New animation studio will be joint venture with local groups

With its pics already playing well in China, DreamWorks Animation has moved to win over even more moviegoers in the region by making films specifically for them.

As Xi Jinping, China’s next leader, wrapped up a U.S. tour with a stopover in Los Angeles last week, DWA chief exec Jeffrey Katzenberg used the opportunity to unveil Oriental DreamWorks, a Shanghai-based toon studio that will operate as a joint venture with China Media Capital, Shanghai Media Group and Shanghai Alliance Investment.

Funded with $330 million in cash and other assets, the studio will develop and produce original Chinese animated and live-action content for distribution both within China and in other worldwide territories. Goal is to release one animated film each year starting in 2016, and two annually after 2018.

Studio will also pursue deals for live entertainment, theme parks, mobile, online, interactive games and consumer products.

Announcement came hours before China agreed to loosen its restrictions on foreign films, which will significantly increase Hollywood’s presence in megaplexes there as box office booms.

With the Chinese government previously limiting foreign pics to 20 a year — now, 14 more will be allowed — companies like DWA, Legendary and Relativity have sought out partnerships within China to produce homegrown fare that can circumvent regulations.

New venture will initially generate revenue from the release of films already on DWA’s schedule and related consumer products, as well as TV series and live touring shows, like the one for its “How to Train Your Dragon” that’s making its way across the globe.

The Chinese companies will hold a 55% stake in Oriental DreamWorks, DWA around 45%.

“We are incredibly proud to establish Oriental DreamWorks alongside CMC, SMG and SAIL in this ground-breaking and historic alliance to create the leading Chinese-branded family entertainment company,” said Katzenberg, who has been traveling to China to establish DWA’s presence there for the past 15 years. He joined Jinping at an L.A. Lakers basketball game Friday evening. “Together with our partners in China, we look forward to building a first-of-its-kind enterprise to locally conceive, produce and distribute high-quality creative content and family entertainment experiences — not only for the people of China but also for related export markets.”

Katzenberg’s talks with the Chinese trio to create the toon studio took about a year — a quick launch for a new venture of any kind in the country, especially for an American company, given tight government restrictions there.

Ruigang Li, chairman of CMC, will shepherd the launch of the new studio. “We share the same vision with DreamWorks Animation to build a world-class family entertainment company,” he said. “By combining the expertise of CMC in investment and operation, SMG in media and entertainment management, SAIL in high-tech R&D, as well as DreamWorks Animation in creative processes, innovative technology and global network capabilities, Oriental DreamWorks will be in a unique position to create high-quality content and interactive entertainment products for China and international markets.”

DWA had begun developing half a dozen projects for Chinese auds once the likelihood of the joint venture became apparent, Katzenberg told Variety, with Gregg Taylor, DWA’s head of development since January, overseeing the pics from DWA’s Glendale, Calif. campus.

Katzenberg declined to say whether the company will finance its Chinese films with the kind of coin it currently spends on its U.S.-made pics — generally $130 million-$160 million — because “we don’t know the cost structure yet.” But “we want the storytelling to be at the same level we have here. One thing that is for certain is our ambition to make quality animated movies that are meant to be competitive at the same level of what we do in the States. We fully expect movies we make in China to be adapted to travel around the world.”

What helped speed up its formation was “the idea of creating in China for China a Chinese-branded family entertainment company,” Katzenberg said. “That was the breakthrough. This was not about how do we get our movies into China,” he added. “This was about joining with the right group of people to create a long-term goal of building in China its own family entertainment brand.”

Naturally, forming the new studio will help get more of DWA’s films into Chinese theaters. But DWA already has benefited from relationships with government officials Katzenberg has established over the years. While censorship can force studios to alter their pics before they unspool in China, “not one movie of ours has had a single frame censored,” Katzenberg said.

DWA wasn’t the only studio the trio approached to create the family focused venture, Variety learned.

The Chinese consortium of media companies and investors approached other animation studios in the U.S., where Blue Sky Studios produces pics for Fox, Sony has Sony Pictures Animation, Warner Bros. is partnered with Australia’s Animal Logic and Disney owns Pixar and Walt Disney Animation Studios.

But DWA wound up with the deal, not only because it was willing to give Chinese investors a majority stake in the company, but because its slate of films, especially “Kung Fu Panda” and its sequel, have been accepted by moviegoers there over the years.

“The fact that we’ve had such a long history of our films really hitting the bull’s-eye of what everybody was excited about (making in China) really opened the door,” Katzenberg said. “When ‘Panda’ came along it really cemented it.”

“Kung Fu Panda” was the No. 1 toon in China in 2008, while its sequel was the highest-grossing animated film in the region, grossing around $100 million.

What helped draw Chinese auds to the pic was the painstaking detail the sequel’s artists took to re-create landmarks and locations like the Wudang Mountain range (the birthplace of martial arts) that resonate with the Chinese people.

“Unless you’re from China you probably wouldn’t know that,” Katzenberg said. “When you see the Statue of Liberty or the Grand Canyon, you know where you are. When people saw (the Wudang mountains in ‘Kung Fu Panda 2′), it’s more than just a geographical site. It’s one that has huge emotional resonance for them.”

CMC is China’s first fund focused on the media and entertainment biz that’s overseen by China’s National Development and Reform Commission and backed by China Development Bank. Fund’s portfolio includes a controlling stake in News Corp.’s China assets, including TV channels Star (Xing Kong), Star (Xing Kong) Intl. and Channel V, as well as the Fortune Star movie library, one of Asia’s largest.

Shanghai Media Group is the second largest media conglom in China, operating TV and radio channels, newspapers, magazines, new-media businesses and home shopping networks. Shanghai Alliance Investment, an investment arm of the Shanghai municipal government, focuses on China’s high-tech and financial sectors.

Filed Under:

Follow @Variety on Twitter for breaking news, reviews and more