Hollywood Moves to Colonize China

Just as the late President Richard M. Nixon opened the door to China more than 20 years ago, Hollywood is trying to open the doors to Chinese movie theaters.

All of the major studios are in discussions with the Beijing government over ways to crack the world’s biggest untapped entertainment market, which largely has been closed to the outside world because of the Communist regime’s rigid policies.

In the latest initiative, Warner Bros. co-Chairmen Robert Daly and Terry Semel have quietly traveled to China to explore everything from theater construction and direct movie distribution to satellite TV and building a theme park.

With China’s growing economy and more than 1 billion citizens, Hollywood sees the market there as a potential mother lode. But executives also caution that the gold strike won’t come quickly or easily.

Michael Williams-Jones, president of United International Pictures, the overseas distribution arm for Universal, Paramount and MGM/UA, said the effort could take 10 years. “The potential, as everyone recognizes, is virtually unlimited,” he said Monday. “But it would be quite foolish for anyone to look for instant gratification.”

One long-running complication is film piracy. The Motion Picture Assn. of America estimates that $50 million in movie revenue alone is lost each year to illegal China-based sales. MPAA President Jack Valenti is lobbying the U.S. trade office to turn up the heat on Beijing.

“China is our highest priority in the world for combatting intellectual piracy, and the Chinese have done absolutely zero enforcement of whatever the copyright laws they have,” Valenti said. “They are also probably the major source of the worldwide production of illegally pirated laser discs exported throughout Asia.”

Strict quotas on foreign imports, high entertainment taxes, low ticket prices and a shortage of movie screens that are up to modern standards also complicate Hollywood’s plans to colonize China. Only a small percentage of people live in cities and are considered regular filmgoers. Sources estimate that less than 8,000 screens are up to U.S. standards, and the average ticket price is said to be about 50 cents.

But entertainment analyst Jeffrey Logsdon of Seidler Cos. in Los Angeles says the economies of scale must also be considered. “If only 1% of the people go and you only charge one-fiftieth of the admission that you’d charge here, you still get to some pretty big numbers,” said Logsdon, who estimated that Hollywood would reap tens of millions of dollars from a more open Chinese market early on.

Valenti and others also see promising signals coming from the China Film Export and Import Corp., the government agency.

The industry took it as one promising sign when UIC, a theater chain whose partners include MCA Inc. and Paramount Communications Inc., recently received permission to build a Western-style multiplex in Shanghai. Variety also reported last month that the Chinese have agreed to a 60-40 revenue split with foreign distributors on at least 10 movies a year, after previously paying a low, flat fee for films allowed into the country. That’s a significant development for distributors, who previously collected only $50,000 per title.

“China is very receptive to investment,” MCA Motion Picture Group Chairman Tom Pollock said. “There’s no question it will become one of the biggest markets in the world. The only question is when.”

Many in the industry take it as a promising sign that Daly and Semel are personally participating in the Warner Bros. trade mission, along with fellow Time Warner Inc. executives Wayne Duband, Richard Fox, Ed Frumkes, Jim Miller, Rob Friedman and Sandy Reisenbach.

“The fact that Bob and Terry went there indicates a significantly more aggressive posture among the studios,” said one Warner affiliate. While Warner declined to comment, others said Daly and Semel are primarily looking to forge alliances with local partners--as they have in some other overseas territories such as Japan--rather than make direct investments initially.

One source familiar with Warners’ pursuits said the company “is hoping to negotiate the first agreement of its kind for theatrical distribution” sometime soon.

Recently installed 20th Century Fox President Bill Mechanic, who previously headed Buena Vista International and was responsible for Walt Disney Co. forging a distribution network overseas, said Fox is naturally interested in China but has not yet sent a task force there. Mechanic was very circumspect about discussing specific plans Fox might be mulling.

“There is a lot of interest in the marketplace and it’s attracting a lot of people--distributors and theater groups--looking for that pot of gold,” Mechanic said, “but it’s a very difficult country to do business in right now.”

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King’s ransom: Producer and onetime journalist Andrea King has sold her script “Body Language” to Warner Bros. for $350,000, against a $600,000 payment if the project is made. Warner bought the script, described as a “female Cyrano de Bergerac tale,” in a bidding war. The project was acquired for Steven Spielberg’s Amblin Entertainment to produce.