When it comes to box office, we often hear that China needs Hollywood just as much as Hollywood needs China — and both sides know it. But amid ongoing trade tensions between the U.S. and the Middle Kingdom, there’s more than a whiff of concern over a potential government-imposed rift in the coming months that could see Hollywood movies sidelined in the massive market to as late as October.
Some contend that’s Chicken Little-style hand-wringing. Others say logic has gone out the window in the face of Donald Trump’s escalating dispute with Xi Jinping. And there are those who believe China’s motives might lie elsewhere as it finds itself juggling a need to keep turnstiles spinning while maintaining a positive international-facing image, and at the same time propping up so-called “core socialist values” at home in the run-up to the 70th anniversary of the People’s Republic on October 1.
The entertainment business is a tiny piece of the trillions at stake in Trump’s trade tirade, but it’s also a highly visible commodity. Will the Hollywood majors become a geopolitical pawn in the tug-of-war between D.C. and Beijing? Offers an international exec, “If things get worse, there could be a multi-month blackout.”
Or, is China, to its own ends, tightening controls as it preps for the October celebration? A source on the ground suggests China isn’t taking action against Hollywood blockbusters, because not only does the country receive 75% of the box office revenue they generate, the authorities think such a move “could be seen as more aggressive behavior.”
Currently, and as per norm through the end of June, a raft of summer tentpoles is making its way to Chinese multiplexes, ahead of the annual — if unofficial — July blackout on studio movies. There are different schools of thought as to which way the winds will blow through the rest of the summer and into September.
Already there are signs of disruption. In April, MPAA chief Charles Rivkin told reporters at CinemaCon that a new film contract was being “re-examined” and that the USTR was negotiating directly with the Chinese government. Those talks, we hear, are now stalled again. Then in May, the Game of Thrones finale did not air as scheduled in China, with Tencent Video claiming transmission problems at the last minute. HBO said the culprit was the trade dispute. There also is word of a clampdown on non-studio imports to China — disheartening after the recent success of Oscar winner Green Book. (Foreign titles like those from Bollywood and the $50M+ grossing Capernaum are not thought to be affected.)
For the majors, which typically get just a 30-day heads-up on release dates, the issue that is causing the most confusion and consternation is access to Chinese cinemas. USC professor and China expert Stanley Rosen says it’s “standard operating procedure for China,” when it’s unhappy with a country, to “punish that country with the strongest tool in their tool kit: access to the Chinese market.”
Here’s a closer look at the situation.
A downturn in China’s box office fortunes as it looks to overtake North America in 2020 throws up various scenarios about what’s immediately ahead. Does China maintain the July blackout and lean only on local product to power turnstiles, then open things up later in the season as per usual? Does it relax the July/August corridor to allow specific Hollywood titles behind the Great Wall in those months and then shut the doors again in September, reserving the window for patriotic movies before the anniversary? Or does it fully sideline all Hollywood titles from July-October? The latter would be the worst-case for both sides.
Maintaining the usual July kibosh essentially would be business as usual, tthere have been some exceptions in recent years. In 2017, the doors were closed well into August as Chinese blockbuster Wolf Warrior 2 waged an $854M campaign to become the biggest homegrown movie ever. Imports didn’t come back in earnest until August 25.
Then last year, as China’s powers-that-be sensed they had no such WW2-size hit on their hands, screens were shared more freely, with extensions into July and early August releases for Hollywood.
This year, Sony’s Spider-Man: Far From Home already has a June 28 date, meaning it will play into the following session. Spidey is big in the Middle Kingdom, and given that this film picks up after the events of Avengers: Endgame — the highest-grossing imported film ever in China at $629M — it’s teed up to perform strongly.
The following week, Illumination/Universal’s The Secret Life of Pets 2 is out on July 5. It will face stiff competition from Chinese war epic The Eight Hundred, which is expected to be the summer’s biggest local winner. This is the sort of patriotic movie that the government likes and which tends to score with audiences (think Wolf Warrior 2, The Wandering Earth). Other local titles such as The Last Wish and Looking Up are anticipated. But there has also been a slowing of local production in the wake of the Fan Bingbing scandal, which made companies skittish to spend as they work to align with audits and a crackdown on fraud. Folks wonder if there is enough solid local product to sustain a continued Hollywood drought.
Through May, China box office in 2019 for all films is down about 5% from 2018 across the same period while authorities traditionally have pushed to maintain double-digit growth as well as a healthy slice of market share once the full-year totals are tallied. They would do significant damage to their own movie business, exhibitors included, if they block Hollywood content over the next months. How does China surpass North America if it puts the brakes on the studios?
There could be some flexibility given there are plenty of other sizable Hollywood films rolling out internationally in July and August (think The Lion King, Once Upon a Time in Hollywood, Hobbs & Shaw and The Angry Birds Movie 2), but when they will roll into China remains guesswork.
Some sources suggest that a logical compromise, given the October 1 anniversary, would be a relaxing of the summer months in favor of cordoning off September for local titles. We have heard from a source on the ground that this is one avenue of possibility. An international distribution exec says keeping the summer open, but closing off the fall, “would make sense” as there’s not much releasing in September that would be a must for China. Yet there are those that say the trade war means logic is out.
Rosen checks off some important factors to consider. “First, the need to surpass the North American box office as early as 2020,” he said. “Second, the caution of Chinese film companies and film stars after the tax scandal in making very expensive films unless they are Wu Jing-style patriotic films, particularly with the 70th anniversary coming up. Third, if you look at the box office this year, it’s been driven primarily by Hollywood blockbusters and some other foreign films, but since Wandering Earth, Chinese films have not done well, with a couple of exceptions — but nothing like Avengers: Endgame, which is what China needs to punch up the box office.”
Rosen allows that a blackout in September “would not be surprising” and counters that one extended over the summer and through National Day “could well put China into negative territory for the year, something they’ve avoided in the past.” But while China needs the Marvels, et al., of the world, “This is not the case for small- and midbudget films.” That’s where the situation gets even murkier — and where the government appears to actively be taking a stance.
New. unwritten, guidelines and the trade war, posits Rosen, are in a sense “linked issues since both developments will inevitably make [Chinese companies] much more cautious in paying for films at film markets since those films may be subject to enhanced censorship — if only because of the current state of U.S.-China relations — or will be rejected by theater chains for the same reasons. Why take unnecessary risks?” An international sales executive tells us that during Cannes, distributors said word in Chinese circles was to be “cautious about buying U.S.-origin films.”
Regarding censorship, we’re told the steady crackdown is designed primarily for Chinese films, TV and other entertainment, not so much for American titles. The current issues with the U.S. are not unrelated, however, and Xi has talked in speeches about the problems of the external environment and the need to tighten ideological control domestically so that everyone is on the same page of the core socialist values. Homegrown films still are likely to face “more and more problems from censorship,” we hear. Beijing is keen for public opinion to be positive in the fall. “They don’t want to have any problems until then,” says a source.
In Hollywood’s favor, I hear that the Central Propaganda Department, which took over from the now-dissolved film, TV and media watchdog SAPPRFT, attempted to defuse tensions earlier this year by allowing Avengers: Endgame into the market two days ahead of the domestic release. The censorship process for the film was reportedly faster than any other studio title to date.