Wanda Group Establishes Film Fund To Lure Productions to China: “Opportunity For Hollywood, Not Competition”


Wanda Group Chairman and CEO Wang Jianlin and chief executive of international investments and business developments for the Wanda Cultural Industry Group Jack Gao — flanked by filmmakers, executives, the president of AMPAS and the Mayor of Los Angeles — joined hands in what is a first-of-its-kind collaboration between the U.S. and China who is “opening their arms” to Hollywood to come to China for film production. Wanda was specifically pitching its Qingdao Movie Metropolis complex.

A number of companies have already agreed to shoot there: Lionsgate with China Media Capital backed Infinity Pictures, Arad Productions, Arclight Films, Kylin Pictures, Base Media, Beijing Dirty Monkey Culture Industry Development and Juben Pictures have all agreed to shoot upcoming films at the studio in Qingdao.

Separately, Digital Domain is exploring the opportunity to establish its first motion capture stage in Asia at Wanda Studios, providing services in digital imaging and digital imaging technician location grading for film production.

“The Wanda Group is taking steps to fill (the need of the populace) and is positioning itself as the new leader in the global film industry,” said Gao to raised eyebrows among those in the media pool and to also enthusiastic applause from the audience which consisted of many Chinese.

To motivate Hollywood into venturing halfway across the globe, Wanda Group and the Qingdao municipal government have established China’s first internationally competitive film and television industry development fund worth $750M which will incentivize “qualifying projects” with a rebate of 40% on everything from stage rental, set construction, equipment rental, accommodations, transportation, post production, etc. It will be available, they said, for “qualified productions” but they did not elaborate on how that was defined.

“The city of Qingdao and Wanda Studios welcome filmmakers to leverage a ground-breaking incentives fund that involves 5 billion RMB over 5 years ($750M), or more than $150 million a year for all qualifying productions,” he said.

The 40% subsidy is at the high end of what is offered around the globe, which indicates a strong desire to get productions into China. The pitch on Monday night included an elaborately produced video which featured MPAA Chairman and CEO Chris Dodd, producer Hawk Koch and others talking about how excited they were about the possibilities that Wanda was providing. The video pitch was narrated by Matt Damon who also appeared in the video grinning from ear to ear as he stood with his The Great Wall cast and director.

Seeing the MPAA head on the promotional video for the Chinese company was especially ironic, given the amount of money lost by American filmmakers through film piracy in China — something that Dodd’s predecessor, the late Jack Valenti, fought long and hard against.

“And,” said Gao. “we will assist every production with their navigation into China … enabling access to (Wanda’s) distribution platforms.” He said that Wanda wants to become “the new leader in the global film industry. We are not trying to teach or tell Hollywood (what to do) … but we have a lot to learn from Hollywood.” The presentation was basically a sales job to bring production into China and Qindao. “Come discover our studio in the city of Qindao.”

In one of the more surreal moments, a number of executives joined the Chinese executives on the stage for an official signing — they included Patrick Wachsberger (Lionsgate), Avi Arad (Marvel), director Joe Johnston (Captain America: The First Avenger), Legendary’s Thomas Tull and execs from Digital Domain and Arclight Films.

Wanda is expanding in exhibition in China, building out more and more theaters in the country which is expected overtake North America box office by 2018 to become the No. 1 market in the world. In fact, box office receipts in China are expected to double U.S. results by 2023, something that Jialin talked about at length.

“I would like to maintain my estimates in 2018, China’s box office will reach North America’s and be $10 billion and will be the largest movie market in the world. The box office will grow at about 15% annually,” the Wanda chair said, adding that it was a sustainable business model in the country.

“How can Hollywood share in this growth? Strengthen relationships with Chinese companies,” said Wang. “They have the best local knowledge of the local market. I have met a lot of people from Hollywood, the understanding from the people who understand it, is very few. It’s hard to find the people who understand both markets.” He said it would beneficial to both countries to collaborate It would be good to collaborate on content, technology and in other areas. He urged Hollywood to go back to storytelling and not purely technologically-infused films.

“If you want to make a little money in this market, you would have to understand the Chinese audience. In other words, you have to please the Chinese audience. The best way is to add the Chinese elements,” said Wang. “You cannot just try to make money in the Chinese market and disregard the Chinese elements.” He said he was speaking “from a business perspective, don’t make it into a political issue.”

This was clearly in reference to the fact that a bipartisan group of 16 members of Congress cited Wanda’s acquisitions in a letter last month asking the Government Accountability Office to investigate national security implications. One of the signers was House Subcommittee on Commerce, Justice, Science and Related Agencies Chairman John Culberson (R-TX) who is asking the DOJ to investigate whether Wanda’s investments runs afoul of the Foreign Agents Registration Act (FARA).

“The Hollywood companies will be allowed to see less costs and more return. So this is an opportunity for Hollywood not a competition for Hollywood.” He talked about how there will be jobs for Americans “on every level.”

“Hollywood is very good at telling stories,” said Wang. “However, they have less original movie stories … it is turning into an industry that tells less of a good story to purely depending on technology … it will not work forever. The Chinese audiences are not so (easily pleased), so we have to make Hollywood go back into storytelling.” Wang said he believed there would be sustained growth in China for the next 10 years.

The jam-packed presentation included plenty of Hollywood execs including Arad, Jim Berkus, Erik Lomis, Dick Cook, Robert Levin and Gary Lucchesi as well as Academy of Motion Picture Arts and Sciences president Cheryl Boone Isaacs (who was the first to speak), L.A. Mayor Eric Garcetti and Legendary’s Thomas Tull.

Also in attendance tonight was The Deputy Counsel General of China, the Vice Mayor of Qindao, AMC CEO Adam Aron, and the Wanda Cultural VP.

Although it is getting more expensive to make movies in China, it is understood to be less costly than in other countries. The big hurdle is that, as one top executive told Deadline, “no one wants to shoot there (in China),” meaning that no one wants to travel that far to make a movie. It has been reported that part of Legendary’s Pacific Rim 2 is scheduled to film at Qingdao as is the next Godzilla. The Matt Damon, Zhang Yimou-directed The Great Wall — the largest co-production between China and the U.S. with a budget of around $150M — partially shot there via Legendary East. It releases December 16.

Pacific Rim 2 is also said to be shooting in Sydney, Australia. But Legendary is already under their corporate umbrella after Wanda acquired them in January in a deal said to be worth $3.5 billion.

One question remains over the availability of skilled local crew. As the Chinese industry grows, it aims to learn from Hollywood and the Wanda executives said as much.

The announcement Monday comes after Wanda delayed the full opening of the $8.2 billion Qingdao Oriental Movie Metropolis by a year. Some of the complex will be open earlier, but the official open will now be August of 2018. The sprawling 1,200+ acre site includes the film studio and theme park as well as a 4,000-room resort/hotel, a shopping mall, an entertainment center, condos, a conference center, a yacht club, a hospital and even a celebrity wax museum.

“It has everything one would need to support filmmaking with a very comfortable lifestyle,” said Gao. “We welcome all filmmakers.”

The studio portion was heralded as not only the biggest but the most technologically advanced production facility anywhere with 30 sound stages, a 56,000 square foot green screen stage, an underwater stage (temp controlled), and a New York street.

The Qingdao Movie Metropolis complex and its unveiling brought in many Hollywood heavy hitters three years ago, including United Talent Agency’s Jeremy Zimmer, Leonardo DiCaprio, Nicole Kidman, John Travolta, Harvey Weinsten and Patrick Wachsberger (rumors were that talent was paid in excess of $1M to go but that has been refuted).

AMPAS president Boone Isaacs attended after AMPAS received a $20M donation from Wanda. At that time, Wanda announced lofty plans to bring in over 50 domestic production companies to make 100 films and TV shows per year, with another 30 foreign films.

In another surreal moment, Boone Isaacs, who noted that the new gallery honoring American film history will be named the Wanda Gallery, said, “China is a wonderful land in which to explore new horizons. It is as alive as it is ancient where tradition meets technology. Borders themselves have disappeared. Filmmaking is now a global industry. We have so much in common, not just because the industry is global but because the values are universal.”

Mayor Garcetti welcomed his “friend” Chairman Wang to “his home away from home, Los Angeles,” saying he “has been an exceptional friend to Los Angeles, in real estate … and in “our signature industry, the entertainment industry … I’m glad this relationship is blossoming between Los Angeles and China.” He said this as he also lauded tax credits here in the state to keep production home.

It is no secret that Chinese have, for years, been buying up real estate in major cities and plenty in Los Angeles and Southern California, sometimes through shell companies.

While Wang noted that productions will still go to other countries to shoot, “maybe there will be less productions going to Australia and London.” He said the studio complex they have created is “very large in scale … we are trying to recruit technical people and those experts in management.” They want to succeed on a grand scale by bringing productions into China.

Wang Jianlin is China’s richest person with an estimated worth of $32 billion, and is the major real estate developer in the country. Wanda opened Qingdao as part of a push to develop his entertainment holdings. The development also contains a theme park, which plays into the Sony Pictures Entertainment deal that the two recently agreed upon. As part of that co-marketing deal, Wanda is not only able to take minority stakes in tentpole films but also can then leverage that product into their theme parks, thereby growing that asset.

Wanda has been on a buying spree in the U.S., amassing properties such as AMC Entertainment Holdings, the aforementioned Legendary Entertainment and has said that it is on the prowl for a studio to acquire and has been in talks to acquire Dick Clark Prods. (which produces the Golden Globes) and industry watchers expect that deal to go through very soon. It is also known to have held talks with STX Entertainment.

In China, Wanda also has plans to build a $4.9 billion Cultural Tourism City in Wuxi, also with theme park and movie elements.

Nancy Tartaglione contributed to this story.

What follows is the transcript that Wang Jianlin’s publicists gave to journalists tonight, which is somewhat (and sometimes very) different than what was translated to journalists over our headsets during the event. This transcript also ends differently than the live speech:

First let me share my forecast of China’s film market. By 2016, I think China’s box office will grow from RMB46 billion to RMB48 billion, or from about USD7 billion to USD8 billion, up 5% to 10% from 2015. This year’s growth has been relatively slower than previous years, but I maintain my view from a few years ago: By 2018 – in two years – China’s box office will reach that of North America, surpassing USD10 billion, and the market will maintain a strong growth rate after that to become the biggest in the world.

I predict that for the next 10 years, China’s box office will see a 15% growth rate per year. Based on this projection, by 2026 China’s box office will reach USD30 billion, accounting for 40% to 50% of the global market share.

Why China’s box office will maintain its rapid growth (1) Large growth potential in theater screen volume. There are 40,000 movie screens in the U.S. for a population of 300 million, or 130 screens per 1 million people. In 2016, I think the growth of China’s theater screens will slow down a bit, up by only about 8,000 to a total of 40,000, reaching U.S. numbers, and the growth will possibly continue to slow in the next few years. However, even with a slower growth rate and with China’s movie screens saturation rate reaching 80% of the U.S.’s, in 10 years China will have 140,000 to 150,000 screens, or about 3.5 times of current U.S. screens. Furthermore, an added bonus is that most of China’s theaters are newly built in the past 10 years. It’s hard to find an independently built cinema in China; almost all of them are located in shopping complexes, and revenue per screen from these cinemas is higher and more profitable and stable.

(2) Potential in average cinema attendance rate. An average American goes to the theater four times a year, while in China the average is less than one time per year in 2015. However, in 10 years, if China’s cinema attendance rate reaches that of the U.S. or slightly less, China’s box office will still be 3 times as big as the current level in North America.

(3) China’s box office shifts to sustainable growth As you may be aware, from 2005 to 2015, China’s box office had maintained a tremendous growth rate of 30% per year. In 2015, it grew
by 50%. The rapid speed is due to two reasons: Number one, the large influx of investments. The rapid rate brought forth big profit and drew more capital into the market, leading to a significant increase in movie screens and investment. The second reason is the role of the Internet in the market. In order to incentivize moviegoers, online ticket sellers in China offer 30% to 50% rebate every time a ticket is purchased. These two reasons have resulted in ultra-fast growth for China’s box office. I am of the opinion that this kind of extreme growth rate is unsustainable and shows characteristics of a bubble.

This ultra-high growth rate has made it easy to make money in the film industry, whether you are investing in cinemas, or in distribution, or in production. This trend leads to lower quality film content. Furthermore, online ticket vendors this year ceased their rebate program, which was valued at 5 billion RMB. The disappearance of this 5 billion RMB, or about 800 million USD, subsidy, has led to a box-office reduction of about 15 billion RMB, as 1 RMB subsidy leads to a 2 RMB expenditure.

That’s why 2016 has been a year of slowing growth for China’s box office. Nevertheless, let me emphasize, it’s not a decline, but merely a decrease in the rate of growth. China’s box office is turning from super-fast growth to fast growth: from a global perspective, 10% to 15% is still a pretty high rate. Thus, this is a healthy self-adjustment to reduce the bubble, and the growth is becoming more sustainable. This growth rate is also driving away speculators. From 2017, I believe China’s box office will grow at a sustainable rate of 15% per year, give or take, for about 10 years. Thus I believe any pessimism about China’s film market is inaccurate.

As China continues its urbanization, as the number of shopping malls grows, and as the income of the Chinese population rises, China’s film market will maintain a fast growth rate over the next 10 years.

3. How Hollywood will be able to engage and benefit from the Chinese market’s high-speed growth. First of all, Hollywood needs to strengthen collaboration with Chinese companies. You have to understand the Chinese market in order to earn profit from that market. A lot of American film companies think they understand China; however in reality, in my many years of experience talking to Hollywood, there’s a significant lack of film professionals who really understand China. It’s not easy to find folks who understand both China and the US. The best way to solve this problem is for US companies to increase their collaboration with Chinese companies, whether through financial deals, production deals, or collaboration on film techniques. Collaborating with Chinese companies and filmmakers is a very effective way of gaining a piece of the Chinese market share.

Secondly, there needs to be more Chinese elements in films. I want to emphasize that I am speaking from a purely business perspective, and have no political motivation. Because I’m a businessman, my goal is to be successful in business, so I only speak of attaining success. Since the Chinese market will continue its robust growth, it is destined to become the largest film market, and if you want to profit from this market, you will have to understand the Chinese audience. You have to please them, and win their hearts. The best way to achieve this is to add
more Chinese elements into US films and blockbusters to make the stories more relevant to a Chinese audience. It should not just be about making profit while disregarding the Chinese audience and their taste.

Some politicians in the US are demanding for films to be “politically independent,” but such a view is against the common sense of business. That is why my point is that “business is business.” We better not make it political.

Third, improve the quality of Hollywood films. The Chinese film industry is like a student, and Hollywood is our teacher. How can a student instruct a teacher on how to improve? Hollywood is famous for its storytelling techniques. In the past, I’ve watched many great Hollywood films, with very compelling stories with unpredictable, exciting endings. However, in recent years, Hollywood’s capabilities for innovation are fading, possibly due to financial constraints or a number of other reasons. Many films are just sequels based on original intellectual properties. It isn’t unheard of to make 5 or 6, or even 9 or 10 sequels.

Hollywood sometimes relies more on technology and visual factors, rather than a good story. Hollywood, which is famous for its storytelling, apparently is not as good as it used to be in telling stories, which has contributed to its films’ decreased success in the Chinese market in recent years.

Those sequels might have worked before, but Chinese audiences are more sophisticated now. If you want to participate in the growing Chinese market, you must improve film quality and be a good storyteller.

4. Qingdao Movie Metropolis actually increases employment opportunities for Hollywood. Recently, some American media outlets and people I’ve met on this trip expressed worry that as Wanda builds QMM and encourages Hollywood to shoot the films in Qingdao, there will be a loss of jobs in Hollywood as a result. I think it’s actually going to increase jobs, for two reasons. First, even without QMM, films will still be shot in the UK, Australia or Malaysia. They will not stop going to foreign locations just because of QMM. Wherever there are competitive incentives, wherever filming may lead to greater profits – that is where filmmakers will go. The emergence
of QMM may bring more competition to the UK, Australia or Malaysia markets, but if Hollywood intends to shoot films elsewhere, they will. Your opportunities have not been curtailed.

Secondly, QMM is a massive project. We have substantial hardware but we lack management skills and technical talents, which we consider as the “software.” Thus, we are recruiting tech experts and operation managers globally, especially from Hollywood. We have great need for talent, and the construction and operations of QMM will greatly increase Hollywood’s work opportunities. Some technical talent may not find their way in Hollywood, but in QMM, they may find ways to make a better living.

Furthermore, in order to increase collaborative exchange between China and Hollywood, Wanda and the Qingdao government offer very generous incentives that will lead to cost-savings for Hollywood and higher profits.

Therefore, regardless how we look at this, QMM is an opportunity, not a competitor.

This article was printed from https://deadline.com/2016/10/china-wanda-tax-credits-wang-jianlin-jack-gao-1201837822/