China's Vice President Xi to Unveil Landmark Hollywood Deal

2012/2/15 16:44:00 (Beijing Time)   Source:Financial Times    By:Matthew Garrahan & Kathrin Hille

Xi Jinping, China’s vice-president will endorse the growing ties between China and Hollywood on Friday, when he is scheduled to unveil a joint venture between DreamWorks Animation 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 lapped up 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 stake holders, to bypass government restrictions on foreign movie productions.

DWA’s deal will see it partner with 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 keeping in 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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