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AFM: Hype, Hope and Business as Usual with China as Part of the New Normal

Deals steady, rather than spectacular. Money flowing into co-prods and property too

The Great Wall of Chinese money has not exactly washed away the American Film Market this week. Rather, it has seeped into every conversation and every deal permutation.

Chinese companies are attending the AFM in record numbers, according to market organizers. Certainly every restaurant and every Loews elevator seems to be 50% occupied by mainland Chinese.

But instead of making a quick grab for any title that moved, the Chinese are becoming more discerning and more multi-faceted.

“Everyone is here, that’s certainly true. A lot of top producers have been in town with all the U.S.-China events this week, but so far the buying action has been nothing unusual,” said Leslie Chen, IM Global China executive.

Trade may pick up by Monday, when more deals are expected to close. The deal of reference for several players may be the expected sale of Lionsgate’s Johnny Depp project “Mortdecai.”

Not only is Depp a big draw for Chinese audiences, Lionsgate has strong China connections and has the option to co-distribute in China if it does not get the price and terms it seeks. However, Lionsgate sources say they expect to complete a “Mortdecai” sales deal by the end of the market.

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“Chinese buyers are now talking more about the quality of the project than the number of distribution slots,” said Gary Hamilton, CEO of production-sales group Arclight Films. “It is really important to them that this is a global project, rather than something niche. The first three questions they ask are: ‘Who is in it?’ ‘Who is distributing in the States’ and ‘What’s the budget?’”

David U. Lee of independent Chinese distributor Leeding Media says that the boost to the market that some sellers anticipated from last year’s change to the import quotas — from 20 to 34 — has now peaked.

“The last market was overhyped. Prices are now flat or up only slightly, the big acceleration may be over,” said Lee. “Actually the increase in quotas has made our (independently sourced) films less competitive. That’s because we now have 14 more studio-level pictures per year coming into the country against us.”

A slowdown or reality check may be a welcome change as the Chinese distribution scene is still very far from being a free market — there’s the quota restrictions on the number of revenue-sharing films that can be imported, censorship that is liberalizing only slowly and direct government intervention in the releasing calendar designed to favor local films.

Still, the Chinese theatrical market has become simply too big to ignore. By the end of September, box office had equalled last year’s 12-month total of $2.7 billion, putting it on course for a full year total worth $3.2 billion.

“In one significant way things are changing. Many of the Chinese firms here at AFM seem as interested in co-production as they do in outright acquisition,” said Ying Ye, Hamilton’s partner in Arclight’s specialty Asian label, Easternlight. “We have licensed our John Cusack movie ‘Reclaim’ but we will do ‘Priority Run’ as a co-production. It is in pre-production with Donnie Yen set and a U.S. actor yet to be cast.”

The Chinese partner is likely to have a say in who gets cast. Arclight/Easternlight already have Nicolas Cage actioner “Outcast” and thriller “The Nest 3D,” which is in development, structured as Chinese co-ventures.

Still other insiders point out that filmmaking and buying is only part of the reason the Chinese are in L.A. “It’s the money business, not the movie business,” says one. “Many Chinese still have strong reasons to want to get money offshore and out of China.”

Michael J. Werner, chairman of Fortissimo Films, said, “What are the Chinese buying? Properties in Beverly Hills.”

After the show-stopping announcements by Chinese property and film group Wanda — last year it paid $2.3 billion for North American theater chain AMC, and in September this year called up a dozen Hollywood A-listers to celebrate its new studio facility-cum-yacht brokerage — China has become a more frequent port of call for U.S. movie companies.

“Actually we don’t expect much buying here at AFM, all the big sales companies now will travel to China and speak directly to the distributors,” said another source.

That’s true of Lionsgate, Arclight and IM Global, which now all have China offices. They will be joined by Universal Pictures, which this week also announced it would set up permanently in Beijing.

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