Author: Brendan Davis, Instructor, Producing Department, New York Film Academy; Co-Founder, Kilin International
There is an old joke that goes something like this: “How do you make a million dollars in the film business? Okay: first, start with 10 million dollars….”
While the humor is hopefully obvious, the fundamental truth of the joke is that especially in the entertainment business, it takes money to make money. In recent years, one of the most promising directions for cash-squeezed Western producers to try and find that money has been from the exponentially-expanding market of China. Likewise, many top Chinese entertainment companies, producers, and executives have been working to extend their international influence by increasing their investments in Hollywood.
However, anyone in the West who looks at China as simply a source of equity without considering the bigger picture is doomed to failure, just as a Chinese producer—no matter how successful he or she is back home—who doesn’t understand the realities of working in Hollywood will find the process very frustrating if not impossible. Fortunately, though, there are various ways that international producers can productively work with China, including joint ventures, assisted productions, and international co-productions, which is what I will talk about here.
In film, a co-production is any project that has two or more partners agreeing to cooperate with each other to share the burdens of producing a movie. An international co-production is simply one in which the partners are based in different countries. And there is one other definition that is important to understand, which is the difference between an “official” versus an “unofficial” co-production; more about that in a minute.
First, a little background. Despite the eagerness of both sides to work together, due to the enormous cultural and market differences between China and the US the difficulty of the primary challenge of all business—to find common ground in order to make a deal that works for all parties—is increased exponentially. Overcoming this is much easier said than done, but it CAN be done. Since forming a China-focused production and consulting company with my Beijing-based partner in 2013, we have developed an active slate of projects that all have some relationship to the Chinese market.
Within the last year, we produced thirteen special episodes of a popular Chinese TV show here in Los Angeles. In the last ten months I’ve made three trips to China, and spent a total of two and a half months living and working there. This week I attended the US-China Film and TV International Expo at the L.A. Convention Center, where the key themes were “patience” and “perseverance”—and correctly so. I was also honored to speak on a panel called “The Evolution of Filmmaking in China,” so this is a topic near and dear to my heart. Despite this small track record, though, I know that my own knowledge of China just barely scratches the surface. I can verify, however, that acquiring familiarity with and knowledge of the country, the people, and the market—or working closely with someone who already has it—as well as having trusted partners on the ground, who speak the language and understand the social and business cultures, is an essential starting point for anyone hoping to successfully do business there as a Westerner.
Since this article can only serve as an introduction to the very complex US-China co-production topic, I will focus on what I think are some of the most fundamental things to consider as you begin or continue your own research.
To start, let’s get back to that distinction of “official” versus “unofficial” co-production, and talk about why that is so important. An “official” co-production is one that is being co-produced by production companies located in countries that have negotiated and signed an official co-production treaty between them. “Unofficial” co-productions are projects created between companies in countries that do NOT already have a relevant treaty in place.
International co-production treaties define mutually agreed-upon conditions and procedures for creating productions that share resources between the countries involved, providing an outline of the rights and responsibilities of each party in the process. This helps to standardize how productions can be jointly developed, financed, produced, and then distributed in each territory, while complying with the laws of both countries. On a practical level, co-production treaties help the cooperating companies/countries to work together more efficiently, with less risk of misunderstanding, which saves time and money. This encourages more co-productions to be created, which is ultimately the reason treaties of any kind exist: to facilitate agreement, which increases trade.
Unlike an official co-production produced under the terms of a recognized treaty, an unofficial co-production agreement has to be created from scratch. This can complicate the process and increase costs and risk. Issues like identifying import/export restrictions related to moving money, production equipment, and/or key personnel (writers, directors, stars, producers) across borders of two non-treaty countries have to be figured out on a case by case basis by the production teams and their lawyers. Finding that common ground I mentioned between the laws and trade regulations of two countries who have not officially agreed to cooperate on such matters can cost significant amounts of time and money, which can break a deal.
It may surprise you to learn that the US has no official co-production treaties in place, with China or any other country. The reasons why would require another article, but by definition, any US co-production is technically “unofficial.” This is not meant to imply that unofficial co-productions are bad; it just means that co-productions that are created without an internationally recognized treaty in place to guide and protect the parties involved makes them riskier than official co-productions if disputes arise.
China, on the other hand, has negotiated and signed filmmaking co-production treaties with many countries. This reflects an increasing interest in extending Chinese cultural awareness internationally, via so-called “soft power” initiatives, which is a stated top priority for China’s leadership. China’s President Xi has spoken extensively about the importance of people in China developing a “Chinese Dream,” which has been summarized as promoting respect for Chinese cultural history and traditions while looking towards their own place in an evolving future. Accordingly, Chinese co-productions are encouraged by the government not only to increase trade, but also to facilitate a greater understanding of and appreciation for Chinese culture around the world.
Of course, in spite of the increasingly connected world we live in, there are still very real cultural differences that affect what we watch and how we want to watch it. For a growing number of people in the US, the abundance of affordable big-screen TVs and high-speed Internet connections have made watching content at home a more attractive alternative than going out to a theater to watch a movie. In China, though, although there is also a huge market for watching content at home, and the technical means to do, the opposite is true….
Thanks to a rapidly expanding middle class, the theatrical movie-going experience in China is increasing at a phenomenal rate. New theater screens are being built in China at a rate of around ten per day, Chinese box office revenues are currently #2 only to the US, and are projected to become #1 by the year 2020. In terms of money, the revenue from theatrical distribution now accounts for about 90% of the total profit of movies in China; the remainder comes mostly from television sales. Unfortunately, due to piracy and other factors, home video and online markets contribute very little to the financial success of a film project, so in the Chinese market, theatrical success is the make-or-break goal.
An additional challenge is that before a film can screen in theaters, a film must obtain two clearances. The first is a permit from the censorship authorities. This is an approval from China’s ratings board which certifies that a film’s content isn’t offensive according to local standards. The second is an actual distribution license. The rationale behind the distribution license is to help protect the business prospects of local Chinese films by maintaining a certain level of Chinese cultural focus in their market, and this is where the true value of creating an official Chinese co-production becomes clear….
Unlike local Chinese productions, whose release potential is technically unrestricted, theatrical distribution licenses for foreign films in China are currently limited to a total of just 34 per year. This means that a small indie film vying for a foreign distribution license in China is competing against Hollywood studio films with huge marketing budgets and influence.
On the other hand, projects that can obtain official co-production status by being shot under a treaty, such as the one between China and India which was just announced, are particularly attractive to Chinese companies and investors, for this reason: once a project has been certificated as an official co-production, then it is considered to be a “local” film in BOTH markets. And since “local” films are NOT subject to the licensing restrictions placed on “imported” films, they can therefore be assured that as long as they can clear any censorship hurdles, they are allowed to be theatrically distributed in China, which is understandably a key requirement for film investors in that market.
I want to end with one last note of caution, and encouragement. Finding commonalty between US and Chinese business practices and cultural differences is more of an art than a science; if you attempt this you will find that translating the languages is the easy part. And for producers whose business model requires a clear-cut, straightforward roadmap for success, developing Chinese co-productions is not going to be a very comfortable process for you. But if you have a strong interest in learning about and building connections as well as business between cultures, and you want to be part of this particular version of the future, then it can be incredibly rewarding, and—like filmmaking in general—well worth the effort. Good luck.
Want to learn more about new opportunities available to enterprising producers? Click here to learn more about New York Film Academy’s Producing Conservatory Program.