Hidden Dangers In China’s Big Bucks Buy Into Hollywood
China’s richest man will soon have the most U.S. movie theaters, a major production company and possibly a studio – but his billions in investment are likely to come with unforeseen consequences for show biz and world culture
Waves of investment money have washed over Hollywood in past years from Japan, France, Germany, Russia, Wall Street, Silicon Valley, shopping center developers, dentists and others, but none has come with the kind of invisible strings that lurk behind the flurry of deals making China a significant player in global show business.
This is all part of a well thought out plan by the Chinese government and China’s richest man, Wang Jianlin, and his Dalian Wanda Group, to create a global media, entertainment and hospitality empire designed to break what Chinese leaders have called, "the Western media monopoly."
"American movie companies have the commanding heights of the movie industry in the world," said Wang (Chinese put surname first) in January at a signing ceremony marking the closing a $3.2 billion deal to acquire prolific Hollywood producer Legendary Entertainment, adding that acquiring a studio will "change this situation."
It isn’t just a studio Wang and the Chinese are after but a dominant position in the creation and distribution of content worldwide.
The latest deal will make Dalian Wanda owner of the largest American movie theater circuit. It is already the largest operator of theaters in China - the world’s largest and fastest growing movie market (up 35 percent last year alone). The company has also been eyeing a move into European exhibition and on Feb. 26 announced a $3.8 billion real estate development in Paris, the Europa City Complex.
WITH AMC AND CARMIKE 2 + 4 = NUMBER ONE
Dalian Wanda’s position atop the American movie theater market will be achieved with the merger of the number two U.S. theater circuit AMC, which Wang bought in 2010 for $2.6 billion, with the fourth largest circuit, Carmike, in a $1.1 billion deal expected to close later this year.
That will be added to a growing entertainment conglomerate, which included the purchase last year of Legendary, whose movie credits include the Batman movie Dark Knight, Godzilla and Jurassic World, among others.
Wang has a personal fortune estimated by the Bloomberg Billionaire Index at $31 billion (down a bit last year because of the turmoil in the Chinese stock market). On March 1, Forbes put Wang at number 18 with $28.7 billion, the highest ranking on the list ever for a mainland Chinese.
However, he is not alone in his pursuit of a Hollywood dream factory. More than a dozen Chinese investors have jumped into deals to invest or partner with major show biz players in recent years - but all of those take a back seat to what Wang envisions.
Start with his Dalian Wanda bankroll of over $20 billon to make deals in entertainment, hotels and other leisure activities.
Wang’s company is the largest commercial property developer in China, which means he has nearly unlimited resources to back his carefully calculated plan to create a global media and entertainment brand as recognizable as Apple, Microsoft or Google.
Wang’s road to being among the richest in the world began in a retirement home (where his parents were employed) in Sichuan province. His father had been on The Long March with Mao Zedong, when Red China was born.
Wang was the oldest of five brothers. He joined the People's Liberation Army to get regular meals and survived great hardship. He planned a career in the military until he was “decommissioned” along with thousands of others in an Army cutback.
When he returned home, his father had become a Communist party senior official and was able to help his son. When China switched to a market economy, young Wang got a job with the local government in the city of Dailan, but it bored him.
Instead he went to work for He got a property developer as China headed for a boom period. He soon made friends in the local government, and was promoted in less than two years to a high position because of his ability to complete projects rapidly.
He became known for building shopping centers in 71 cities that played to the new Chinese middle class, just as they had money for designer brands, restaurants, and cinemas. With help from Chinese banks, he was known for moving quickly when he found a bargain.
He runs his company like he is still in the military. "In our company if I make a decision and you do not carry it out immediately, “ Wang has been reported to have said, “you need to pay a fine. The basic principle is I command and my employees carry it out immediately.”
His empire has grown and he became one of the first Chinese executives to fly his own executive jet. It is now taking him global.
Wang plans to finance and capitalize on his expansive plans by doing an IPO public stock offering in the U.S. before long and probably in China as well despite the turbulent markets there.
BIG BROTHER IS ALIVE AND WATCHING
While it is a private company, Dalian Wanda operates with cooperation from and the tacit approval of the Chinese government. That is why despite his insistence he is “not political,” Wang’s big moves will almost certainly put a Chinese imprint on a chunk of global culture.
"China is a government-oriented economy,” Wang said in 2013 at the World Economic Forum in Dalian. “No one can say he can run his business entirely without government connections. Anybody who says that he or she can do things alone with any connection with the government in China is a hypocrite.”
His next target may be acquisition of one of the half dozen major American movie studios. The immediate opportunity is to take a minority position in historic Paramount Pictures after owner Viacom recently hung a for sale sign on it.
Wang reportedly kicked the tires last year on Lionsgate, DreamWorks and MGM, but none of those deals happened, apparently over the price and terms.
That’s right, the price. Wang may seem to have stars in his eyes but he is still a steely-eyed self-made businessman. For instance, he is said to have walked away from deals for European theaters last year over price.
Dalian Wanda is likely to face some of the same kind of problems and corporate culture shock that cost Japanese companies which invested in Hollywood in the 1980’s and suffered billions in losses, as the movie industry proved tricky to traverse.
So far Wang has been the one laughing. Only five years ago some critics were amazed at what he paid for AMC Theaters but it has since doubled in value.
"It's my dream," Wang told the Wall St. Journal in 2013."When I decided in 2005 to enter the film industry, opening theaters, 99 percent of our stakeholders were opposed, saying the investment wouldn't pay off. But I decided to chase my dream. Now look at this market."
BIG IS GOOD, BIGGEST IS BETTER
From the start, Wang was not thinking small. He has said he wants enough scale to give him powerful leverage in finance, negotiations, marketing and distribution. He wanted to make a global impact on the movie and TV businesses.
Wang said in 2013 that, "If Wanda can control more than 20 per cent of the world's three most important film markets – the United States, Europe and China – then it will have an empire with great voice in the industry."
So that is what China wants to do but what does it mean for those around the world who make, sell, buy and watch movies and TV. Here are some projections:
IT WILL LIMIT THE KIND OF MOVIES THAT ARE MADE – The Chinese operate one of the most draconian censorship operations in the world through the Communist party. They do not tolerate movies with a political point of view that differs from their totalitarian state positions.
When noted Chinese film director Zhang Yimou was asked why his films took place in the past, he said movie about contemporary China would be "neutered by the censors."
That is why Dalian Wanda can be expected to make big budget pictures noted for their action, adventure, special effects and fantasy aspects. These kind of movie are likely to feature super heroes, cartoons (or at least certain ones) and horror stories that will play well to a mass audience in the U.S. and China. The danger is that this will limit production of movies with meaningful but controversial stories; and could lead to boring movies eventually.
IT WILL CAUSE RUNAWAY PRODUCTION IN THE U.S., EUROPE AND ELSEWHERE – It is untrue that just by being bought by a Chinese company, all the movies will be able to get around rules that limit American all the companies to releasing just 34 movies annually in China.
The Chinese are not fools and have a clear agenda to build a domestic movie industry that will employ thousands of workers and produce content that Chinese government officials and censors find acceptable.
To meet the current requirements, a movie must not only be backed by Chinese investment but must also shoot at least one third of the production in China, and Chinese actors must have at least one third of the principal roles. The Chinese purchase of production companies, theaters and studio distributors will also lead to the transfer of America’s technical expertise. China is not only buying Hollywood companies but also the brainpower and tools to build a new generation of production plants and creative engines in China.
Daiwan Wanda is already investing about $1.8 billion to build the Qingdao Oriental Movie Metropolis, the world’s biggest movie studio (and surrounding tourism attractions) in Qingdao, a seaport in Eastern China with a population of over eight million 342 miles from Beijing. It will have 30 sound stages, a permanent New York street, the worlds largest outdoor water tank, a studio tour, retail and more.
The ambitious studio development was launched by Wang at an event attended by movie stars including John Travota, Leonardo DiCaprio and Nicole Kidman, among others.
That need to meet Chinese requirements will drive productions out of Hollywood and elsewhere and into China. That will be especially true of the highest budgeted shoots that can take advantage of lower costs and other subsidies. For most major movies, making it in China will be the only way to tap the world’s biggest but most restrictive movie market.
Leonardo DiCaprio in China for the opening of Wang's new studio
DON’T UNDERESTIMATE THE CHINESE CULTURAL IMPERATIVE – The huge investment in global entertainment is not just about business. It is also about building Chinese prestige and blunting criticism of censorship and controls placed on everything from TV shows to Internet sites in China.
The Chinese have been talking about increasing “soft” power – the use of culture, philanthropy, media to advance their views – since at least 2007. It accelerated after President Xi Jinping took office in 2011. At a major Chinese party gathering that year there was a whole program on issues surrounding culture. A post-event communiqué declared that the national goal to "build our country into a socialist cultural superpower."
In 2014, Xi called on China to increase its “soft power,” adding: "We should increase China’s soft power, give a good Chinese narrative, and better communicate China’s messages to the world."
“A major part of Beijing’s ‘going out’ strategy entails subsidizing the dramatic expansion of its media presence overseas,” wrote David Shambaugh, professor of political science at George Washington University in 2013, with the goal of establishing its own global media empire to break what it considers "the Western media monopoly."
“Beijing is learning that its image matters,” added Shambaugh. “For all its economic and military might, the country suffers from a severe shortage of soft power. According to global public opinion surveys, it enjoys a decidedly mixed international image. While China’s economic prowess impresses much of the world, its repressive political system and mercantilist business practices tarnish its reputation.”
What you an count on is that movies made by Chinese owned companies led by Wang’s Dalian Wanda Group will never tell the stories of repression and censorship in China or the importance of democracy around the world. But they will probably sell a lot of popcorn.