Hollywood's big re-entry and its repercussions in China

"Starting with The Fugitive, Chinese cinema itself has become the fugitive."
Nanfang Zhoumo [Southern Weekend] (“Zongshu”)

"The Chinese public finally stopped being 2nd-rate audiences."
— Zhang Jianya (Chinese 5th generation film director) (Quoted in Feng 2004)

On November 11, 1994, the very first Hollywood “blockbuster” import The Fugitive began to hit the screens of 57 movie theaters in six key Chinese cities. Moviegoers swarmed to those cinemas that had been much deserted before, even with inflated ticket prices that the general public regarded as a bit steep (Mao, Yu 1994b, 2). The film was a big success in China, grossing some US$820,000 in the first ten days, with an eventual total gross of about 25.8 million yuan RMB (US$3.15 million), despite the industry’s limited experience in marketing (Groves 1994c, 48).

The next year, six new revenue-sharing Hollywood movies were imported, including global runaway hits True Lies (James Cameron, 1994), Forrest Gump (Robert Zemeckis, 1994) and The Lion King (Roger Allers and Rob Minkoff, 1994). Except for Forrest Gump, which turned out to be a relative failure due to its socio-cultural-specific American theme that failed to resonate with the Chinese audience (Wang, Zhiqiang 1996, 203), the other five films caused a great sensation and led to a big surge in the country’s box office and movie attendance. The total box office receipts for the country in the first half of 1995 increased by 50% over the same period in the previous year. Total receipts from the Beijing market rose by 80%, and movie attendance in Beijing that summer increased by 70% over the level of the previous year (Fang, Cheng 1997, 10; Kuhn 1995, D7).

In particular, the film True Lies, which opened in April 1995, grossed 102 million yuan RMB (U.S$12.3 million) nationwide, setting a box office record in China that would be surpassed only by Titanic (James Cameron, 1997) in 1998. Films from Hong Kong such as Jackie Chan’s Drunken Master II (Chia-Liang Liu, 1994)and The Rumble in the Bronx (Stanley Tong, 1995) were another major source for revenue-sharing imports in China in 1994 and 1995 — second only to films from Hollywood. But by 1996, Hollywood mega-productions made up the entire list of ten imported revenue-sharing films. Engrossed appreciations of and zealous fascination with Hollywood blockbusters abounded at the outset, mostly for their special-effect-laden and visually stunning spectacles, fast-paced action sequences, as well as captivating plots, which were newly exposed to an all-curious Chinese audience. This appeal began to be somewhat tempered by the “junk movie” label given to the overly-empty-plotted Waterworld (Kevin Reynolds, 1995) in 1996, and the fact that two out of the fourteen Hollywood films imported in 1997 and 1998, Speed 2: Cruise Control (Jan de Bont, 1997) and Batman and Robin (Joel Schumacher, 1997), were on U.S. media’s 1997 “Bottom Ten” film list (Chang, Bin 2000, 3). Nevertheless, Chinese moviegoers’ overall enthusiasm for Hollywood blockbusters was well sustained. It came to its peak when Titanic swept the entire nation in 1998 with a magic box office of 360.1 million yuan RMB (US$43.5 million), a figure that more than tripled that of the second most successful film, True Lies, achieving a national box-office record still unmatched today.

One major objective for the government to introduce ten foreign blockbusters annually was to get the Chinese public back to movie theaters to lift domestic cinema from its deep crisis. However, it was the imported Hollywood mega-productions, rather than the Chinese domestic films, that benefited substantially from the increased flow of moviegoers, while the latter benefited only marginally. One survey showed that through much of the 1990s, of around one hundred Chinese home-produced films put into the Beijing market every year, on average 70% failed to recover their royalty and print costs, 15% broke even, and only 15% made a profit (Wang and Ren 1999, 9). Another survey indicated that the total national box office receipts in 1991 were 2.4 billion yuan RMB (US$290.9 million), which dropped to 1.44 billion yuan (US$173.9 million) in 1998, and further down to 810 million yuan (US$97.8 million) in 2000. From 1994 to 1999, the national box office gross fell by 65%, and was in further decline by 2001 (Chen, Kehong 2002).

On the other hand, the total box office receipts for Hollywood revenue-sharing films were almost 600 million yuan RMB (US$72.46 million) in 1998, which was nearly twice the level of 1995 and 1997 and more than 45% higher than in 1996, with Titanic alone taking over half of that year’s total receipts from imports (Mao, Qiang 1999, 6).

These figures became an alarming reminder of how far a cry the box office receipts of Chinese domestic films were from those of their imported counterparts. This fact becomes more salient when considering the following data: Up to the year 2000, on average ten imported revenue-sharing films each year accounted for over 2/3 of China’s annual total box office receipts, while the rest, comprising less than 1/3 of the revenue pie, went to some 100 Chinese domestic films (Zheng 2000, 5). In 1996, box office receipts from imported films in Beijing and Guangzhou accounted for 70 to 80% of the total box office receipts in the two markets (Fan, Mao and Yang 1997, 6).

Although the Chinese government allowed only ten imported films to enter China each year as a protective measure for the national film industry, it was the market share, not the physical number of Hollywood imports, which gave rise to growing apprehension and even a strong sense of crisis in the Chinese film community and in academic and media circles, as the decade of the 1990s was drawing to a close.

The import of ten mega films did not come without resistance. Heated debates and controversies erupted in China’s media soon after the policy was publicized, especially with regard to the imported films potential impact on the national cinema and whether and how to protect the national film industry from them. Such debate further escalated with the big commercial success of most of the Hollywood imports. At the very beginning, some questioned the timing of opening the Chinese market to film imports, wondering whether foreign imports would soon engulf the deeply troubled, vulnerable national cinema. Others argued that the ten imported films would accelerate a long-overdue institutional reform of the Chinese film industry and enable Chinese cinema to be more open, adaptable and resilient in the new environment of competition with foreign films (Wu 1994, 3).

Many believed, however, that the new policy represented an invitation, not to alleged “foreign” quality films, but to top box office hits from Hollywood that would crush Chinese national cinema (Mao, Yu 1994a, 1). This view was echoed by still others who later challenged China Film’s biased practice of importing only big U.S. commercial productions, which created a monopoly of Hollywood blockbusters in China, while barring more refined works of art cinema from Europe and Asia (Wang and Ren 1999, 9). Nevertheless, some industry insiders defended the import pattern by pointing out that importing art films, strong in emotional sensitivity and subtlety but weak in spectacle and audiovisual stimulation, could attract only a very small audience to movie theaters, and therefore were not a feasible way out. They argued that the general audience’s relatively low viewing demand for these art films could be more easily met by the pirated videos prevalent in the Chinese film market. They pointed to the consistently less competitive box office records of imported art films as opposed to commercial blockbusters up to the year 2000 to support their argument (Chang, Bin 2000, 8).

Certainly, the cultivation of Chinese audiences’ viewing tastes predominantly by Hollywood blockbusters, along with the underdevelopment of a Chinese distribution and exhibition infrastructure for art films, complicated this issue. Fortunately, many in the Chinese film community, especially those involved in distributing relatively small-scale domestic films, maintained that the government should not exclude an option for importing art films solely on commercial grounds. They argued that art cinema deserved a better accommodation and in the long run would help cultivate audiences’ tastes for diverse cinematic styles.

Meanwhile, China has seen a deep divide among different film industry sectors since importing ten mega films was introduced, particularly at the early stage. On the one hand, China Film, the state-run distributor and the only film import license holder, still enjoyed a de facto monopoly over distribution of the ten imported blockbusters. The company, its local distribution arms, and cinema owners shared considerable profits from the imported mega films and had a strong incentive to screen and promote more of them. On the other hand, the filmmaking sector was increasingly squeezed out in a steadily shrinking market share for its productions. It faced a genuine fear that filmmaking businesses would be wiped out by the big imports. While distributors blamed poor box office results on the mediocrity of domestic productions, the filmmaking community accused imported blockbusters as causing domestic films to steadily lose ground, and also blamed distributors and exhibitors who favored imports. One major executive in Beijing Film Distribution Co., who had attached great emphasis to distributing domestic films, thus protested against China Film,

“Whoever allows U.S. films to occupy the ground belonging to Chinese films is feeding foreign film moguls with Chinese money (Real 1995).”

Having good screening space for domestic films was a paramount concern. As Han Sanping, then President of Beijing Film Studio, warned in early 1995, if one big import was booked for a 15-day run, ten films in the same theater would occupy 150 days out of 365 each year (Li, Hui 1995). Han’s projection was a gloomy scenario. But before long, reality turned out even worse. China’s eight major film studios, which produced the majority of domestic films each year and were already in serious financial crisis, issued a statement in April 1995 demanding that the government take necessary measures to curb the mega imports’ impact on their revenues and use of cinemas. They urged the government to limit the number of films imported and the length of time they were to be shown in cinemas, and to use part of the import revenues to subsidize the domestic film industry (Real 1995).

Hence, the policy to open up the market by injecting a heavy dose of foreign competition in order to boost the nation’s sluggish film business, especially its lackluster filmmaking sector, seemed to have backfired. This development left domestic filmmaking in a graver situation while largely benefiting distributors and exhibitors who relied increasingly on big imports. Yet some film directors saw the policy as a double-edged sword. They expressed their optimism that the negative impact of imported blockbusters on Chinese national cinema would be temporary. They felt the open-door policy would bring long-term benefits to the national film industry (Real 1995), an idea that would be tested by later developments in the Chinese film industry.

To alleviate the massive imbalance between domestic films' market share as opposed to foreign imports' share, and to address distributors and cinemas’ overdependence on Hollywood films, MRFT ruled in March 1996 that for each exhibiting cinema, at least 2/3 of its annual screentime must be reserved for domestically produced films. This provision was officially included in the “State Regulations on Administration of the Film Industry (Order No. 200 of China’s State Council)” signed by then Chinese Premier Li Peng on June 19, 1996. Around the same time, a special project, initiated by China’s Ministry of Publicity, which supervises MRFT and the Ministry of Culture, set a goal of turning out 50 quality domestic films from 1996 to 2000, with ten appearing in each year. This Project was aimed at helping the Chinese film industry to compete better with Hollywood. Furthermore, to fund quality film production, and to offer state studios better incentives, MRFT granted three major Chinese film studios, Changchun, Beijing, and Shanghai, the rights to distribute one major foreign blockbuster by means of profit-sharing on an experimental basis in 1996. The three films that the studios distributed that year were all Hollywood imports — namely Waterworld, Jumanji (Joe Johnston, 1995), and Toy Story (John Lasseter,1995), each taking 30 to 40 million yuan RMB (US$3.62-4.83 million) in box office receipts (Fan, Mao, and Yang 1997, 5).

On the academic front, no one has been more vocal in identifying the unprecedented, severe challenges Hollywood could bring to Chinese cinema than Dai Jinhua, based at Beijing University and one of contemporary China’s most influential literary and cultural theorists and film critics. Upon hearing the government’s policy to import ten foreign films in 1994, she expressed her deep concern about the fate of the enfeebled Chinese national cinema under the aggressive entry of the “wolf," as she called Hollywood. In particular, she cited the decline of national film industries around the world as a result of Hollywood’s penetration and its essentially “unequal” and “unfair” competition, including in cinematically strong and culturally resistant France. The prospects for the all-powerful Hollywood studios, with their distribution and marketing clout, and their potential support and advising from China Film, to occupy all the mainstay cinemas in China made her believe those who were wishfully thinking of Hollywood imports as the savior of the declining Chinese film industry were overoptimistic and even naïve (“Tiaozhan”). Before long, it became clear that a large percentage of cinema operators in China violated the government mandate to restrict the screening time for foreign films, mostly Hollywood blockbusters, to 1/3 of their total time available. In view of the fact that over 70 domestic films were shelved without reaching cinemas in 1998, the very year Titanic rocked the country with an average 45-day run in cinemas of major markets, Dai lamented the regrettably shortsighted, profit-driven behavior of state-controlled distributors and exhibitors, aggressively promoting Hollywood films while neglecting domestic ones. This situation, according to her,

“further intensifies the squeezing power of transnational capital over domestic films (Dai 1999, 21)."

Apart from its strong inherent appeal, a host of external factors played in favor of Titanic and led to its smashing success and box-office magic in the Chinese film market. The endorsement that China’s President Jiang Zemin gave the film early on seemed crucial and paved the way for its timely import and opening on April 1st, shortly after it garnered 11 Academy Awards on March 23. The endorsement also helped guarantee saturated media coverage and promotion that exhausted all possible channels nationwide, and well-orchestrated, efficient distribution preparations and marketing operations that began as early as January. These factors, coupled with diligent work and much overtime commitment by cinema employees across the country, together turned the film into a major national cultural event which reached far beyond the movie screen and which had rarely been seen in Chinese social life (Weng 1998, 5-6). Titanic ended up being shown in over 1000 cinemas across China, with steep ticket prices ranging from 40 to 80 yuan RMB (US$4.83-9.66) in major cities. It set the national box office record of 360.1 million yuan RMB (US$43.5million), accounting for one-fourth of the total national ticket sales in 1998, and drove that year’s movie attendance (over 30 million) and total number of movie screenings (390,000) up to a historic high in China (Mao, Qiang 1999, 6-7; Xi 2001, 7). Even China’s most prominent film director, Zhang Yimou, in his 1999 film Wode fuqin muqin [The Road Home],included two Titanic movie posters in the home of the hero, a teacher in a remote Chinese village. It seems like a visual comment from the director on how Hollywood movies in general and Titanic in particular had penetrated the Chinese popular consciousness (Wan and Kraus 2002, 434).

Meanwhile, it was a depressingly humdrum year for Chinese cinema, an “off year," as some in the industry called it, with “nothing good to talk about, apart from Titanic” (Xing 1999, 3). Not one single Chinese film made any significant mark in the market that year, unlike the previous year when three domestic films caused a remarkable sensation across the nation amid competition from seven imported Hollywood blockbusters (Xing 1999, 3). Perhaps the shadow from Titanic was too heavy to overcome. As some in the industry noted, the appetite of the Chinese movie audiences might have been overextended for this rare, well-planned extravaganza, which cost them several times the price of a film than they had been accustomed to, preventing them from being easily contented with any lesser products for a while. This prompted Zheng Dongtian, a well-known Chinese film director and scholar, to project a fairly grim scenario with regard to the prospects for the domestic cinema. The box office receipts of Titanic in Beijing in 1998 (US$4.22 million) were about one-fourth of the local market’s total intake in 1997 (US$15.82 million), its historical high up to that time, as Zheng pointed out. Given this fact, the existing film market size of Beijing, and its population’s purchasing power, all of which would have limited space for further extension, it would take only four Titanics each year to meet the market demand, according to Zheng. This would force over one half of the imported blockbusters to struggle to find their audience each year. Should this occur, Zheng then wondered whether there would be any market space left for the Chinese domestic films to maintain their livelihood (Zheng 1998, 7). Yet all this while, the Chinese film distribution and exhibition sectors were excited about their handsome profits from Titanic as well as a strong performance from Saving Private Ryan (Steven Spielberg, 1998), so that “they bid farewell to 1998 with smiles on their faces” (Zhang, Ying 1998/1999, 230). This self-deceptive contentment of harvest and rather ambivalent picture of the Chinese film industry in 1998 led Dai to voice even gloomier pessimism as she warned that

“like Titanic, the Chinese film industry is sinking amidst tender feelings and happiness, almost without any measures of resistance…(Dai 1999, 22).”

The short-term prosperity in the Chinese film market, built mostly on the success of Titanic, proved unsound, and hence, unsustainable. Or perhaps the “overextending appetite” theory unfortunately worked. In the following year the Chinese film market soon hit a historic low. As an industry report acknowledged, in the first half of 1999, the national film market was “facing its greatest difficulties since the founding of New China” (Gao, Du 1999, 6). It was estimated that by the end of May in 1999, the box office receipts from markets nationwide had dropped by an average of 60% over the same period in 1998. The total box office receipts of the entire year dropped to 840 million yuan RMB (U.$101.45 million) from 1.45 billion yuan RMB (US$175.12 million) in 1998. The box office gross in major markets fell by an average of 50% over 1998, with that in Shanghai having declined by around 38%, approaching the lowest possible limit that the market could sustain.

It was an indeed grim situation (Fang, yuqiang 2000b, 7; Zhang Hong 2000, 20).

There were two direct causes of the bleak scene. The year 1999 was historically unique and significant for China in that it marked the 50th anniversary of the founding of the PRC, the upcoming return of Macao as a former Portuguese colony to its motherland, and the approaching of the new millennium. Putting on government-orchestrated and -funded large film productions on Chinese revolutionary history and heroic figures for the celebration of significant occasions like these have been typical of Chinese film fare and scheduling. Yet these so-called “main melody” films over the years have formed such a pedagogical and stodgy stereotype in the mind of the Chinese public that they almost invariably turn off voluntary movie audiences. Instead these films rely heavily on non-voluntary group ticket-buying from government agencies, state enterprises, and schools, which are demanded by government-issued circulars. But group purchase was particularly undermined in 1999 due to a stringent macroeconomic policy. There were about 30 celebrative films of this nature shown in 1999 under the special mechanism of government administration rather than market rules in terms of cinema booking and scheduling. That resulted in a national box office gross for domestic films which left much to be desired (Gao, Du 1999, 6).

An even more significant cause was the aberrant exhibition of Hollywood imports that year. It was affected partially by the above-mentioned unique cinema scheduling for special celebrative films. Its direct trigger, however, was the shocking tragedy of the bombing of the Chinese embassy in Belgrade by the U.S.-led NATO forces on May 8th, 1999, leading to sad casualties of Chinese diplomats and reporters. The next day, on behalf of over 300,000 people employed in China’s film distribution and exhibition sectors, China Film Distributors and Exhibitors Association issued a public statement strongly condemning the “brutal” incident and declaring a temporary ban on the exhibition of any U.S. films nationwide effective on that day (“China Film Distributors and Exhibitors Association”).

On May 9th, a total number of over 70 cinemas across Beijing, together with cinemas across China, stopped the screening of U.S. films including Mulan (Tony Bancroft and Barry Cook, 1998). Films already being marketed and ready for exhibition shortly, like Enemy of the State (Tony Scott, 1998), were postponed from their original schedule. In their stead, movies with themes of war-time heroism from both China and abroad, such as Ying xiong er nu [Heroic Sons and Daughters] (Wu Zhaodi, 1964), and an old film import from former Yugoslavia Valter brani Sarajevo [Walter, the Defender of Sarajevo] (Hajrudin Šiba Krvavac, 1972)[19][open notes in new window], were screened to display the national sentiment. After considerable diplomatic endeavor on the U.S. side, Enemy of the State and three other U.S. films, including Star Wars: Episode IThe Phantom Menace (George Lucas, 1999), did get shown later that year. Nevertheless, there was a gap of over five months during which no U.S. films were exhibited in Chinese cinemas. The total box office receipts for the Hollywood imports that year were less than 150 million RMB (US$18.12 million), considerably lower than those in the previous years and what were originally expected. In particular, Mulan and Tarzan (Chris Buck and Kevin Lima, 1999) only grossed 11.17 million yuan RMB (US$1.35 million) and 13.38 million yuan RMB (US$1.78 million) respectively, to Disney’s great disappointment (Zhang, Ying 2000).

That dismal year for the Chinese film market also exposed a distinct, serious dilemma for Chinese cinema. The ten imported foreign films, essentially Hollywood blockbusters, which the government decided to bring in ultimately to boost the Chinese national cinema, had taken well over one half of the market share, squeezing out the domestic films, when they ran normally. Yet, without the Hollywood films, the Chinese film market could barely have sustained itself. Differently put, they had become a seemingly indispensable pillar to buttress the very survival of the Chinese film industry. It was a reality that was not expected nor accepted with ease by policymakers or those who truly cared about the well-being of the Chinese national cinema. It was against this backdrop and on the heels of the signing of the Sino-U.S. agreement on China’s accession to the WTO in November, 1999, that Zheng Dongtian used that famous line from Shakespeare’s Hamlet — “To be, or not to be?” — to illustrate what the Chinese film industry was confronted with on the eve of the new millennium (Zheng 1998, 4). It was a time when the balance of power between Chinese cinema and Hollywood tilted towards the latter, and when the post-WTO world, with much graver challenges for the former, loomed large just over the horizon.

Meanwhile, following the bombing of the Chinese embassy in Belgrade in May 1999, heated discussions in the industry about the cultural and ideological implications of imported Hollywood films and their market dominance in China came to the fore, unlike the previous ones which had dwelled mostly on their economic impact on the national film industry.

An article was featured in the July 1999 issue of the Chinese Film Market, China’s primary film trade journal, with a telling title, “Pulling the Veil off Hollywood." It argued that what Hollywood set to achieve was not merely to take over film markets worldwide, but more significantly, to export U.S. values and its national image. Despite all the social ills of the United States, the author noted, the country’s values and image had forever been presented as “perfect, eternal, and international," and therefore as a superior standard for the rest of the world to worship and emulate, just like those classic, lovable, and sleek images in each exported movie from the U.S.. Those films, the author maintained, while garnering massive popularity for and obsession with Hollywood style blockbusters, fostered a subliminal belief from the audiences that the U.S. was the center of the world and the messiah of humanity. Finally the author warned against overemphasizing the commercial and entertaining values of Hollywood blockbusters while dulling and even ignoring the need for ideological alertness and criticism in importing them (Zeng 1999, 10).

Another article from the same journal called attention to Hollywood’s ultimate ambition of completely dominating the Chinese film market with an unlimited flow of films preaching the American way of life in China. The article also warned about the strong impact, particularly in ideological terms, of an all-around penetration by Hollywood into every aspect of the Chinese social and cultural life. It pointed out that the impact cannot be over-estimated in the present era when film and television increasingly converge. Alluding to the ongoing bilateral trade negotiations on China’s membership in the WTO, the author held that U.S. cultural expansion and invasion in the form of “bullying” free trade should by no means be allowed. This was because, the author went on to argue, cultural trade, like any other type of trade, should be conducted in line with the international practice of equal-footing negotiations and mutual benefits, with due respect for the rules and regulations of the countries concerned. The article called for as serious reflection on and alertness to U.S. cultural expansion through Hollywood as on the U.S. military attack of China’s embassy. The latter, according to the author, had awakened the entire nation to the reality of power politics. It also necessitated somber considerations over the profound sentiments from European countries, South Korea and the like to protect their national film industries and cultural identities from Hollywood’s global expansion (Yu, Xin 1999, 8).

Hollywood majors’ ambitions, frustrations, and strategies to forge ahead

"…You need to find crevices where you can squeeze in….I think there is a lot of room to grow. But it's like growing flowers in a rock garden."
— One executive at a U.S.-based entertainment company (Dolven and Granitsas 2002, 88)

"Ultimately, there will be a market in China; it’s a matter of timing."
— Jim Burk, Executive Vice President of United Cinema International (Groves 2000, 7)

While the formidable market presence of Hollywood blockbusters in China cast a shadow of uncertainty and apprehension in the Chinese film community, nevertheless, the all-ambitious Hollywood majors were discouraged by the gap between what they had expected and what was. They had long set their eyes on this most populous nation on earth, even during their absence over the past five decades. With a population of 1.3 billion, and a fast-rising middle class with steadily growing purchasing power, the massive market of the PRC in the 1990s and beyond, U.S. studios believed, was perhaps the last major untapped, most promising, and potentially lucrative “goldmine." In their widespread global crusades to gain markets, China appeared a second Europe to them, at the very least. A senior official at the MPAA projected with much optimism,

“In the first year after China joins the WTO, the total number of U.S. films allowed to be imported to China would increase from 10 to 20. The Chinese are known to be a movie-loving people. If each one pays ten yuan RMB (US$1.2) to see a movie, the ticket sales would be over US$2 billion (Quoted in Meng 2001, 24).”

Yet, when the door to this exciting new frontier finally opened, and the Hollywood majors rushed in, they found many more roadblocks to achieving their goal than they ever expected. In addition to the informal annual quotas of ten revenue-sharing films that the Chinese government placed on the imports, the denial of Hollywood major’s rights to distribute their films in China put marketing, cinema booking and scheduling firmly in the hands of China Film. The latter enjoyed a centralized monopoly over the importation and distribution of foreign films in China. Moreover, under the revenue-sharing terms agreed upon by the two sides, Hollywood distributors and China Film were to split each film’s box office revenues 50-50. Nevertheless, after exhibitors’ cut, government tax, import tariff, and other fees, the final return for the Hollywood majors was only around 13%; whereas Hollywood’s take on box office gross in other territories typically amounted to 40 to 50% (Groves 2000, 7). Even for a substantial hit like The Lion King, which met its prior projection of total box office receipts of 20 million RMB ($2.4 million) in the first ten days, the ultimate return from China was so insignificant that it could only be comparable to that of a small Central European country (“Disney’s Lion King”). In 1998, the year the film Titanic rocked the Chinese nation and took in US$43.5 million at the box office, Hollywood studios’ revenues from China were a mere US$18 million, the equivalent of what they earned in Peru (Bates and Farley 1999, A1). Twenty Century Fox, distributor of Titanic outside of the U.S., got only about US$5 million from the Chinese market (Bates and Farley 1999, A30). Furthermore, as U.S. government statistics from 1999 suggested, film revenues from China were among the smallest in Asia, less than those in Singapore, Malaysia, Thailand, and the Philippines.[20] This was definitely a far cry from what the Hollywood majors had initially hoped for. (The Hollywood majors have tried hard to push for a boost in their share of the box office receipts from the Chinese market — for example, in late 2003, they pressed China Film to raise their share to at least 18% — but they have not succeeded so far.[21])

There were other obstacles too, such as the red tape, infrastructural deficiencies, and cultural barriers. Referring to the arduous 16-month negotiation for the film The Lion King, the short notice given to prepare the marketing kit, and poor theater infrastructure in China that generally denies a good scale of exhibition,[22] Senior Vice President of Buena Vista International (BVI), Larry Kaplan, commented on their Chinese business,

“there’s a future, but there’s not much of a present” (Stanley 1996, 37).

Yet, the unprecedented sale of the film’s soundtrack (over 700,000 copies sold, “the most successful Western soundtrack album in history”) in China and promising room for market growth made BVI “see huge opportunity for Disney” in China while trying to “seed the garden and harvest returns later” with great patience (“Disney’s ‘Lion King’”).

Moreover, China’s strict censorship, necessitated by the absence of a ratings system and rooted in a strong Confucian tradition of modesty and decorum, has kept Hollywood studios from introducing overly violent and sexually explicit films. This has considerably limited the kind of films that can be brought into the market. From time to time, studio executives were also puzzled by the fact that smash hits in the U.S. and other territories were not necessarily welcomed in China (e.g. The Mummy [Stephen Sommers, 1999] failed to get an import permit), while obscure, far less commercially successful films in the U.S. could be favored (e.g. Proof of Life [Taylor Hackford, 2000], Meet the Parents [Jay Roach, 2000]). Another intriguing twist to the puzzle was that while the first mummy film was rejected, its sequel The Mummy Returns [Stephen Sommers, 2001]was accepted later. This fact speaks to the fairly arbitrary standards and decision-making procedure in China’s film censorship process, which is an issue that has also frustrated Chinese filmmakers. While quintessential Hollywood blockbuster productions, marked by special effects, massive scale, and gigantic investment, were usually the most popular with the Chinese audiences, especially early on, other genres and styles could also be surprise hits. A case in point was The Bridges of Madison County (Clint Eastwood, 1995). In 1996, the film set the Beijing box office record of 1.9 million yuan RMB (US$228,900) during its first three days of screening, and grossed 39.5 million yuan RMB (US$4.77 million) nationwide (Major 1997). To put this success in perspective, Star Wars: Episode IThe Phantom Menace grossed only 33.94 million yuan RMB [US$4.1 million], and Matrix [Andy Wachowski and Larry Wachowski, 1999] only 17.94 million yuan RMB [US$2.2 million].

If the taste of an audience that is so different from that in the West is not easy to predict, then films based on Chinese stories, such as Mulan, are less likely to resonate culturally with the local audience as they can be easily be Americanized or Disneyized.  (This difficulty largely explained why Mulan was a relative flop in China, though Disney and those business-minded Chinese distributors would like to believe that it was missing the ideal summer season that led to the film’s misfortune). This soft, “cultural discount” barrier will remain a long-term, tougher challenge to Hollywood than a hard quota will. (New developments in the post-WTO period demonstrate this problem as well.)

Interestingly enough, China became one of the major bones of contention in the legal settlement between former Disney studio chief Jeffery Katzenberg and the Eisner-headed Walt Disney company. China’s ambivalence in the eyes of Hollywood, which it saw at once as a promising market full of destiny and hope, and also as a difficult new frontier to chart and conquer, was brought home through the episode. On the one hand, Katzenberg’s final contract settlement involving a staggering amount of money was believed to have been heavily influenced by one judge’s estimate of the potential long-term profits that movies and TV shows Katzenberg launched would engender from the Chinese market. These included The Lion King, Aladdin (Ron Clements and John Musker, 1992) and Beauty and the Beast (Gary Trousdale and Kirk Wise, 1991). On the other hand, the Walt Disney company cited “legal, ideological, cultural and economic constraints," as well as “rampant piracy” to demonstrate its skepticism towards the promises China would hold for the company (Bates and Farley 1999, A30), though the company's actual strategies suggested otherwise.

Yet within their more immediate sphere of influence, the Hollywood majors spared no efforts to push, among other things, for an increase in import quotas and a breakdown of China Film’s distribution monopoly to enhance their market access. For example, the two issues were clearly presented by Disney in early 1999 in one of their negotiations with SARFT, as the top two priorities on the agenda of their “plan of cooperation” with China for the next two years. With respect to the import quotas, they tried to talk the Chinese government into allowing a total of 17 films from the Hollywood majors to be imported to China from June 1999 to June 2000, and a total of 25 films from June 2000 to June 2001. They suggested that the two sides convene again in June 2001 to analyze the market, and devise further new plans for the following two years. Regarding their second request, they argued that increasing the number of Chinese distributors of U.S. films to at least two, and more if possible, would benefit the Chinese film industry by expanding local knowledge and skills concerning film exhibition and marketing.

In fact, Disney, together with other Hollywood studios, was convinced that China Film could be pushed to do a much better job distributing Hollywood films in China if the company had competitors in the market. Essentially they tried to dump China Film as the middleman by dismantling its monopoly over the import and distribution of foreign films. That dismantling, according to Barbara Robinson, would significantly increase the studios’ profits from importing and releasing their films in China, by enabling local exhibitors to work more directly with them.[23] Robinson made the remark while working at ERA Films, a Hong Kong-based film distribution company with exclusive licenses from major Hollywood studios, before heading Columbia Pictures Film Production Asia later in producing and distributing Chinese-language films (Kuhn 1995, D7).

Disney also tried to push the Chinese government to reduce its high taxation on U.S. films in China, but did not achieve these objectives.[24] The U.S. team's signature, arrogant style in dictating its will often led to unpleasant tensions rather than a collaborative atmosphere at the negotiation table.

Of course, the major Hollywood studios had even more ambitious long-term plans for the Chinese market. A good example was detailed in a letter of March 1999 from Gerald M. Levin, Chairman and CEO of Time Warner, the parent company of Warner Bros. studio. It was addressed directly to China’s Premier Zhu Rongji, prior to his state visit to the U.S. the following month. In the letter, Mr. Levin presented the framework of Warner Bros.’s plan of “comprehensive cooperation” with China. The plan spelled out the studio’s objectives in the Chinese market. These included:

  • to set up a joint venture with Chinese partners to develop and produce films based on Chinese stories and distribute them both in China and internationally;
  • to import and distribute in China Warner Bros. productions or films acquired by Warner Bros. from both China and elsewhere;
  • to develop other media products, including home videos, TV programs and consumer products; and
  • to explore other movie-related businesses, such as movie theaters and theme parks in China.

The studio made a special commitment to re-investing its profits in China at the initial stage of importing and distributing Warner Bros. films, in order to guarantee the longterm success of the joint venture. In the letter, Mr. Levin also acknowledged that he was encouraged by the Chinese government’s ground-breaking decision to open China’s banking and insurance sectors to foreign businesses, and that he had on many occasions expressed to the U.S. government his strong wish to achieve similar breakthroughs in the media and entertainment field. Time Warner’s longterm aspirations for the Chinese market across different media platforms and business lines have been, for the most part, shared by other major Hollywood studios. Theatrical release of their film productions is but one small, albeit important, part of their overall grand China scheme.

China’s movie exhibition infrastructure has been largely underdeveloped. Most cinemas in China are inadequately equipped and thus unwelcoming to potential moviegoers. Therefore, Hollywood has long had an eye on the Chinese exhibition market. At the annual CineAsia Film Exhibitors Convention in 1997, Valenti explicitly publicized Hollywood’s wish to join with partners “throughout Asia, especially in China” to invest in the building of “modern cinema auditoriums” to accommodate the growing number of Asian moviegoers with an “epic viewing” experience unavailable at home (Valenti 1997). Yet the Chinese government did not show any sign of lifting the ban on foreign investment in Chinese cinemas until it reached the agreement in late 1999 with the U.S. on China’s accession to the WTO. Before that, major cinema operators in the U.S., such as Warner Bros. International Theaters (WBIT) and United Cinema International (UCI),[25] had held many talks with both the Chinese government and potential Chinese business partners in an attempt to break through obstacles in the policy, but to no avail. To Hollywood studios, the goal is not only to expand their cinema business in the emerging Chinese market. More significantly, they believe that constructing multiplexes would push China to import more Hollywood blockbusters to fill the cinema seats.

Compared with a traditional one-screen cinema, a multiplex is more attractive to audiences, due to choice, flexibility and modern facilities. The state-of-the-art sound system in a multiplex gives full play to the typically special-effects-laden audio track of spectacular Hollywood blockbusters, while it does not favor small films to the same extent. Moreover, the multiplex provides a more efficient operation in terms of capacity utilization for distributors and exhibitors alike. It enables different screening halls to show different films simultaneously, or to exhibit the same popular movie with staggered starting times. The long-term strategy of Hollywood’s multiplexing in China is not only to prompt the importation of more films, but also to obtain the best space for their films once they take over the cinemas’ ownership. Hence, we can easily understand why Hollywood's exhibition sector had been pointing their global strategic focus increasingly on China. During the annual ShoWest trade fair, for example, convened by the National Association of Theater Owners (NATO) in March 2000, executives from WBIT and UCI expressed their major concern over cinema-overbuilding in mature markets such as the U.S. and West Europe. They also publicized their plan to shift their investment to unsaturated markets such as Latin America, East Europe, and especially Asia, where there was significant room for growth in the exhibition infrastructure, a deep love of films, and a newly accomplished economic turnaround. In particular, Peter Dobson from WBIT remarked that China was

“just sitting there waiting for the taking (Ellingson 2000)."

“The taking” could take place in different ways, at different speeds, with some changes happening in a fairly proactive and aggressive manner while others would be accomplished in rather low-profile and round-about ways. Companies like UCI were mostly holding back in a “wait-and-see” mode. They knew the obstacles, including the lack of a steady supply of commercially viable films due to de facto quotas on foreign films imported per year, lackluster box office performance of the majority Chinese films, and government ruling set in 1996 that mandates two-thirds of screen time for domestic films.[26] UCI and companies with similar calculations were cautiously waiting for the right time before making a big investment in the market, a time when more of their films will be allowed into China, and cinema investments, especially in new multiplexes, would be safe and profitable. As Executive Vice President of UCI Jim Burk clearly remarked, availability of U.S. films there would be a major incentive for his company to explore business opportunities in China (Groves 2000, 7).

However, United Artists Theatres, another major cinema circuit from the U.S. now under the umbrella of Regal Entertainment Group, quietly and successfully extended its brand in China as early as 1997 when its subsidiary based in Hong Kong, United Artists Cinema Circuit (UACC), in which UA had 5% of equity investment, built China’s first multiplex of six screens in Wuhan, a major city in central China.[27] By the year 1999, when UA opened its six-screen multiplex in China’s largest film market, Shanghai, it already had four multiplexes in mainland China, and a total of over 100 in Singapore and the Greater China region, including Hong Kong and Taiwan (“Zhongguo”). This was one of the examples of Hollywood squeezing into the must-get Chinese market with creative tactics in the face of stringent policy restraints.

Yet all in all, in movie business in the pre-WTO period, the major studios could not really directly tear down the protection wall initially erected by the Chinese government. Therefore, it was only when the MPAA, in particular, Jack Valenti, and the U.S. government on their behalf successfully pushed for greater film market access in China in the Sino-U.S. bilateral WTO agreement that eventually China increasingly opened this market. As a matter of fact, had it not been for the support of the MPAA and the U.S. government from the very beginning, Hollywood would not have been able to re-enter China smoothly in the first place.

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