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Chinese Companies Are Still Taking Hollywood’s Calls, but With Caution

From the perspective of a midsize Hollywood company hoping for a sky-high takeover bid or a major studio that once counted on generous slate financing, China these days looks like a disappointment.

The acquisitions gravy train that slopped easy money across the Pacific was halted more than a year ago by the Chinese government. Deals like the takeovers of Dick Clark Prods., Voltage Pictures and Vizio collapsed. Others may yet be unwound: Wanda is dismayed by two years of gargantuan losses at Legendary Entertainment, Universal is expected to offload its stake in Oriental DreamWorks and rumors dog Fosun’s majority interest in Studio 8.

But Hollywood executives who have now turned their backs on China would be surprised to discover how different the picture looks from the Middle Kingdom, where entertainment is growing, tech is booming and interest in teaming up with overseas partners still runs high.

For starters, the Chinese box office resumed its upward course last year after a temporary slowdown in 2016. That flat period was the only blip in a 15-year theatrical bull market. With cinema-building continuing apace in China’s smaller towns, the predictions that the Chinese theatrical market will overtake North America’s now look much more solid, with 2020 the likely year that happens.

“The air of normalcy that has returned is so refreshing,” says veteran Beijing-based producer Ellen Eliasoph, president and CEO of Perfect Village, a partnership between Village Roadshow and China’s Perfect World Pictures. “And the people still coming here are the ones interested in building businesses.”

China’s domestic film business is diversifying and deepening. As well as megahit “Wolf Warrior II,” which grossed $860 million within China, local producers delivered seven other movies that each earned more than $100 million. “Dangal” was an unprecedented smash for an Indian movie in China, while mainland audiences lapped up Thailand’s “Bad Genius” to the tune of $41 million.

China is also one of the very few markets where streaming video and the theatrical business have grown side by side. Tencent Video and iQiyi each claim about 50 million paying subscribers. (Netflix’s worldwide total passed 100 million only in July.) China’s video giants are throwing themselves into original production with the same alacrity as their Western counterparts.

“The streaming companies, till now, have been forces for good in the Chinese film industry,” says Albert Lee, the recently retired CEO of Emperor Motion Pictures. “They are creating a bigger ancillary market, and they are able to invest in films that might not have been made, sometimes by new talent that they have been able to nurture.”

Chinese entertainment-tech firms like iQiyi can no longer be accused of just being copycats of Western companies. “Whether you’re looking at investment, R&D or innovation, China is an incredible force in our sector,” says Mark Britt, CEO of developing-country streaming platform iFlix. “The ability of top Chinese players to scale engineering capacity and lead consumer innovation on new features is staggering. Companies like iQiyi and Youku Tudou, for example, are dramatically changing the nature of television consumption in China.”

And while Beijing’s restrictions and Washington’s growing suspicion of China are making overseas entertainment gambits harder than during the 2012-15 gold rush, there is still huge Chinese investor enthusiasm for tech, media and entertainment plays.

That’s especially true in Hong Kong, a haven for money from the mainland and a place where numerous Chinese and international firms are looking to go public. Hong Kong is expected to become the world’s IPO capital this year, thanks to potential listings for Chinese consumer electronics giant Xiaomi, which is reportedly seeking a $200 billion valuation, and for Alibaba and Hollywood’s STX Entertainment, which has multiple Chinese backers.

China’s box office slowdown from mid-2016 to mid-2017 and the steeper-than-expected learning curve for Chinese entertainment firms in Hollywood have certainly made some of them warier of risky ventures at home and abroad. But they remain interested in engaging with foreign partners in an intelligent fashion.

Alex Zhang, a former Alibaba executive, is in the process of launching JX Co. with former China Film Group head Han Sanping. To balance risk, JX will straddle movies and TV, and will pursue dual-track film strategies, one addressing the growing Chinese market, the other focusing on the global English-language market.

Zhang is still happy to work with Hollywood on judiciously chosen projects. What’s gone are the days of irrational exuberance on both sides — the deals that made headlines but not necessarily good business sense.

“From the U.S., Chinese companies used to be seen as all about deep pockets and quick decision-making. Now, they are seen as cautious,” Zhang says. “The notion of China and the U.S. working together is still valid. But the new theme is project-by-project cooperation.”

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