Overheated China: Hollywood, the S.E.C., and Chinese Film

According to a New York Times article by Edward Wyatt, Michael Cieply, and Brooke Barnes, the Securities and Exchange Commission is looking into whether or not, in the mad dash for Hollywood to capitalize on China’s developing production infrastructure and vast box office potential, American studio may have paid off Chinese officials to secure footing in the Chinese film industry.

The Times reports:

The inquiry creates a potential roadblock for the industry’s plans to expand in one of the world’s largest markets.

The S.E.C. investigation has so far focused on at least three studios, the person said, but all of the largest and some smaller studios have been contacted or made aware of the inquiry, according to the person, who has direct knowledge of the investigation but who spoke on the condition of anonymity because the matter could end up in court.

The industry territory Hollywood seeks to annex has produced several co-productions in recent years, but government regulations, as well some considerable differences in the way the American and Chinese film business is conducted, have stymied some Hollywood efforts to expand into China.

Hollywood has been trying to get more films into the Chinese market for decades, but efforts have picked up in recent years in large part because China has identified cinema as a growth priority. China is racing to build more modern theaters to entertain an expanding, cinema-loving middle class. The country is also escalating local film production, partly as a way to spread its culture across the globe…

Ticket revenue in China is expected to reach $5 billion by 2015, up from $2.1 billion last year, according to box office tracking companies.

Hollywood is facing a slowing movie market at home. Last year, attendance in North America dropped to its lowest level since 1993. Studios, contending with a dying DVD business, are more reliant than ever on showings in theaters and see China as a major antidote to their various economic problems.

While the S.E.C.’s investigation remains inconclusive, the race for Hollywood to take advantage of Chinese resources and audiences remains a hot topic–perhaps too hot in some ways. It seems now, though, that the investigation may join the navigation of a government censorship and uniquely Chinese business practices such as the guanxi network in blocking some of Hollywood’s plans. The Times reports also on possible diversions that Hollywood may be seeking as alternatives to the “overheated” Chinese market:

In an interview earlier this month, Peter A. Chernin, the chief executive of the Chernin Group, a media company that joined in producing “Rise of the Planet of the Apes” for Fox, said he was more inclined to deploy his own company’s next investments in India or Indonesia. The chase for media investments in China had become “overheated,” he said, and heavy regulation has made China less attractive to him than other Asian markets.

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