YearEnd2013_badge__131227212819While Hollywood continues figuring out how to do business in China, China-And-Hollywood__130605112955-150x150__130925193515and execs remain cautious, there is a sense that 2013 was a tipping point in the complex relationship between the world’s two box office leaders. As Hollywood’s focus turns to maximizing global grosses, the town is increasingly looking for ways to cozy up to the territory that adds 10 theaters a day to service its 1.3B+ population. And China is also strongly courting Hollywood. In September, Wanda’s Wang Jianlin unveiled ambitious plans to bring the industry closer to the Mainland and emphasized China’s place at the center of the global biz, urging players to cooperate for a piece of the pie. Then, at November’s U.S./China Film Summit in L.A., China Film Co-Production Company’s Zhang Xun offered, “We have a huge market and we want to share it with you.” Here’s a look at some of the key happenings in China in 2013 and a taste of what to look out for in the coming year:

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Box Office: Can Hollywood Beat The House?
iron man chinaChinese box office surpassed $3B by November 25th, and unofficial preliminary estimates now suggest it will be around $3.57B for all of 2013, up about 27% on an already record-breaking 2012. Iron Man 3, on which Marvel partnered with Beijing-based DMG Entertainment, took the No. 2 spot overall and was the top U.S. movie with about $121M. But local pics dominated 2013 after 2012 saw Chinese market share drop to under 50% for the first time in several years. Officials partly blamed the 2012 decrease on a loosening of import quotas that upped foreign movies in the territory from 20 to 34 annually. In 2013, homegrown film Journey To The West: Conquering The Demons was No. 1 with over $200M. Other films to score included the Tiny Times franchise, nostaligic love story So Young, Tsui Hark’s Young Detective Dee, romcom Finding Mr Right, and end-of-year entries Firestorm, No Man’s Land, The Four 2, Feng Xiaogang’s Personal Tailor — which set a 2D opening day record in late December with $11.5M — and Jackie Chan-starrer Police Story 2013, which gave the actor his best ever opening day gross of $11.2M and took $45.7M after six days, according to FilmBizAsia. Gravity, police storythe last of the big Hollywood movies to release there in 2013, had a strong run with about $68M as of December 24th – that’s its biggest overseas number. Other highlights included Guillermo del Toro’s Pacific Rim outgrossing its U.S. haul and Sylvester Stallone and Arnold Schwarzenegger actioner Escape Plan nearly doubling its domestic take with about $41M. Meanwhile, Sony’s global blockbuster Django Unchained faced a big controversy — it was pulled from theaters minutes into its opening day screenings for additional graphic content editing — and only managed around $3M in China. The first Hollywood film of 2014 will be Universal’s Despicable Me 2 on January 10th; Warner’s The Hobbit: The Desolation Of Smaug has been given a February 21st slot.

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The expectation is that China will continue to grow about 30% per annum, keeping local movie market share on par with or above Hollywood. One exec says, “We have to hope and pray they have big movies” because Chinese officials then feel more comfortable allowing Hollywood product in. “We need them to have another $200M monster hit.” Otherwise, they’ll “start to date our movies against each other.” That’s been a more frequent tactic in the past few years. The most recent case was giving The Hunger Games: Catching Fire a November 20th release followed by Gravity on November 21st. But DMG CEO Dan Mintz says, “Control and stacking the deck is different. They’re stacking the deck. They have the house rules for sure, but there are people that beat the casino.”

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Studios, Financiers Dig In
Going forward, Universal has plans to open an office in Beijing. Under the studio’s deal with Legendary, it will have a look-in on Legendary’s East’s pact with China Film Co which allows it to jointly produce tentpole films for the global market for an initial three years. Paramount is working under a “cooperation agreement” it signed with the state-backed China Movie Channel and U.S./Chinese streaming company Jiaflix for Michael Bay’s Transformers: Age Of Extinction. News Corp has a stake in producer Bona Film Group which has a multi-picture co-producing pact for Chinese-language films with Fox International Productions — the first title is thriller Moscow Mission. FIP also recently pacted with Ivanhoe Pictures in a four-year, multi-picture co-financing deal for homegrown movies in China, India, Korea, Japan and Taiwan, underscoring the importance of local language. DreamWorks Animation’s Chinese joint venture Oriental DreamWorks will make Kung Fu Panda 3 and Indiana-Jones-style adventure Tibet Code, as well as opening a theme park in Shanghai in 2016. Warner Bros could have a foot in China’s door via its relationship with Brett Ratner and James Packer’s RatPac and Dune Entertainment. Part of RatPac’s strategy will be to expand into China and co-finance movies for the Asian market. Disney’s Shanghai Disneyland will open in Pudong at the end of 2015. DMG teamed with Alcon to finance, produce, and distribute a series of films beginning with Johnny Depp-starrer Transcendence and a remake of Kathryn Bigelow’s 1991 surfing/crime thriller Point Break. Sales and finance outfits IM Global and Wild Bunch also said this year that they were opening Beijing outposts.

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A Learning Curve On Splits & Co-Pros
DMG’s Mintz tells me, “Things have moved rather quickly for such a big traditional established industry like Hollywood. Things haven’t changed much in the last 75 years, and then comes China.” Still, Hollywood has had a tough time cracking just how to do business with the Chinese. This summer, for example, the MPAA settled a dispute between its member companies and China Film Group over a value-added tax the latter wanted to charge on box office returns. And, the co-production status that would allow Hollywood to buck the quota system, has remained elusive. “Co-productions as we define them really do need to be a creative collaboration,” Mintz says. CFCC’s Xun said in November that successful Hollywood co-productions in China require a shift in the depiction of Chinese characters in American films, “We want to see positive Chinese images,” she said. For now, expect China to be used as a shooting location, if not a straight co-production partner. For U.S. screenwriters, it’s not so evident, Mintz contends. “You write what you know and it’s tough to know a place if you’re in Hollywood… China is not good on remote control.” That’s why studio execs are spending a lot more time in the country.

Rising Costs Ahead?
An important thing to keep an eye on going forward will be China’s 3rd and 4th tier cities which are now making up 30%-40% of the box office. The smaller cities skew more to domestic movies, and as Hollywood’s understanding of the market grows, that should evolve. The average age of moviegoers has dropped to 21.4, a ChinaDaily study says, and those audiences are focused on romantic comedies. As local films continue to appeal, they will have higher production values and movies will become more expensive. Right now, some local pics can be made for very little. Lost In Thailand, the country’s highest-grossing film ever at $200M+, was made for about $2.2M. But as films continue to do $100M in China, their budgets will increase, and I’m told that’s partly because talent is going to become more costly.

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Is This For Real?
wang jianlinBack in September, Wanda boss Wang Jianlin said of China’s place at the center of the global film business, “Those in the world film industry who realize this first and are among the first to cooperate with China will be the first to reap the benefits.” Wang’s Dalian Wanda Group, you may recall, acquired AMC for $2.6B in 2012 to become the world’s largest movie theater owner. In September 2013, Wanda made a $20M donation to AMPAS and a few days later, Wang invited a Hollywood who’s who to the ground-breaking on Wanda’s $8.2B Qingdao Oriental Movie Metropolis complex. The facility is set to have 10,000 square meters of studios, a film museum, movie theaters, resort hotels and other “cultural tourism projects.” Wanda also announced plans to bring in over 50 domestic production companies to make 100 films and TV shows per year, with another 30 foreign movies expected to be made in China. Hollywood was out in force at the event with the likes of Harvey Weinsten, Patrick Wachsberger, Jeremy Zimmer, Nicole Kidman, Leonardo DiCaprio and John Travolta on site. Many execs came away from that spectacle feeling Wanda has a chance to pull off its grand plans, based on its track record for follow through. But no one forgets that Reliance had the same rep and a giant Bollywood business behind it when it stepped up in Hollywood, made pricey first look deals with the biggest stars and directors, and five years later has nothing to show for it. Mintz says, “People struggle with trying to understand ‘What’s the best way to do this?’ and a certain amount of ‘Is this for real?’ They’ve seen markets come and go.” But he allows, “I think this year there was an acknowledgement if nothing else. Iron Man 3 and others set the pace for what could be, as opposed to ‘Let’s see if we can keep doing things’.” The year was, he says, “a game-changer.” And things are constantly shifting: “It’s like those time-lapse movies of glaciers melting over 100,000 years.”