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Who Benefits from the Chinese invasion of Hollywood?

Wang Jianlin

Wang Jianlin

There was little surprise when Dalian Wanda Group announced last week that it was in talks to buy the Hollywood-based Dick Clark production (DCP), the prolific company behind live television events such as The American Music Awards, The Billboard Music Awards, New Year’s Rockin Eve, So You Think You Can Dance and the Golden Globe awards. After all, the group’s boss and the richest man in China, Wang Jianlin, had promised recently to close at least two $1 billion Hollywood deals by the end of the year.

But what did send industry observers scratching their heads was paying $1 billion dollars for a company that was sold only 4 years ago for $370 million, a price that was also considered above to the studio’s real value. At the time the buyer, Guggenheim Group, saw promise in the investment at a time when live TV events was considered particularly lucrative and DVR-proof because DVR and streaming were becoming more and more popular.

DCP’s TV shows ratings, however, have been declining recently. This year’s Golden Globes rating dropped 4% from 2015’s show; 2016’s Billboard Music Awards fell 14% in viewership from previous year, and the 2015 American Music Awards saw an 8% rating drop from 2014. These figures are a testament to change in the TV landscape, which is relying less on live TV and special event ratings and more on innovative content. So buying DCP doesn’t seem to make much business sense.

Some analysts suggested that Wang was not concerned about the business fundamentals of the studio or its short-term profits, and he is merely interested in solidifying his global status and gaining credibility in Hollywood.

That was exactly what they said in 2012 when he paid $800 million dollar for North America’s second-largest cinema chain, AMC entertainment, which was financially struggling and had little prospect of growth in the saturated US box office. At the time, The deal marked the largest-ever buyout of a U.S. company by a Chinese firm.

But within 18 months Wang turned the company into a profitable one, more than doubling his own investment to $1.7 billion, by reforming it and expanding in China and beyond.

Evidently, Wang throws big money around only when he senses a big profit. This is something that he has recently confirmed in a CNN interview, in which he stated that he was gradually exiting the precarious Chinese real estate market and pouring his company resources into entertainment because he sees potential for growth in that area.

With AMC, his own Chinese Wanda theatres chain and his recent acquisition of a smaller American theatre operator, Carmike, Wang has cemented his company’s position as the world’s biggest movie exhibitor.  But he needed content to feed the giant he has created, and for that he turned his eyes to Hollywood and its producing studios.

Earlier this year, Wang rattled industry observers, when he paid $3.5 billion for a small Hollywood studio, Legendary Entertainment, a company that had co-produced Hollywood blockbusters such as Godzilla, The Dark Knight and Warcraft with Warner Bros and Universal Pictures, using intellectual property they own. In comparison, Disney paid $4.1 billion for Lucas Films, which owns the mighty Star Wars franchise, and $4 billion for Marvel, which made the highest grossing franchise of all times including the Hulk, Thor and Captain America.

In less than a year, Wang has already benefited from the deal. Legendary has just shot its latest blockbuster, Yimou Zhang’s The Great Wall, in his Wanda studio in Qingdao. But he needs bigger producing studios to feed his entertainment empire with content, and hence he set his eyes on one of Hollywood’s big six studios: Sony Pictures, Paramount Pictures, 20th Century Fox, Universal Pictures, Warner Brothers and Walt Disney.

His plans, however, have been facing hiccups. This Summer, his attempt to buy 49% of Paramount pictures failed, and a couple of weeks ago he had to contend with a partnership deal with Sony Pictures on various tentpole films, such as the upcoming Jumanji and Smurfs, in exchange for promoting the films in China. This again poses the question of how does the purchase of DCP, which doesn’t produce films, will help him in his endeavour to provide content to his different platforms?

Furthermore, DCP will not grant Wanda any influence on awards, particularly on its crown jewel, the Golden Globes, the second most important film awards in Hollywood. The Golden Globes are fully owned by the Hollywood Foreign press Association (HFPA), which is made of about 90 international entertainment journalists, and voted for by its members. DCP’s only job is producing the annual show on January until 2018, when its contract with the HFPA expires.

A visionary businessman like Wang, though, must be looking at bigger picture. A Golden Globes nomination or a win for a film or its talent has proven to markedly boost its box office intake and enhance its chances of winning Academy Awards. Although Wanda will not have any influence on the awards themselves, as mentioned earlier, they will be able to extend their reach via their different platforms to a wider audience, particularly in China, and consequently increase box office figures in its theatres for the nominated and winning films, while in the meantime elevating the Golden Globes Awards show’s rating, which will ultimately generate more income for DCP. Wanda will be gaining on several fronts.

DCP purchase will also serve a different purpose for Wang. It’s a signal to Hollywood that he is serious about building an entertainment empire that will rival the likes of Disney, as he declared in press interviews. And that he is willing to pay the highest price in order to achieve his goal.

Wanda’s big ambitions, however, haven’t gone unnoticed. They have recently attracted the attention of America’s political elite. Last month, it was cited in a letter, signed by 16 members of Congress, which called for closer scrutiny of Chinese investment in the U.S. entertainment and media sectors and warned of growing concerns of Chinese efforts to exert propaganda controls on American media.

Hollywood itself doesn’t seem to share that sentiment. It has always sought out and welcomed investments from around the globe without serious political interference, and in recent years has been forming alliances with Chinese companies and making great efforts to tap into their market. The American political establishment, however, views Hollywood as more than just a business but also as a factory of ideas and an exporter of American culture and values, and hence the blowback every time a non-western entity tries to take over its assets.

Sony’s decision to buy Columbia Pictures in 1989 and Matsushita’s purchase of Universal in 1990 also triggered alarm about  Japanese companies’ designs on the media business. But if you visit either company’s headquarters, you will be hard pressed to see a Japanese face. Both studios have continued to be run by Americans and make American movies, like the rest of Hollywood.

With heightened emotions and fear-mongering rhetoric in the current US presidential and congressional elections, more pressure will probably be exerted on Wanda, by politicians, who are eager to please their delusional voters, who have been convinced that the Chinese are taking over America and seek to dictate to them what to watch.

The irony is that even before Wanda had shown up on America’s shores, Hollywood was rewriting its movies scripts and making creative compromises in order to conform to the Chinese authorities’ expectations and to the Chinese audience’s taste. It’s nearly impossible these days to find a Hollywood movie that depicts China negatively and it’s hard to find one that doesn’t have a good Chinese character. So there is not much left for Wanda to do in terms of asserting Chinese influence in Hollywood. The dynamic of economics has already done that.

The truth is that the biggest beneficiary from Wanda’s deals is Hollywood itself. Hollywood studios salivate over and are eager to enter the Chinese market, which is predicted to overtake its American counterpart by 2020 or earlier. By purchasing them, Wanda is handing them the keys to that coveted yet elusive treasure.

So far Wanda has not interfered in the management of its newly acquired American assets, and most likely will continue not to do so. They will probably want to just cash in on the profit they will make from satiating the Chinese audience’s hunger for American products.

Similarly, DCP’s purchase will not introduce a Chinese version of the Golden Globes Awards, which could contribute to promoting Chinese talent and films – such ideas have been dismissed by the HFPA. However, Wanda will probably make DCP’s award shows bigger and more profitable by introducing them to the celebrity-craving Chinese market. If that materializes, then the rest of Hollywood studios will be lining up to join Wanda’s empire.

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