Hollywood to Shanghai and Back Again….
If you’ve been reading the news lately you might notice China in the news more than often than not. It seems like every other day there is a major announcement concerning US China relations, visits from heads of state, new ventures, initiatives and trade agreements. Today China and major film studios are splashed on the front page of CNN and The Wall Street Journal.
Huge new developments in international entertainment have been hitting the wires, signaling massive market impacts for US and China media players. Dreamworks Animation Studios has launched a new studio operation to be based in Shanghai. This signals thousands of new jobs for American and Chinese workers, and creates deeply interdependent financial investments across the two countries. It will impact our balance of trade in significant ways, as labor and products flow more openly into China, that were previously unwelcome. Dreamworks has been using animators based in China for many years. As an Editorial Supervisor on Shrek 2, I received animation files from Chinese animation teams on a weekly basis. Dreamworks has never publicly advertised its Chinese operations. Yesterday it made a major announcement signaling its pride in its investment in both PR and animation operations, at home in China.
From the Los Angeles Times Feb 17, 2012:
DreamWorks Animation on Friday announced plans to build a studio in Shanghai, in what the Glendale-based company billed as a landmark agreement with two state-owned Chinese media companies.
The creator of the “Shrek” movies said it was forming Oriental DreamWorks, a joint venture with China Media Capital and Shanghai Media Group in concert with Shanghai Alliance Investment — an investment arm of the Shanghai municipal government — to establish a family entertainment company in China.
With an initial investment of $330 million, the Shanghai studio would develop original Chinese animated and live-action movies, TV shows and other entertainment catering to the China market. The deal was among several business ventures announced in downtown Los Angeles during an economic forum attended by visiting Chinese Vice President Xi Jinping, who is widely expected to be the country’s next leader.
“We share the same vision with DreamWorks Animation to build a world-class family entertainment company,” Ruigang Li, chairman of China Media Capital said in a statem
ent. “Oriental DreamWorks will be a unique position to create high-quality content and interactive entertainment products for China and international markets.”
Later on yesterday, more news hit the wires as a broad based, major trade agreement was reached between the US and China.
The Wall Street Journal, Feb 18, 2012
China and the U.S. reached a deal that would make it easier and more profitable for Hollywood studios to show their films in China, a development that Vice President Joe Biden said would “significantly increase” access for American-made films.
The agreement represents an effort to resolve a standoff that dates to 2009, when the World Trade Organization ruled that China’s policy of allowing 20 foreign films a year to be shown there violated international trade rules.
Getting more films into the rapidly growing Chinese market has long been a top priority of American movie companies, which have had little leverage to persuade Beijing to allow more foreign films to be shown. The limits help China protect its own nascent film industry.
As part of the agreement announced late Friday night, China will allow in an additional 14 movies a year, as long as they are exhibited in 3-D or the jumbo-sized Imax format, according to a spokesman for the Motion Picture Association of America, the major studios’ trade group. Normal-format prints of those additional movies can be shown without counting toward the 20-film cap, the spokesman added. The new agreement leaves the quota itself unchanged.
Additionally, the spokesman said, studios whose movies play in China will collect roughly 25% of the box-office proceeds, after costs, up from the current 13.5% to 17.5%. Chinese distributors retain the rest of the proceeds. In the U.S., box proceeds are split roughly evenly between exhibitors and studios
What is the expected impact of these recent developments? 
As manufactured product exports dwindle in the US, tipping our NX/balance of trade into the negative year after year, the government has turned to Hollywood to supply part of its NX rescue package. America has always exported its culture, through radio, magazines, television, film and the internet. Technology based entertainment is one of our strong suits and America dominates in the global market. For many years America has influenced style, education, politics and ethics across the globe by exporting its media culture. Many feel that the export of American culture is as insidious as any foreign takeover and occupation operation. However, in recent years, America has watched China’s spectacular rise to economic power with a growing sense of fear and alarm. It’s no wonder that the government seeks to penetrate the Chinese media marketplace further, to both influence Chinese culture, and recoup some of its loss of balance of trade.
The film and digital media/animation/film industry continues to grow year after year. It survived the dot com boom and bust. Animation continues to pull ahead of other sectors of the market. The American craving for distraction, short term cognitive rewards, diversion and entertainment content is evergreen. The public has an insatiable appetite for stories and media consumption. Growth rates are far above most industry sectors.
The global animation and gaming market is expected to grow from $122.20 billion in 2010 to $242.93 billion by 2016. This represents a compound annual growth rate (CAGR) of 12.94% from 2011 to 2016.
Source: HotMarkets.com
With growth rates like these, it makes sense to invest in expanding market sectors centered around entertainment, and to drive those sectors deep into the Chinese marketplace.
Not everyone will welcome American film and 3D digital animation in China. As a long time worker in the field, I have strong conflicting feelings about the value of digitally animated images, and well substantiated concerns about the impact of animation on the developing cognitive functions of children. (No, my daughter did not watch Pixar cartoons.) However, people all over the world love animated stories. Stories tell us about ourselves, safeguard our values and reinforce our culture. Internationally told stories can free the spirit and inspire. What will be the impact of this venture into China by the American digitally animated film industry? A few things seem certain. As a First Entry Market Maker in China, Dreamworks has captured the flag. And, it looks like the American government has some ideas that the Hollywood dream machine just might have the NX fix it needs, in the short term at least, until the lights in the theatre come up and we evaluate how the larger Chinese marketplace has responded to this investment (incursion) of American style entertainment. I know I will be watching how this goes down, with my eyes glued to the big screen.
