The Big Picture

by Ben Fritz

  So in September 2016, Sony signed a deal with a new Chinese partner. Wanda Group, a massive conglomerate led by China’s richest man, Wang Jianlin, would invest in a series of upcoming Sony productions and get involved in order to “highlight the China element in the films.” Wanda would also use its online ticketing platforms, theme parks, and theaters to promote Sony movies and try to give them a leg up over the competition.

  The American studio bought out by the Japanese twenty-seven years ago was, in short, giving up a piece of its business to China in order to gain a foothold in the new center of power for the global entertainment business. And it was hardly the only Hollywood giant to do so.

  Wanda’s Sony deal was just a small example of its monstrous hunger to devour anything and everything it could find in Hollywood. It started by acquiring AMC, now America’s biggest movie theater chain, in 2012, for $2.6 billion. In 2015, it bought Legendary Pictures, which made the monster movies Godzilla and Pacific Rim and co-financed Jurassic World and The Dark Knight, for $3.5 billion. Everyone in Hollywood thought it was an absurd and unjustifiable price for such a small company. Many speculated that Wanda may not have even understood that Legendary was only a passive investor in Jurassic World and The Dark Knight and didn’t produce or own either film.

  But the Chinese conglomerate was undeterred. The head of Wanda had so many meetings in Hollywood that soon everyone in the entertainment business knew who “Chairman Wang” was. Whenever he met with the heads of studios and production companies, he almost immediately asked what it would take to buy them out and then acted annoyed when, because these entities were part of large public companies or had private investors, they couldn’t make a deal right there on the spot. In 2016, though, Wanda nearly bought a 49 percent stake in Paramount Pictures, the 103-year-old studio behind The Ten Commandments, Top Gun, and Transformers. The sale fell apart at the last second, due to a boardroom battle at Paramount’s corporate parent, Viacom.

  Other Chinese companies, meanwhile, were investing in slates of movies from numerous studios and new ventures formed by former studio executives.

  Hollywood was going Chinese.

  It was a remarkable moment. Twenty-five years earlier, China was interesting to Hollywood only as a place where toys and T-shirts based on its biggest titles could be cheaply manufactured. It was of no use as a box-office market because China had few movie theaters and the government didn’t allow Western movies in anyway.

  In the 2000s, however, things changed dramatically. As the government shifted China’s economy from one based on manufacturing for export to one based on domestic consumption of goods and services, movies became one of the prime growth drivers. Like so many foreigners before them, Chinese audiences went crazy for Hollywood films, particularly big-budget franchise ones, and as the government allowed more of them in, theater construction grew at a frenzied rate. By 2014, eighteen new screens were being built every day.

  In 2005, the highest-grossing Hollywood movie in China, Harry Potter and the Goblet of Fire, grossed $11.7 million. In 2017, the eighth Fast & Furious film grossed $392 million there. Total box-office sales skyrocketed from $248 million in 2005 to $6.6 billion in 2016. It was already the number two movie market in the world, and experts predicted that sometime before 2020, it would surpass the United States to become number one.

  Still, between censorship, import quotas, and blatant manipulation by the government and its partners, it wasn’t an easy market in which to make money. And American studios took home only 25 percent of every box-office dollar earned in China, compared to 55 or 60 percent in the United States, where they also made money from DVD and television sales that barely existed in the world’s most populous nation.

  Nonetheless, the growth of China was a godsend for Hollywood. Virtually every dollar made there was a found one, and it came just as other sources of money were collapsing. “When studios greenlight a movie, it used to be about, ‘What are the DVD sales going to be?’” observed Rich Gelfond, who as CEO of the giant digital-screen company IMAX works with just about every movie studio in the world. “As DVDs fell off, it was replaced by the question, ‘How’s the movie going to do in China?’” The strategy paid off big-time. Some American films, including the video-game adaptation Warcraft and the last two sequels in the Fast & Furious series, made more money in China than they did in the United States.

  Concerns about Chinese audiences and regulators started to affect how movies were made and, in some cases, whether they were made at all. And so it really wasn’t that big a change when billions of Chinese dollars started flowing into American movies. Instead of indirectly controlling Hollywood by forcing studios to anticipate what would make money in their country, the Chinese were starting to take direct control.

  And there was little doubt that this was just the beginning. Though his ambitions for Paramount were thwarted by American corporate infighting, Wanda’s Wang was desperate to get his hands on one major studio or another. He declared there was “no ceiling” as to what he would pay. In Hollywood, a town that invented slogans like “In space, no one can hear you scream” and “Go ahead, make my day,” a new one emerged in 2016: “China is now the wallet. And Hollywood is the factory.”

  The future of Hollywood is in large part being written by China. And the story of the Chinese movie business is critical to understanding how that happened.

  Starting as Tourists

  Rich Gelfond went to China because he didn’t have any other options. He ended up on the ground floor of a market explosion bigger than any bang in an Arnold Schwarzenegger movie and a chase for dollars unrivaled by any high-speed dash at the end of a Tom Cruise film.

  A few years after he and a partner had taken over IMAX, whose business was screening nature documentaries on its giant screens in museums and science centers, the short, fast-talking, long-haired Gelfond was still struggling to find ways to grow the business. He had a long-term vision that IMAX would become part of the Hollywood system, screening real movies and generating sizable box office. But he had a chicken-and-egg problem: no studio was interested in making movies for IMAX if the company was only in museums, and no multiplex wanted to install an IMAX screen if it would be able to show only documentaries about space shuttles and hummingbirds.

  In the late 1990s, Western movies were just starting to be shown in China for the first time in years. After 1978’s Superman was released in the country in 1986 and then hastily withdrawn one month later, due to criticisms that the character was “a narcotic which the capitalist class gives itself to cast off its serious crises,” Hollywood was banned for nearly a decade. Then in 1994, the State Administration of Radio, Film, and Television (SARFT) started allowing “the 10 best foreign movies” each year to play in the small number of theaters that existed in large cities like Beijing and Shanghai. Harrison Ford’s The Fugitive was the first. It was followed by other entertaining, largely mindless action movies like Speed and True Lies.

  For all of the 1990s, though, movie exports to China were little more than an interesting experiment for Hollywood.

  Box-office grosses there were in the low millions at best, in large part because its 1.26 billion people had only about two thousand theaters in the year 2000, compared to seven thousand in the United States, whose population was less than a quarter of the size of China’s. And because the Chinese government took such a huge chunk of each box-office dollar, the studios were lucky to earn even $1 million per film.

  China was also politically treacherous. In the wake of 1989’s Tiananmen Square protests and massacre, the government was sensitive to any Western content that could fan controversial political beliefs. Disney’s plans to expand into the country were set back years because in the United States it had released Martin Scorsese’s Kundun, about the Tibetan spiritual leader the Dalai Lama, who has long been at odds with the Beijing government.

  But political sensitivities were good news for IMAX, Gelfond figured. The documentaries that played on h
is screens wouldn’t offend a ninety-year-old nun, let alone a Communist official. And so he set his eyes on China. The country was ripe for more screens, and he wanted IMAX to lead the way, figuring its benign content would be more help than hindrance there, unlike the situation in the United States.

  But expanding into a country where the government controlled everything and few Western retail businesses were present was a hazy path at best. So in the late 1990s, Gelfond hired a lobbyist in Beijing to introduce IMAX to the politicians who could open the gates it would need to pass through. “There were no Western entertainment companies in China, so I literally had dinner with top officials in the state council,” Gelfond recalled in his New York office in 2016. “I would ask each of them for their advice on how to get into China and how to succeed in the long run.” The answers were ones that every Hollywood company would need to learn as they tried to gain a foothold in China in the 2000s.

  Make China feel important and look for “win/win scenarios,” they advised him.

  Forge partnerships with local businesses, they said, and whatever you do, don’t lecture them on the right way to do things. Even if they were novices at capitalism, the Chinese wanted to feel like equal partners. To show respect, they said, Gelfond should take most meetings himself, rather than send an underling who was in charge of “China relations.”

  And make clear, with every decision, that you are here for the long run, they insisted. The last thing the Chinese wanted was a new generation of colonialists seeking to extract some money and then head back home. The capsule message, Gelfond recalled, was simple: “Don’t come in like an outsider looking to make a quick killing, which was the U.S.’s reputation around the world.”

  For movie studios, this would not prove an easy pill to swallow. Studios were used to being dominant in every relationship because they had the movies that people were dying to see and theaters were dying to show. But as Gelfond was learning, acting self-important in China was a quick way to get sent back across the Pacific. Patience and deference were key, even when dealing with opaque government bureaucracies that wielded their power in a seemingly arbitrary manner.

  IMAX wasn’t that important, at least not yet, and Gelfond had no trouble following the Chinese bureaucrats’ advice. He moved his Asian headquarters from Singapore to Shanghai in order to demonstrate his commitment to the country and partnered with Shanghai Film Studios to make a documentary about panda bears. He also became intimately familiar with flight schedules across the Pacific as he avoided dispatching subordinates and traveled to China multiple times per year to personally conduct meetings. Over the next twenty years, he would make the trip more than fifty times. “We made it clear we were following what they were saying and doing a long-term thing,” he said.

  IMAX was able to build a few screens at science centers in China, but its first big reward came in 2002, when it signed a deal for its first commercial theater, in the hub of Beijing, People’s Square.

  At the same time, Gelfond’s many years of lobbying in Hollywood were also starting to bear fruit. His company debuted its first “real” film in its giant-screen format: a digital remaster of the 1995 Tom Hanks space drama Apollo 13. In the United States, it played at the museums and educational institutions that had IMAX screens, but in China, the timing was perfect for it to play in a commercial location.

  The initial results weren’t stellar, but they were good enough for IMAX to grow steadily in China, making deals for two theaters here and five there. After the import quota was doubled to twenty movies per year in 2002, studios saw a steady growth in their business too. China wasn’t a massive market yet, but it was a notable one. By 2009, the disaster movie 2012 and the second Transformers film were setting records by grossing more than $65 million each. Total box office in the country reached $908 million, nearly 10 percent of the combined total of $10.6 billion from the United States and Canada.

  Then came Avatar.

  The Turning Point

  James Cameron was perhaps the only Western filmmaker who was a well-known name in China in 2009. His 1998 epic, Titanic, was not only the highest-grossing movie in the world at the time, at $2.2 billion, but its $52.7 million gross in China was a record that stood for more than a decade, until Transformers and 2012 surpassed it.

  His next film, Avatar, was easily the riskiest of the twenty-first century, with a budget of $310 million and new digital 3D technology, which had never been used in a commercial movie before. It opened on December 18, 2009, in the United States and most foreign countries and quickly became a smash, with audiences fascinated by the groundbreaking visual effects portraying the richly drawn alien world of Pandora and its motion-captured inhabitants. By January 7 of the next year, it had grossed $1 billion worldwide, before it even opened in China.

  In the world’s most populous nation, though, Avatar wasn’t a hit. It was a phenomenon. Despite the biggest snowfall in fifty-four years and freezing temperatures, people waited in line to see it for as long as six hours, and the movie broke a record for the biggest weekday opening ever in the country. Tickets, which usually cost a few dollars, were being scalped for as much as a hundred dollars. Whereas Westerners saw Cameron’s story as a standard, perhaps preachy, allegory about racism and environmental destruction, the movie struck a culturally resonant chord in China, where developers’ forced appropriation of property was a hot topic at the time.

  But, as Gelfond noticed, the biggest reason for Avatar‘s Chinese success was digital 3D. In China and other developing nations, going to the movies was not just a fun way to enjoy some pop culture. It was an opportunity for an emerging middle class, suddenly flush with cash, thanks to the country’s supernova economy, to experience luxuries they may have never dreamed possible while growing up in a poor rural village. Much like Americans going on a foreign vacation, Chinese moviegoers wanted to see something spectacular, something that would blow their minds and be worth bragging about when they got back home. And they didn’t mind spending a little extra money to do it.

  There could be no better news for IMAX, which charged more for its superior cinema experience. Cameron had worked with IMAX to develop the 3D technology he used in Avatar and designed the movie to be best viewed on its screens. The film was a hit for IMAX all over the world but a game-changer in China.

  Avatar grossed $204 million in China, more than tripling the previous record set by 2012, and $25 million of that came from IMAX. This number can truly be appreciated only when you consider that the company had just thirteen screens in the country at the time. Each one grossed more than $2 million over the several months that the government let the film run.

  One of those screens in Beijing even shut down for an afternoon as senior government officials used it for a private viewing of Avatar.

  Within months of the debut of Avatar, IMAX signed a deal to open a hundred new theaters in China. Many more followed. “Avatar was far and away our biggest success there,” Gelfond said. “It was an overnight turning point.” Other 3D IMAX hits followed, including Alice in Wonderland, Clash of the Titans, and Iron Man 2. Total box office in China surged by 61 percent in 2010, to $1.47 billion. The next year it hit $2 billion. In 2012, it rose to $2.7 billion.

  Though audiences in the West grew tired of 3D after it was used for seemingly every “event” movie, many with cheap and poorly produced effects, the Chinese couldn’t get enough. In 2012, the government even agreed to let in an additional fourteen foreign movies per year, but only if they were in 3D or formatted for IMAX screens.

  That deal also nearly doubled the maximum amount of box-office receipts a foreign studio could keep from their movies in China, from 13 to 25 percent. China was now a major, fast-growing source of revenue, and as DVD sales plummeted, studios increasingly focused on it. For the first time, decisions were being made with the Chinese market in mind. Chinese audiences couldn’t understand and weren’t interested in most American dramas, comedies, or other mid-budget films. They wanted big-budget f
ilms full of visual effects that could be understood even without subtitles and would make moviegoing an event worthy of their time and money.

  Chinese audiences also preferred brands they knew and trusted, ones that made moviegoing a safe experience and one with the same patina of luxury they got in an Apple or Hermès store. And so Hollywood pumped out more and more branded franchise films. Americans sick of yet another Transformers or X-Men movie couldn’t blame just Hollywood anymore. They would have to blame China too.

  The Communist giant didn’t just affect which movies were made, but also how. In 2011, a bankrupt MGM was looking to sell off movies it no longer had the resources to release, including a remake of the Cold War–era film Red Dawn, about American farm kids who repel a Soviet invasion. To make the film more politically relevant when it was shot in 2009, the filmmakers replaced the Soviet invaders with Chinese ones. But by 2011, post-Avatar, no distributor would risk buying a movie that would offend the Chinese government. Not only would Red Dawn be impossible to play in the world’s fastest-growing movie market, but angry government officials could punish companies that released it elsewhere, as they had done to Disney with Kundun.

  The filmmakers used digital technology to erase every Chinese flag and military symbol in Red Dawn and replace them with those of an Asian country nobody cared about offending: North Korea. These changes eventually allowed the movie to find a U.S. distributor (though it didn’t do very well at the box office) and also spurred a minor backlash among those who feared it was a sign that American companies were kowtowing to political pressure from an authoritarian government for the sake of dollars.

  The fact was, however, that by 2011 studios were already falling over each other to make nice with China.