Movie import restrictions ready for retirement

Successful partnerships, joint ventures make case for abolishing quotas

The mayor of Los Angeles called on Chinese leaders to ease their restrictions on imported movies during a visit to Beijing last week, seeking better access for a product that is one of the most lucrative US exports to China.

The fact is that China has already taken big steps over the last two years to open its movie theaters to overseas products, as both foreign and domestic producers chase a fast-growing market that is now the world's second largest behind only the US. At the same time, a growing number of foreign filmmakers are getting improved access to the market through co-investments with Chinese partners, including joint ventures and joint production agreements.

China should be lauded for its recent efforts to open its film market to more foreign products, marking a huge advance over just three decades ago when the sector was closed to all foreign products.

With China now home to a vibrant domestic film-making community that can both compete and cooperate with foreign counterparts, the central government should consider taking the next step in its opening process. That would see China completely open the market to all foreign films that comply with its content requirements, demonstrating the country's commitment to fair trade and welcoming of competition that will improve the industry for everyone.

During his trip to China last week, Los Angeles Mayor Eric Garcetti noted the country's recent big strides in opening its entertainment market, a move that has produced an explosion of new tie-ups between Hollywood and local Chinese partners. He added that the growing ties should ease the government's concerns over any cultural threat posed by US films, and called the ongoing movement an integration of the world's two largest economies, both culturally and economically.

The big prize being eyed by everyone is China's booming box office, which is now the world's second largest after generating $3.6 billion last year, up 27 percent from 2012.

This new wave of cross-border investment began to take shape in 2012, when China lifted its quota for the importation of foreign films to 34 each year. Around the same time, authorities also approved two major film production joint ventures, one between DreamWorks Animation SKG Inc and some of China's biggest media companies including traditional media giant Shanghai Media Group (SMG)； and the other between Walt Disney Co and Internet powerhouse Tencent Holdings Ltd.

Because they are joint ventures with local partners, movies produced by both of these new tie-ups won't be subject to the import quota restrictions, even as they draw heavily on the expertise of their foreign partners. In addition to these major new ventures, the landscape has seen a growing number of tie-ups on individual movie production that may also be exempt from the quotas.

Internet entrepreneur Robin Li Yanhong, founder of leading online search site Baidu, made headlines in February this year, as he and a group of investors set up a Los Angeles-based animation studio to make movies aimed at the China market. Also this year, leading private equity firm Fosun International Ltd made news when it became a founding investor in a major new film production company being set up by a former top Warner Bros Entertainment Inc official.

The flow of co-production tie-ups has also moved in the opposite direction, with major foreign studios teaming with Chinese partners to make individual movies. Leading that charge was the latest Transformers movie, which was co-produced with two Chinese partners and achieved huge success at the local box office this summer by becoming the first ever movie to earn more than $300 million in China.

In October, media reported that Warner Bros itself was in talks for its own tie-up with SMG for a locally-based film production fund with around $100 million in capital.

This sudden explosion in tie-ups could mean the actual number of foreign-backed films in China each year could be well above the 34 movie limit when many of these co-productions start screening in the market over the next few years.

The growing number of cross-border tie-ups not only helps foreign companies to avoid the quotas, but is also often a preferred path by providing overseas filmmakers with strong local connections and market expertise. Such partnerships are likely to remain a favored choice for Hollywood in the years ahead, which should give the Chinese government the confidence to completely remove all import restrictions as the lines increasingly blur between purely foreign films and cross-border co-productions.