News Corp. has 20% stake in Beijing company

20th Century Fox and Beijing-based Bona Film Group’s production and distribution deal announced last week calls for a modest one to two Chinese-language films per year. But the implications and ambitions of such a partnership are far greater than just that.

As Hollywood grapples with ways to effectively harness China’s box-office explosion, Bona’s pact with Fox International Productions is the most significant step toward building a functional relationship – one in which both sides bring equal amounts of local clout and expertise to the table.

“Many of the big studios haven’t been doing co-productions with the right Chinese partners,” Bona CEO Yu Dong told Variety on Friday, hours after the deal was announced. “They are coming in and seeking local partners to help pay for individual projects, and quality suffers. We believe our partnership with Fox is really a key step to getting to know each other and truly developing projects together.”

Moviemaking in China presents headaches for U.S. filmmakers dealing with shifting regulations, Byzantine bureaucracy and cultural sensitivities that even top Hollywood brass admit can be impenetrable. But with the input and influence of someone like Bona’s Yu, whose background includes running domestic distribution at the powerful state-backed China Film Group, shepherding co-productions becomes a more certain proposition.

Not that others haven’t been trying.

Even the April announcement that Disney, Marvel and Beijing-based DMG Entertainment would make “Iron Man 3″ a Chinese co-production – billed as the first multi-billion dollar franchise collaboration between Hollywood and China — has run into static. Director Shane Black’s offhanded comment at Comic-Con, suggesting that a second unit capturing backgrounds would be the extent of shooting there, rankled Chinese regulators who subsequently scolded the industry (singling out “Looper” and “Cloud Atlas”) and suggested that the many advantages of “co-production” status would be granted only under strict adherence to the rules.

“Iron Man 3″ has plenty of time to finesse its co-production status, which often isn’t sorted out until the days before a film’s release. But many have expressed doubts that Chinese input in the Marvel pic would be enough to clear the higher bar.

Bona and Fox were already partners after News Corp. acquired a 20% stake from Yu earlier this year. In spite of that, Bona was free to seek a separate production and distribution pact, which it spent the summer exploring extensively before deciding on Fox International Productions.

“More and more producers and companies are coming to China, and it’s most important to select a good partner,” Yu told Variety. “The same goes for us in the U.S., which is why we are very excited to be partnered with Fox. Choosing the right partner saves a lot of wasted effort and money.”

Fox International prexy Sanford Panitch said FIP is “excited about the opportunities in the world’s fastest growing market. Mr. Yu’s vision for Bona combined with the company’s stature as one of the leading distributors makes for great opportunities.”

Box office receipts in China increased nearly 30% in 2011 to more than $2 billion, making China the world’s third-largest film market behind the U.S. and Japan. Growth is expected to accelerate, moving China into the number two slot in just a few years.

According to China’s State Administration of Radio, Film and Television (SARFT), the gross box office for the first half of 2012 totaled RMB 8.1 billion ($1.29 billion).

As of the end of June 2012, China had over 3,000 theaters with nearly 11,000 screens – over 1,600 of them added during the first six months of the year.

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