DreamWorks Animation SKG Inc. is expected to disclose details this week about a planned production studio in Shanghai, a joint venture involving two Chinese government-backed media entities, according to people familiar with the matter.
An announcement of the venture is planned for during a visit to Los Angeles by China's presumptive next leader, Vice President Xi Jinping, as part of this week's high-profile U.S. tour. Mr. Xi may attend a ceremony marking the studio deal, a person familiar with the matter said. The announcement could take place even if Mr. Xi doesn't attend, this person said, adding that the announcement could still be canceled for other reasons.
DreamWorks Animation, based in Glendale, Calif., declined to comment.
The potential partnership, and Mr. Xi's visit, comes as U.S. trade officials are seeking to resolve a dispute over movies that has essentially been at a stalemate since 2009, when the World Trade Organization sided with the U.S. in ruling that China should open its market to foreign films.
The ruling sought to lift a requirement that foreign movies be sold through a government-run monopoly, which allows only around 20 foreign movies a year to be distributed in China, with box-office revenue split between a state-owned distributor and the producer. Additional films may be exhibited under financial terms less favorable to foreign producers.
The U.S. has argued that controls discriminate against foreign films, limit revenues for the foreign film industry and fuel piracy. U.S. studio representatives have pushed China to increase the number of foreign films it lets in the country.
"Kung Fu Panda 2" was the No. 2 grossing movie in China in 2011.
.China missed a deadline to comply with World Trade Organization rules in March 2011. Few industry insiders expect China to directly address WTO violations by allowing foreign studios to distribute directly through cinemas.
Films that foreign studios develop with local partners aren't subject to China's quota, however. By linking with local partners, DreamWorks Animation would be following a path taken by other Western studios, which have been recruiting local business partners on both individual films and broader production initiatives.
The DreamWorks Animation studio will tap as partners Shanghai Media Group, one of China's largest television broadcasters, and China Media Capital, according to one of the people familiar with the situation. DreamWorks' Chinese partners were identified earlier in a report by the Financial Times.
Negotiations on the film dispute have been an uphill struggle for the U.S., which has had very little bargaining power with China.
"The U.S. doesn't have the will to do anything to retaliate," said Stanley Rosen, an expert on Chinese films and a professor of political science at the University of Southern California. "Hollywood still thinks China is the only real expanding market in the world and doesn't want to lose out if and when China opens up."
China's government, meanwhile, has been eager for its homegrown studios to learn from Hollywood's know-how so that it can make big productions and export the country's culture overseas. It launched earlier this month China Mainstream Media National Film Capital Hollywood Inc., a first-ever government backed film fund in the U.S. market to finance and U.S.-China co-productions.
A spokeswoman for the U.S. Trade Representative's office, Carol Guthrie, said that the U.S. "continues to seek to address compliance issues in a way that achieves real and meaningful commercial goals such as getting more market access for U.S. films in China on commercial terms."
The Motion Picture Association of America, the trade group that represents Hollywood film studios, declined to comment.
China has been loath to change its film regulations as it looks to protect its domestic industry. The number of locally produced films shot up 50% in 2011 from a year earlier, to 791, according to media research firm EntGroup Inc. But Hollywood movies still dominate China's box offices. Five of the 10 top-grossing films in China in 2011 were U.S. productions.
Dan Mintz, chief executive of DMG Entertainment, a 19-year-old movie studio headquartered in Beijing with offices in Hollywood, said the DreamWorks venture could help spur the Chinese market.
"This is good for everyone," he said.
The DreamWorks Animation facility would produce animated films specifically for China, where the company's "Kung Fu Panda 2" earned about $93 million dollars last summer.
The nation's box-office revenue in 2011 climbed to about 13.1 billion yuan, or nearly $2.1 billion, up 28.8% from the 2010 level, according to the State Administration of Radio, Film and Television.