Hollywood's Blockbusters Go to War This June, Backed by Americans and Their Chinese Financiers

China and Hollywood are changing each other. As Chinese capital keeps flowing into the United States, Hollywood movies are no longer just an American affair — beyond carrying American culture and values, they now reflect Chinese ambition and desire.

If scholars who study Hollywood want to know what the industry will look like in the future, they should visit a Chinese movie theater in June. They may not find a precise answer, but they will find the outline of one.

This month, Hollywood blockbusters arrive on Chinese screens all at once. Counting late May and early July, seven of them open within six weeks, and more than half will open day-and-date with the United States or even ahead of it. Since 2012, the stretch of the Chinese calendar after mid-June has generally been treated as a "domestic film protection month," reserved for local releases. This year, June looks more like a "revenue-sharing film protection month."

"Revenue-sharing films": the phrase means this battlefield holds more than a scrum of Hollywood blockbusters. It also holds a contest among the Chinese financiers standing behind them.

STX president Bob Simonds believes the sheer size of the mainland film market sets China apart from Hollywood's earlier partners: "Back then, we were just taking money from the Japanese or the Germans, because we needed to offset risk." But, he said, "for the first time in history, a country outside the US has a massive domestic market of its own — and that's China. So China is going to become an important player in the world's film and television industry."

Take Warcraft. On the surface it is just a nostalgia-driven Hollywood blockbuster. But in February 2016, Wanda announced it was acquiring Legendary Entertainment, the studio behind Warcraft — news that thrilled fans on Weibo, many of whom cheered that "Wanda has taken Warcraft."

Is Warcraft a Chinese movie? Certainly not. But Wanda is not the only Chinese company behind it, nor was it the first to join the Warcraft project. When Tencent Pictures was founded, it announced it would co-invest in Warcraft with America's Legendary Entertainment, and Warcraft also appeared on Huayi Brothers' 2016 slate. China Film Co., Ltd., meanwhile, put tens of millions of dollars into both Seventh Son and Warcraft.

More to the point, Warcraft is not the only movie opening in June with Chinese money behind it.

Release dates for imported films around June 2016

May 27

Alice Through the Looking Glass

June 3

X-Men: Apocalypse

June 8

Warcraft

June 17

Finding Dory

June 24

Now You See Me 2

June 24

Independence Day: Resurgence

July 2

Teenage Mutant Ninja Turtles: Out of the Shadows

The Chinese market began booming after 2010, and after that the "co-production" became the main vehicle for Sino-US collaboration. A film that qualifies as an official co-production can claim the same 43% revenue share as a domestic Chinese film. In the scramble for those slots, an odd hybrid even appeared: the so-called "China-exclusive cut." But as China Media Capital chairman Li Ruigang put it, "the Chinese government has gotten smarter and smarter about defining what counts as a co-production, so if a film only has a small dash of Chinese elements, that's probably not going to work anymore."

None of June's blockbusters is a "co-production." Chinese capital is coming in by a simpler, more direct route.

Now You See Me 2 is produced by Lionsgate, with investment from Dianguang Media (Hunan TV & Broadcast Intermediary), a listed company owned by Hunan Broadcasting System. And it is not the only project the two have worked on together. In March last year, Dianguang Media and Lionsgate signed an agreement under which the listed company would invest in 50 Lionsgate films over the next three years, for a total of $1.5 billion, taking roughly a 25% stake in each.

"We don't know which of their movies will make money and which will lose money, so we just invest in all of them," said Dianguang Media vice president Liu Shabai.

That approach amounts to a kind of "portfolio investing": spread the money across enough films and the risk spreads with it. Bona did much the same thing with X-Men: Apocalypse and Independence Day: Resurgence. Last year, Bona Film Group announced at the Chinese American Film Festival that it would invest $235 million in TSG Entertainment Finance. TSG has a long-running partnership with Fox, and that $235 million will go toward the production of films including The Martian, Miss Peregrine's Home for Peculiar Children, Independence Day: Resurgence, X-Men: Apocalypse, and War for the Planet of the Apes.

Portfolio investing sits between buying equity and backing a single project. Dianguang Media once told Lionsgate it wanted to buy a stake in the studio. Before that, Wanda Group chairman Wang Jianlin had said publicly that he hoped to acquire Lionsgate, and Alibaba had also signaled interest in a merger or some other tie-up. Lionsgate never responded, and both Alibaba and Wanda moved on: Wanda bought Legendary Entertainment, while Alibaba went on investing in and producing individual projects. Now the two companies have fixed on the same target again: Paramount.

That Viacom CEO Philippe Dauman wants to sell Paramount is no longer news, and Wanda and Alibaba are both potential buyers. But becoming a shareholder in one of Hollywood's "Big Six" cannot be done overnight, so both have chosen to work with Paramount film by film instead.

Both invested in Teenage Mutant Ninja Turtles: Out of the Shadows. Wanda's investment runs through its wholly owned subsidiary, Muwei Fashion Group. Wanda acquired Muwei Fashion in July 2015; before that, the company had already invested in Teenage Mutant Ninja Turtles, Terminator Genisys, and Mission: Impossible – Rogue Nation. Last month, not long after Wanda announced its investment, Alibaba Pictures — which had worked with Paramount on Mission: Impossible – Rogue Nation — said it too would invest in Paramount's Teenage Mutant Ninja Turtles: Out of the Shadows. Both will take a share of box office as well as home video, merchandising, and other earnings, in proportion to what they put in.

For Hollywood, the money obviously matters. With outside financing, a studio can lock in its return before a film starts shooting and hand off some of the hidden risk. A man who works as a middleman in Hollywood once told QDaily that the Big Six are very good at making all the profit disappear at the distribution stage — that is the "Hollywood economics" they are so skilled at. Such economics lets the studios protect their own interests as far as possible.

But what Hollywood wants more is the Chinese market, and it wants Chinese help to get past that market's formidable barriers.

"Entering the Chinese market" means three things. First, a film has to clear censorship and secure a good "status." Second, once it is in, it needs a good release date. Third, it needs marketing to lock in screenings and draw an audience.

All of this takes public-relations work aimed at different targets: the government, China Film Group, theater chains, ordinary moviegoers. Although all of the Big Six have set up offices in China, an industry insider who asked not to be named told QDaily: "Essentially they just do supporting work — mostly, probably, to make coordination easier, helping China Film Group and Huaxia Film Distribution communicate and cooperate with the Hollywood studios." Under the current policy environment, they cannot build a complete production system inside China. So when a Hollywood film opens in the mainland, it usually finds a local company to handle the work.

In the North American market, marketing starts before shooting does, keeping a film in view through different tactics at different stages. That does not work in China. However much marketing you do, if the film is never brought into the country, all of it counts for nothing.

Even once a film is confirmed for release, there is no room to relax. Until the regulator sets a release date, promotion is tightly constrained. A campaign can generally put out only so many trailers and posters, and with no date confirmed, there is no way to know when to release them.

"The biggest difference between marketing a Hollywood film and a domestic one is that you have to react fast — sometimes there's less than a month between when a film is approved for import and when it opens," a marketing staffer at Shifang Entertainment told QDaily.

Since 2012, Shifang Entertainment has run the full marketing campaigns for Fox's films in the mainland, and it has always tried to do things a little differently. Someone inside the company said that while Fox controls the budget, "in practice China has more say over the actual plan — you have to adapt to local conditions, and that's exactly why you set up a Chinese company."

The old playbook — pitch stories to the media, localize a few trailers and posters into Chinese, buy some bus-stop ads, hold a premiere — no longer satisfies the market. A film now needs a marketing plan aimed precisely at different segments of the Chinese audience. For the coming Independence Day: Resurgence, for instance, Shifang Entertainment plans to "play the nostalgia card for people born in the 1970s and 80s, and the special-effects card for those born in the 90s and 2000s." Building different plans for different audiences, and carrying them out precisely on the ground, is something a foreign company would find very hard to do.

Beyond the agencies they hire, investors are also getting into the promotion themselves. Alibaba Pictures president Zhang Wei said the company "will contribute the knowledge, capabilities, and platforms it has built up to (marketing and distribution)."

"When we worked together on Mission: Impossible – Rogue Nation, Taobao Movie was still a business under the Alibaba Group, and we engaged deeply with it. Now Taobao Movie and Yulebao belong to Alibaba Pictures. We're a more integrated company, and these two films will draw on Taobao Movie's huge user base, built up over the years, and its strong engagement with fans. And it's not just those two platforms — we'll use all the resources across the Alibaba platform to push these two films forward. I think film marketing and distribution has many sides to it, like advance ticket sales. Merchandising is also a great driver of film promotion," Zhang Wei said.

Besides the warhammer towering over Sanlitun, Legendary's parent company Wanda has thrown itself into marketing Warcraft. A Wanda staffer working on the campaign said, "Warcraft is the biggest movie IP of the year, and it's one of the top-priority projects for Wanda Cinema Line. Now that Wanda has acquired Legendary, Wanda Cinema Line will put even more weight behind promoting Warcraft."

Still, even though Legendary is now a Wanda subsidiary, the studio insists that Warcraft is an authentic Hollywood blockbuster.

"The Warcraft project was under way long before Wanda acquired Legendary, and our production, marketing, and distribution all run independently," a Legendary staffer told QDaily. Chinese capital is indeed involved, but she stressed again that "none of the investors took part in the production in any way."

There is no denying, though, that Hollywood films are changing for the sake of the Chinese market.

Lionsgate put Chinese singer and actor Jay Chou in Now You See Me 2 and shot part of the film in Macau. Liu Shabai said this was not Dianguang Media's idea alone, but "something the two of us — Dianguang Media and Lionsgate — worked out together."

Chinese elements, or "Chinese gimmicks," have become an important way for Hollywood to draw Chinese audiences. In the previous film, X-Men: Days of Future Past, Fan Bingbing's Blink had only a small part but stood out in the fight scenes. And in Independence Day: Resurgence, a lunar defense line built by China is the last ring of Earth's defenses, with Chinese actress Angelababy as one of the pilots defending the planet.

Hollywood has always been careful about how it uses Chinese elements, though — its market, after all, is the whole world. For a long time, even when the capital controlling a Hollywood studio came from Japan, Canada, or Germany, Hollywood movies told mainly American stories and played mainly to American audiences, and conquered the world market from there. Now, because the Chinese market is so big, Hollywood may have to change.

East West Bank chairman and CEO Dominic Ng pointed out: "Right now Chinese filmmakers are all going to Hollywood to learn how to make movies that audiences around the world will love. At this stage that's a good strategy, but China's population is still growing, so China's box office will get much bigger in the future too. After 2015, a movie like The Mermaid could take in as much as $1 billion — so at that point, will Hollywood have to reinvent itself and learn from Chinese films?"

Hollywood is skilled at borrowing elements from every nation, but even in a grab-bag like Gods of Egypt, Kung Fu Panda, or Night at the Museum, the values and the storytelling underneath stay American.

Fox CEO Jim Gianopulos said: "Chinese friends are always telling me, 'China has this fable — you should get Cameron to make it into a film.' The problem now is, if you hand that fable to Hollywood, Hollywood will turn it into a fable for the whole world, and by the time it comes back to China, Chinese audiences might not even recognize it anymore."

But Dominic Ng said Americans have one question to think about: 20 years from now, will Chinese investors ask Hollywood to write stories about "Mulan" or "the Great Wall"? By then China will lead the world in both capital and market size. Will Hollywood still be able to say "no"?

Nobody knows what the world will look like in 20 years, so let's set that question aside. At least this June, the more immediate question for these Hollywood blockbusters is how to sell themselves for a good price — cram this many blockbusters into this short a window and every one of them feels the pressure.

There is precedent. In 2012, The Dark Knight Rises and The Amazing Spider-Man, which opened on the same day, each took in just over 300 million yuan, a poor showing even by 2012's box-office standards. Then came last November, dubbed "Fox month," when The Martian, Maze Runner: The Scorch Trials, and The Peanuts Movie all collided in the same window, with The Hunger Games: Mockingjay – Part 2 piling on as well; the four films' box office added together still did not match From Vegas to Macau II.

So a marketing war is already under way. With Wanda behind it, Warcraft is naturally making the most noise. On May 27, 12 days ahead of release, Wanda Cinema Line opened advance sales for Warcraft's midnight IMAX screenings. It even handed midnight audiences Alliance or Horde banners, letting them pick a side in advance.

Mtime, in which Wanda holds a 20% stake, held a merchandise launch on May 25, formally rolling out Warcraft goods, complete with a Warcraft-themed fashion show with izzue, a brand under Hong Kong's I.T Group.

On May 28, the global Warcraft exhibition opened at Taikoo Li Sanlitun in Beijing. It ran first in Chengdu last December, moved to Shanghai in February, and has now reached Beijing. As the release approaches, the crowds have grown. According to Legendary's marketing director, the exhibition has already drawn millions of visitors.

Curator Chen Lizhan is confident about its reach. He said one person flew from Germany to Chengdu just to see it: "I think the subject itself can travel to the whole world, because this is the only exhibition of its kind anywhere."

By comparison, X-Men: Apocalypse, which opens five days before Warcraft, has felt much fainter. Director Bryan Singer did come to China on May 18, along with Evan Peters and Sophie Turner, who play Quicksilver and Jean Grey, but without James McAvoy or Michael Fassbender the visiting lineup looked thin — and May 18, more than half a month before release, was not an especially good date either.

Now You See Me 2 and Teenage Mutant Ninja Turtles: Out of the Shadows are still some way off, so large-scale promotion has yet to start. Alibaba Pictures declined QDaily's interview request. Still, the first has Jay Chou and the second is one of Alibaba Pictures' most important films of the year, so neither Dianguang Media nor Alibaba Pictures is likely to be stingy about promotion.

So while this June looks on the surface like a contest among Hollywood blockbusters, once the films are shot and post-production is finished, in the Chinese market it all turns into a contest among Chinese capital. Each side will throw its own resources at marketing and distribution.

Wanda's edge is its theater chain, which lets it steer the market through screening schedules. Alibaba is better at online distribution, building buzz through Tao Piao Piao (Taobao Movie) and Yulebao, and even Sina Weibo. Fox handed its marketing to Shifang Entertainment, but Bona's own theaters presumably give it some advantages too. Dianguang Media, for its part, has Hunan Satellite TV behind it. The competition among these film companies takes a detour through Hollywood movies and comes right back to China.

But the fight over box office may be only the surface of it. What these companies really want is more of the film and television industry's resources, Hollywood's above all.

As we noted earlier, even though Lionsgate finally chose Dianguang Media, both Alibaba and Wanda had shown keen interest in this mid-size Hollywood studio. The next target is Paramount: ever since word got out that the storied studio might be sold, Alibaba and Wanda have been the names most often guessed as buyers.

Most intriguing of all may be what happened after Bona Film Group announced it would delist from Nasdaq: Alibaba Pictures joined the privatization, and now holds an 8.94% stake in Bona.

"The film industry in China is growing like bamboo shoots after spring rain, and the market potential of its 1.3 billion people seems inexhaustible… In American eyes, 1.3 billion Chinese are waiting for American banks' credit cards, iPods, iPhones, and Windows software — and they also seem to hear 1.3 billion pairs of hands bursting into thunderous applause for Hollywood movies."

That passage, describing Hollywood's longing for China, comes from Mainstream, published in 2010 by the Frenchman Frédéric Martel. But he did not foresee what is happening now in Hollywood and in China. As Chinese capital keeps arriving in Hollywood, Hollywood movies are no longer just an American affair. Beyond carrying American culture and values, they now reflect Chinese ambition and desire.

What Chinese companies value is no longer only a cut of the box office. With "IP" the hottest idea around, plenty of companies want to build an entertainment business of their own on top of one. But limited by their production and project-management capabilities, Chinese companies have yet to create a movie IP with nationwide pull — which makes riding along with Hollywood blockbusters a decent option instead.

Discussing the Paramount collaboration on Teenage Mutant Ninja Turtles: Out of the Shadows, Zhang Wei kept returning to "merchandising": Alibaba can supply a platform connecting consumers and merchants, Paramount supplies the IP, and together the two can make merchandising work.

As the collaboration deepens, how to export China's own content is the question Chinese cinema needs to take seriously.

On February 17, 2017, The Great Wall, directed by Zhang Yimou, opens in North America. Legendary Entertainment is financing it, and the cast includes Matt Damon and Andy Lau. Chinese filmmakers will try, inside Hollywood's system, to tell a story the whole world can accept — the first attempt at this kind of cross-cultural collaboration.

Whether or not it succeeds, one fact will not change: China and Hollywood are changing each other. At the box office that is already true. On May 30, nine days before release, Warcraft's midnight-screening presales had reached nearly 19 million yuan, putting it in reach of the 52-million-yuan midnight record set by Furious 7.

By Box Office Mojo's earlier projection, Warcraft may finish under $100 million in North America, which would make China its biggest market. China, the country Hollywood loves and hates at once, is about to be the "savior" of another Hollywood film.