For many years now, the overseas box office has been the life-raft for many a major Hollywood production. The safety net of foreign investments, international cash flow and an expanding marketplace has ensured that studios have the potential to see their profit margins rise into the billions. Once upon a time, cracking the billion dollar threshold was a fantasy; now, it's the expected endgame. A large part of that strategy comes from a burgeoning relationship with audiences and investors in China, where the country has seen its own box office averages skyrocket over the past five years.A country that was once largely shut off from the rest of the world is now a crucial player in global politics and economics; in the film world alone, it's already the second largest movie market. That's garnered incredible profits for studios like Disney and Warner Bros., who have seen films like Mission: Impossible - Rogue Nation. Even Disney is making good deals, a marked contrast from the late 1990s when the studio was banned from the country after releasing the Dalai Lama biopic Kundun. :Now, they've opened up Shanghai Disneyland and rebuilt a formerly frosty relationship (and conveniently kept Kundun out of the spotlight just in case).None of this is especially new or shocking in of how Hollywood works or makes money. Investments have always come from unusual sources and the international market always played its part, although it used to be more European focused. What makes the China connection so different is the speed with which it has evolved, the sheer amount invested into it, and how much the industry, always so American focused, has shifted to cater to the country.
That seems to be changing, and it's unfolding just as quickly as the rise to the top happened. Hollywood has scrambled to put Chinese investors and the government that controls the market front and center for their convenience, but political pressure from Washington D.C. is out of their control, and the cracks have begun to show in the special relationship. With Donald Trump leading a lot of 'China-bashing' among his istration, more so now in the wake of the crisis with North Korea, the Hollywood Reporter notes the surpritick in bipartisan attention paid to regulating this financial market.
Democratic Senator Chuck Schumer was one of several lawmakers voicing for increased scrutiny of China-Hollywood deals, and even called for the President to "block all major Chinese investment in the U.S. as a means of pressuring Beijing to do more to deter North Korea's nuclear missile program." If Trump were to impose regulations or restrictions on trade with the country, China could easily fire back and do the same, affecting the movie market to a major degree.
Last month, it was revealed that the country was expected to expand the quota on foreign film imports, which would offer North American productions a greater chance of dominating the market. Doing so would require other changes. Up until now, Hollywood has been happy to keep its gaze turned away from potential discrepancies in China's box office, including accusations of ticketing fraud to cook the books, for fear of alienating that market. That's also changing, as the Motion Picture Association of America announced this June that they would be hiring PricewaterhouseCoopers to audit the box office results of certain select titles. If the audit reveals irregularities, Hollywood studios could make the case to negotiate for a higher cut of the profits, which would give Chinese studios and theatres good cause to pull out of important deals. Of course, if the audit reveals that the mighty clout of China's box office is not as sturdy as once thought, Hollywood would be hit the hardest.
Investors in the country seem aware of the bubble bursting at some point as well. The Wanda Group is currently experiencing major problems, which resulted in them trying to sell off part of their planned $7.3bn Qingdao Movie Metropolis complex. That studio was intended to be Hollywood's home from home in the country, but a mere three years after it was unveiled, the company is in major trouble and has reportedly been banned from asking for loans from China's biggest banks. Other planned acquisitions and deals between Hollywood and Chinese money-makers fell through, like Wanda's plan to pay $1bn to take over Dick Clark Productions. What had quickly grown to be a reliable financial melting pot is just as speedily sinking into the ground.
This trend is most evident in the case of Paramount, a long-time bastion of Hollywood who has suffered from years of financial losses. They currently have a financing agreement with Huahua Media, but that's been a financial disaster for the investors so far, made all the worse by the underperforming state of Transformers: The Last Knight: Where its predecessor made $320m in China, this one only made about $230m, and it's become the lowest grossing film in the series as a result. This month, Viacom, who owns Paramount, revealed that they did not receive their annual payment from Huahua, which could spell disaster and signal a wider trend of Chinese investors pulling out of Hollywood deals.
Regardless of money or politics, there are some things that neither industry can control, like the whims of the Chinese audiences. A $75m for the studio.
This web of politics, financial strife, audience shifts and business queries has led to a more cautious approach from studios and investors alike, which presents a sharp U-turn from the past five years of mega-spending and seemingly guaranteed pay outs. It's important to that China's box office is still a new market with little reporting or historical context to back up theories over shifting trends or future plans. Yet already, the bubble could burst despite being too big to fail by this point. The country's box office was expected to buoy reliable franchises like Transformers and Pirates of the Caribbean to greater heights this Summer, but neither film has performed as expected in spite of that. With so many unpredictable elements at play - uneasy investors, increasingly cynical audiences, an ever-changing istration with the policies to match - Hollywood's big players will be hoping their gamble will be the right one as 2017 comes to a close.
