving Chinese film companies, told TheWrap. “They’ re still able to do presales of content, ” Moore said. “I don’ t expect it to be a change as far as purchase of content for Chinese distributors.”
But those distributors might have a tougher time getting deals done — or, at least, done with terms as favorable as they’ ve obtained in recent years — according to John Burke, a partner at Akin Gump who leads the firm’s entertainment group. “I can imagine that the restrictions might disadvantage Chinese distributors looking to buy Chinese rights, ” Burke told TheWrap. “If you’ re a seller, you’ re going to be concerned with their ability to access U. S. dollars to make payments.”
Burke said that individual film deals aren’ t subject to the same restrictions, because they are investments in projects rather than companies. But the fact that cross-border China-Hollywood deals haven’ t been consummated in months could force Chinese buyers into less favorable terms as they try to acquire movies from sellers that may not be convinced about their ability to deliver on the deal. “To protect against uncertainty, sellers may require [Chinese buyers] to pay up front or back it up with a letter of credit payable when the picture gets delivered, ” Burke said.
Kylin Pictures, a China-based firm that was a co-financier on Mel Gibson’s “Hacksaw Ridge, ” is going to Cannes as a seller this year. The production company is looking to sell international rights to action-adventure fantasy “The King’s Daughter” through its international distribution partner Good Universe, Kylin CEO Leo Shi Young told TheWrap.
While Young will be on the other side of the table, he said he expects there will still be plenty of Chinese buyers heading to Cannes looking for good films to buy to help feed the country’s constantly expanding appetite for movies, as it continues to build movie theaters by the dozen.
And just as Amazon and Netflix have changed the landscape at Sundance, China’s burgeoning streaming services, including Baidu’s iQiyi and Alibaba’s Youku Tudou, could also step up their dealmaking. They have the added advantage of less regulatory scrutiny than theatrical releases, which must be cleared by the country’s strict censors, who often require substantial edits. “Online they also have a lot of markets, so they can sell to those, ” Young said. “For those channels, the regulations or censorship will probably be easier and looser.”
China’s regulators protect local fare through a quota system and blackout period, but Chinese films still haven’ t really registered beyond the country’s borders, even though some of them have reeled in hundreds of millions of dollars at home. But for the second year in a row, no Chinese films were announced as part of the festival’s official selection. However, there is a second annual China Co-Production Day, Bridging the Dragon, which will take place May 19 as part of the Cannes film market, the Marché du Film, which runs concurrent with the film festival.
And the country’s moviegoing audience isn’ t satisfied with a homegrown diet alone, Young said, which is why distributors come to Cannes looking to buy. “The Chinese film market is expanding a lot — they need content, ” he said. “They need good films.” At the beginning of last year, it seemed like only a matter of time until deep-pocketed Chinese buyers dominated the film industry. But it wouldn’ t be Hollywood without a twist. How will it play out at Cannes? Stay tuned. “Last year, as crowded as it was, it seemed like the Chinese were overrunning Cannes, ” Burke said. “It will be interesting to see if that changes when we get there this year.”
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