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COMPANY TOWN

'Kung Fu Panda 3' is expected to fortify DreamWorks Animation's ties to China

Few Hollywood executives have invested as much in China's film business as Jeffrey Katzenberg.

The head of DreamWorks Animation took a gamble in 2012 when he and his partners launched Oriental DreamWorks, a $330-million joint venture that was the first of its kind.

That bet could pay off handsomely for the Glendale studio when it releases the third installment of the popular "Kung Fu Panda" franchise simultaneously in China and the U.S. on Friday. 

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The film is projected to become a global hit for DreamWorks Animation — which has had a dearth of them in recent years — and strengthen the company's foothold in a country that is on track to become the world's largest film market by 2017.

The making of "Kung Fu Panda 3" is emblematic of the growing creative and economic ties between China and Hollywood. Produced by a team of American and Chinese artists in Glendale and Shanghai, "Kung Fu Panda 3" is the first movie to be animated in two versions so that the characters' speech syncs up with English and Mandarin.

The American and Chinese filmmakers collaborated to make sure aspects of Chinese culture — including food, clothing and hairstyles — were accurately represented. The film versions also included separate casts of American and Chinese stars including Jack Black, Jackie Chan and actress Bai Baihe.

"Jeffrey is certainly one of the pioneers in this effort," said Lindsay Conner, an entertainment industry lawyer and partner in Manatt, Phelps & Phillips. "He has placed a major bet on the ability to do animated co-productions between Hollywood and China. And 'Kung Fu Panda 3' could be a major payoff on that bet."

Indeed, Wall Street analysts think the movie will eventually gross $150 million or more domestically, roughly in line with the results of 2011's "Kung Fu Panda 2." But international box-office numbers are expected to swell to around $600 million — $100 million more than the previous installment's tally.

And much of that growth will come from China. The movie is expected to double the box-office haul of the second "Panda" film, which made $96 million in the country, reflecting the growing number of theaters there, according to industry analysts.

"Kung Fu Panda 3" is already showing signs of strength in China, where limited preview screenings were held over a three-hour period Saturday, generating $6.4 million in ticket sales.

The film, which has a production budget of about $140 million, has the good fortune of opening over the Chinese New Year holiday, a time normally reserved for homegrown pictures. The project's status as a U.S.-China co-production also means DreamWorks will collect a larger share of revenue than a normal foreign movie, which would typically fetch just 25% of box-office receipts.

Nonetheless, Katzenberg downplayed expectations for the film, noting that January is an unusual time to release an animated movie in the U.S.

"The filmmakers and the teams here and in Shanghai are very proud of this film and what they've done — it's a first-rate movie, but we're launching into some unknown territory," Katzenberg told The Times. "For me, this is really the halfway point of our rebuilding to get the studio back to the consistency of success that we had for a very long period of time. It's going to take us a couple of years."

For China, "Kung Fu Panda 3" is more than just another movie. If it succeeds, the movie would be a point of pride for a country that has placed a strategic priority on exporting movies that can do well around the world. Most Chinese movies haven't cracked the global market.

For DreamWorks, "Kung Fu Panda" could give a welcome boost to a studio that once led the animation business with such hit franchises as "Shrek" and "Madagascar."

Last year, DreamWorks shed 20% of its workforce, closed its studio in Northern California and sold (and leased back) its Tuscan-style corporate headquarters. After a string of box-office misses, including "Turbo" and "Mr. Peabody & Sherman," Katzenberg also installed new management and scaled back the number of movies DreamWorks releases annually.

"It's not lost on me that we went from the best track record in the business to the worst track record," Katzenberg said.

More recently, DreamWorks had success with "Home," the only picture it put out last year, which grossed $386 million worldwide.

Still, B. Riley analyst Eric Wold said it will still be a couple of years before Katzenberg can prove his reorganization is working.

"If this film does well, that's two successes in a row," Wold said. "But people will still have concerns that a studio that makes two films a year is at risk of having one or both flop."

To reduce its reliance on movies, DreamWorks Animation has tried to diversify by beefing up its television and digital media efforts. The company recently expanded a programming deal with the global streaming giant Netflix.

DreamWorks also is turning to China for new growth.

Katzenberg was among the earliest champions of China, where his efforts culminated in the formation of Oriental DreamWorks, a Shanghai entity that is 45% owned by Katzenberg's company. The joint venture operates an animation studio in Shanghai. Partners include the state-backed investment firm China Media Capital and broadcaster Shanghai Media Group.

"It was something that we saw early on that the Chinese market was on a path to become the largest movie market in the world," Katzenberg said. "Well, it's about to happen and to have a business up and running and have a creative leadership there ... it's a very valuable asset for DreamWorks."

"Kung Fu Panda 3" is the first of several films from Oriental DreamWorks targeting Chinese and global audiences. The studio already has begun work on two other projects.

It remains to be seen, however, whether the venture will be able to produce hits that aren't just sequels, said Stanley Rosen, a political science professor at USC and an expert on China.

"'Kung Fu Panda' is an established franchise," Rosen said. "The real test will come with the next couple (of films) they are doing, and given DreamWorks' recent track record, there are no guarantees."

ryan.faughnder@latimes.com

Times staff writer Richard Verrier contributed to this report.

Copyright © 2016, Los Angeles Times
A version of this article appeared in print on January 26, 2016, in the Business section of the Los Angeles Times with the headline "COMPANY TOWN - Payoff for `Panda'? - With latest sequel, DreamWorks Animation is poised to reap rewards of its bet on China" — Today's paperToday's paper | Subscribe
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