Hollywood says goodbye to the windfall of Chinese investments
In 2019, Tencent Holdings of China made a savvy call for future box office success by agreeing to co-finance Top Gun: Maverick with Skydance, a Hollywood studio.
Tencent had invested in Skydance a year earlier, one of dozens of deals between Chinese companies and Hollywood studios during the 2010s. But like much of China’s relationship with Hollywood itself, the potential of Tencent Superior gun profits have fallen victim to great power politics.
Tencent, the world’s largest video game group, pulled out of the investment after executives feared the Chinese Communist Party was unhappy with its support for a movie glorifying the US military. The move – despite being a smart domestic political move – cost Tencent a stake in the fifth-highest-grossing movie ever in the United States. Worldwide, Top Gun: Maverick has taken in over $1.4 billion at the box office since its May release, and it’s still playing in theaters.
Although he missed a cup Superior gun earnings, Tencent retains its minority stake in Skydance. It’s one of the few relationships that remains intact since the China-Hollywood boom of the 2010s, including Huayi’s investment in AGBO, the production company run by the Russo brothers – the team behind many of the most Marvel superhero hits.
For a time, China’s bold push into Hollywood seemed like a good deal for both parties. It offered studios the opportunity to tap into a vast, newly created middle class in China, where movie theaters were being built at breakneck speed. And Chinese companies, with cheap capital, were eager to learn the art of filmmaking and help their country develop its own version of soft power. In 2012, Chinese money began flowing into the US media and entertainment sector – about $2.7 billion, which represents 37% of China’s total foreign direct investment in the United States that year – there, according to Rhodium Group, a research company.
“There was a tsunami of capital and interest coming from China into Hollywood. The deal flow was prodigious,” recalls Stephen Saltzman, head of the international entertainment group at law firm Fieldfisher. “It was a huge windfall. for Hollywood.”
The peak came in 2016, when Chinese companies invested around $4.8 billion in US media and entertainment companies, according to Rhodium. Much of that money came from Dalian Wanda, a real estate and entertainment group that paid $3.5 billion for production company Legendary Entertainment. Other big deals include a $500 million investment by Perfect World in Universal movie slates and a partnership between Tencent’s rival Alibaba’s movie business and Steven Spielberg’s Amblin Partners, with Alibaba taking a stake minority and a seat on the board of directors.
Many Chinese companies stretched too far, however, drawing unwanted attention from Beijing. Perhaps most prominent was Dalian Wanda, who had already paid $2.6 billion for the AMC movie chain in 2012. Wang Jianlin, the chairman of Wanda, boldly declared that he wanted to buy one major Hollywood studios. (He tried to acquire Paramount but failed.)
Ultimately, he became a seller instead of a buyer, abandoning a prime real estate development site in Beverly Hills and dropping an offer to buy Dick Clark Productions for $1 billion. Last year, Wanda sold her stake in AMC and reduced her stake in Legendary.
The Chinese buying spree in Hollywood “spinned out of control and came to a screeching halt,” said Bennett Pozil, head of corporate banking at East-West Bank, who was an active trader during the period. He never really got over it, he adds.
“There were still low-key investments in the Trump years, but today they are virtually non-existent.”
Spending began to slow after Chinese regulators saw capital flight and introduced new “irrational” investment rules in 2017 that restricted spending in several sectors, including entertainment, says analyst Mark Witzke. senior at Rhodium. “This caused a significant drop in outward FDI in [the entertainment] industry and more broadly,” he says.
Witzke notes that Chinese investment in entertainment increased in 2020-21, but that was almost entirely due to Tencent buying large stakes in Universal Music Group. He adds that China’s tech crackdown makes it unclear whether the group will be as active overseas in the future. Recently, company officials said they were looking to trim Tencent’s investment portfolio.
Geopolitics has also had a paralyzing effect. Donald Trump’s harsh rhetoric and tariffs on Chinese goods after he was elected president of the United States in 2016 have heightened tensions between the two countries. Chinese President Xi Jinping has responded by shifting the country’s commercial focus from exports and trade to promoting a more self-sufficient economy, including its film industry.
“The soft power initiative has taken precedence over other priorities of the Xi administration — which include internal growth, less reliance on US-China relations, and a nationalist and Maoist outlook,” Saltzman said. “It’s about making sure the domestic Chinese public thinks the same way. He’s a nationalist [film] product that tends to prevail.
Pozil says Chinese officials reported that they learned everything they needed to know about Hollywood in 2017 after the release of wolf warrior 2 – a Rambostyle movie starring a Chinese super-soldier – which has grossed over $850 million. “It was the time when [China said] “We really don’t need you guys,” he said. “And that was also the theme of the movie, ‘We really don’t need you. We can do our own thing. That changed things.
In 2020, the Chinese box office surpassed that of North America for the first time, albeit at a time when US cinemas were largely closed due to Covid-19 restrictions. North America could rebound this year, as China operates under stricter containment measures. But most experts say the trend clearly favors China becoming the box office leader.
Hollywood films have always faced restrictions in China – whether it’s censoring or editing content, limiting the number of films allowed into the country during the peak summer months or limiting the percentage box office receipts they could claim. Still, studios hope their films will be released in China to boost box office receipts – and are often willing to make concessions to gain market access.
But now there are questions in Hollywood about opening up the Chinese market to foreign films once the country’s Covid lockdowns are lifted. Two recent hit films in the west, Doctor Strange in the Multiverse of Madness and Spider-Man: No Coming Home were blocked in China for obscure reasons. (It was reported that Chinese censors were opposed to an action scene in Spider Man which takes place on the Statue of Liberty.)
Saltzman thinks China will likely need Hollywood films when its Covid restrictions are relaxed, even if regulators continue to promote local films over imports.
“They’ll want to make sure the industry can thrive and theaters are full again,” he says. “It’s going to be very carefully orchestrated and calculated. And it will benefit the great [US] studios more than anyone else because it’s gonna be the big tent pole [films] that they consider politically safe.