Chinese movie audiences are growing. Its government wants better quality and more control of content. Dreamworks Animation wants funding and access to that market. So Chinese entities will invest in DWA and it will open a production facility in Shanghai. A match made somewhere south of heaven, but with pragmatic benefits for both parties.
That the visiting Chinese leadership heir-apparent will personally ink the deal is a sign of its significance. China is determined to evolve from a 'brawn' country which merely produces with cheap labor the designs of others to a 'brain' country which creates content, moves up the post-industrial service economic curve and thereby captures more profit.
The question that has analysts scratching their heads is why a savvy deal-maker like Jeffrey Katzenberg would risk the company's intellectual property with a partner so notoriously dismissive of others' IP rights. The thinking seems to be that with the Chinese government as partner and therefore interested in sharing the profits, they have an incentive to assure that competitors do not emerge as a result of pilfered content or Dreamworks-trained animators who then go to work for Chinese companies. They evidently believe it is a risk they can manage. The failure of other global companies' Chinese strategies which foundered after similar miscalculations are a concern, but DWA appears to think that the future premier, who is married to a famous Chinese singer, will want this to be a successful legacy that spurs further investment in China.
This is, after all, an industry that sells dreams. JL
Matthew Garrahan and Kathryn Hille report in the Financial Times:
Xi Jinping, China’s vice-president and heir-apparent, will endorse the growing ties between his country and Hollywood on Friday, when he is scheduled to unveil a joint venture between DreamWorks Animation (DWA) and two state-owned Chinese media groups.
Mr Xi, who is due to visit Los Angeles on the final leg of his US visit, is set to announce the tie-up between Shanghai Media Group, China Media Capital and DWA, the studio behind the popular Shrek and Kung Fu Panda films, according to several people familiar with the situation.
His itinerary could yet change, those people cautioned. But his participation in the most significant deal to involve a Hollywood studio in China underscores the mutually beneficial relationship that is evolving between media groups in the two countries.
Under the terms of the joint venture, the companies will construct a studio facility in Shanghai with the aim of developing film, television and live stage productions for the fast-growing Chinese media market. DWA declined to comment; SMG and CMC could not be reached for comment.
Hollywood studios have been eager to find ways into China’s fast-growing film market at a time when they are facing challenges on the domestic front: the decline of DVD sales, once the film industry’s most important revenue stream, and flat box-office takings.
But the film business is booming in China, where new cinemas are being added at a rate of about three screens a day, faster than in any other country. China is forecast to be the world’s biggest cinema market within the next decade and touched $2bn in box-office receipts in 2011, a near $400m increase on 2010.
At a White House press conference on Tuesday, Mr Xi, who is reportedly fond of Hollywood war films, said he looked forward to building a “co-operative partnership” with the US that was based on “mutual respect”. Mr Xi is expected to assume the Chinese presidency in 2013.
As one of America’s biggest export industries, US film and television are extremely popular in China. Yet US movie studios have faced onerous restrictions there over the films they can distribute due to China’s quota system, which puts a strict cap on the number of foreign-made movies that can be screened. Several companies, including Relativity Media and Legendary Entertainment, have set up Chinese operations, often with local partners as stakeholders, to bypass government restrictions on foreign movie productions.
DWA’s deal will see it partner some of China’s most powerful media entities. SMG is China’s second-largest broadcaster and one of the provincial government-owned broadcasters to experiment with reforms. It has restructured itself to develop more content and animation has been one focus.
CMC is a fund backed by SMG, state-owned China Development Bank and China Broadband Capital, an IT fund set up by Edward Tian, former head of a state-owned fixed-line telecoms carrier.
Established in early 2009, CMC is designed as a vehicle to help the Chinese media and entertainment industry internationalise and achieve more commercial success – through buy-outs and other investments both at home and abroad.
The fund, in the form of a private equity venture but with state shareholders, is part of Beijing’s broader attempt to use market forces to develop its media industry while retaining control over content. In 2010, it agreed to acquire a controlling stake in the mainland China channels and the Chinese film library of News Corp.
DWA is unrelated to DreamWorks, the live action and animation studio founded by Steven Spielberg, David Geffen and Jeffrey Katzenberg.
DWA was spun out of DreamWorks in 2004. Mr Katzenberg, one of Barack Obama’s biggest fundraisers, continues to run DWA as chief executive, but the two companies no longer have any formal relationship.
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