How China Turned Its Back on Hollywood

ERIC: Chris, what a joy it is to have you on this podcast. We were reminiscing almost too fast before we started. It is so good to see you. And as I was saying to Matt, as friends, we forget the deep experience, Chris, that you’ve had all over the world. Not just in making films in Hollywood but also, your time in China and what you’ve done or what you’re doing in the White House still, with the Chinese relationships. And it’s just really cool to reconnect with you. And I’m so happy you found the time to join us. You’re also shooting a film in North Carolina.

CHRIS: Yeah, which is a lot different from shooting over in China, that’s for sure! Everything seems to fall into place a little easier, even though it’s still movie-making.

ERIC: Matt, we really first got to meet each other in China. Chris was setting up a massive studio. Why don’t you tell us a little bit about that, Chris?

CHRIS: Yeah, well, none of it came through any sort of strategic, long-term plan. It sort of fell into place right around the writers’ strike of 2008 here in Hollywood. Because I had built a sort of boutique version of what I’d learned over a decade of working at the William Morris Agency, which is now Endeavor, representing writers, helping put financing together for film and television projects. And then, also producing a lot of the stuff that we were able to develop and get into the pipeline.

So, I started working with a Chinese company around the year 2000, helping put some of their R&D work in making English-language movies, which was very unique. And at the time, there wasn’t a lot of Chinese money coming into Hollywood. And as the relationship grew over time, they decided to buy the company that I had built. And then, suddenly, I was thrust into running all their business outside of China and helping them create collaborations with international partners outside of China.

And I sort of liken it to that old 1980s movie, Gung Ho with Michael Keaton. You know, it was suddenly like… holy cow! Never been to China. Didn’t know much about China. And then, suddenly, here I was, 39, trips going back and forth, and thrust into this sort of fish out of water reality that I lived for quite some time.

ERIC: And 2000, that’s where our paths started crossing because at that time with Variety, we were launching Variety China and working with SARFT, the government agency for content. That was really insightful. It was way too early, I think, for an American trade to be in China. But it was really beneficial for me, personally, to learn what was happening there. It was really, really interesting. I mean, so much as changed since then. But not a lot, actually.

ERIC: I think foreign films–not Hollywood films, foreign films, make up still around 20-21% of the Chinese box office.

CHRIS: Look, I'm not here to disagree with you-

ERIC: Sure you are, Chris. I love it.

CHRIS: You and I see eye to eye on most things. But I will tell you, when we got into the entertainment business, in terms of collaborating, to get movies into China that normally wouldn’t get in there and helping movies that would get in to amplify their returns circa 2012, 2013… I mean, we saw weekends where movies from the U.S. were generating 80 cents of every dollar that was made at theaters.

We had many years where it was 50% plus, to the point where Beijing tried to implement different tax policies so that theaters that were generating more than half of their income from international titles were actually extra-taxed on those titles and that income. To the point where they were starting to skim money off of U.S. productions that were in the teaters, generating ticket sales and putting [it] towards titles that weren’t actually getting anybody in the seats.

Cut to 2019. The last Avengers movie did almost $750 million in China alone. Cut to today. The last Marvel movie has been out 21 days and it’s made a whopping $15 million. I mean, we made $20 million opening day with Iron Man 3 back in 2013. So, you’re literally seeing a market that was well over 50% from international, mostly Hollywood titles for most of 2010 through 2019. Now, we’re probably at 10%, if we’re lucky. I would actually argue we’re probably around 5% of that market.

ERIC: It’s fine, you know, you can correct me when I’m wrong, Chris. Why change a great tradition?

CHRIS: I think the theme of what you’re talking about is about the same. I follow these stats really closely.

ERIC: It’s eye-opening, actually, when you put it out there the way you did. What’s changed, Chris? What happened? What stopped this after 2019, in your opinion?

CHRIS: I think, first of all, the COVID phenomenon, obviously, accelerated everything that was going on anyway. But I can definitely say that our business was not unique to many other industries. I mean, China had the ultimate carrot that they dangled in front of us all. All industries, whether it’s automotive, whether it’s technology, whether it’s banking, whether it’s the entertainment business, sports business… You name it. They said: “Hey, look, we will let you have access to our market because we’re a very closed market. But we got 1.4 billion people that we want to give what they desire. And we think they would desire your product, your service. So, we’ll give you access to them. But there are certain caveats in order to get in.”

And a lot of that had to do with forced tax transfers. 51% ownership of anything that was happening on the ground over there.

For instance, Disney Shanghai Park is 51-57% owned by the Chinese government, and only 43% owned by Disney. Universal, even worse. They opened up their Beijing Park, and they only own 30% of it. 70% is owned by China. And guess who paid for it? Universal, out of the U.S. So, they forced tech transfers, they forced process theft to the point where in order to get, say, Looper into that market or Iron Man 3, we had to shoot over there. But not only did we have to shoot over there. We had to utilize their very undertrained crews and have them be mentored by our best-in-class people.

So, we taught them how to create–the best-in-class craftsmen expertise, etc.–to build their own domestic industry. And the goal for Beijing–which obviously, we look back at and go, “God, why didn’t we notice that when it was happening”–was essentially, “hey, we’ll let you sell your fish in our market.” But in order to do that, we were forced to teach them how to fish, to catch their own fish. And now, they catch their own fish, and they’re making their best content that caters directly to their 1.4 billion people.

Perfect example, Ne Zha 2, the sequel of that animation that did really well a couple of years ago. That’s now $2.2 billion just in China. One of the top-grossing movies of all time, globally. And it’s made all its money in China. It’s a China domestic production. It catered to the Chinese audiences and it catered to the Chinese audiences better than anything Hollywood has ever made.

ERIC: That’s phenomenal, amazing. You and I, years ago, had these discussions about that. I saw in the very early days that this was a paper tiger business model they were doing. And it really was to take on, learn and do exactly what they’re doing today.

I remember this fun story, which I won’t give too much details about. But there was a massive Chinese company that starts with an A. And I was helping another Hollywood company raise funds. And they were going to do this film. And I was speaking with this Chinese company and there were 25 people in the room taking notes. I was describing everything and I was there, really, to speak about online distribution. And the boss comes over–I think she’s still the boss–and says: “We want global distribution rights.” And I said: “For digital? Online?” “Everything, we want everything.”

And my response was: “Well, that’s fine. I don’t mind considering that. But you don’t even have a film distribution company.” And her response was, I think, classic at that moment in time. She said: “Yeah, but by the time you finish producing your film, we’ll have it.” And it was really remarkable. And that’s when I kind of shook my head and said: “Where’s the door? I’m out of here.” It just got to the point where I started finding it a bit frustrating to do work there, and to really enjoy it the way I had originally, in the early days of creating opportunities.

ERIC: All of that said, Chris, we have an administration throwing tariffs around like cotton candy. And recently, I know you were on the news speaking about it. I did a podcast on the tariffs. I really don’t want to get into the tariff conversation so much. But how can that be focused back to China?

I mean, I think the real issue for all industry is that China doesn’t play fair. Done. They don’t let our social media platforms go inside but we have TikTok, and so does everybody else. The film industry is just one of many. They don’t play fair. And at least, the only fair thing is they say: “We don’t play fair.” I mean, they recognize that. But what can this administration, in particular, because of their aggressive stance against so many trading businesses around the world, do to help Hollywood and, de facto, help the film industry worldwide break that market?

CHRIS: There’s a couple of different storylines in there. Number one is that the whole tariff policy is probably the most influential advisor in the Trump camp, Steve Bannon. Steve Bannon is, obviously, somebody who’s really pushing the populist narrative to bring back as much manufacturing to the United States of America as possible to help support a middle class that has been decimated by offshoring. So, if you look at this tariff idea around Hollywood, that is pretty much this massive cast net with no true nuanced micro-plan that is saying: “Hey, we’re going to try to bring back production to the United States of America. Tariffs are one way we’re going to do it.”

Now, tariffs in intellectual property and the way content is created around the world would be very difficult to apply. As you know, you have post-production going on in various areas. You got some parts of production going on overseas. You have various forms of content that need the production overseas because it tells a story of something happening in Rome or, you know, in Japan, or whatever it is. So, that’s difficult. But the tariff cast net is essentially there to say: “We’re going to create protectionist policies that are going to bring back production in the United States.”

Now, hopefully, instead of tariffing, which is punishing, he creates incentives, like a federal commission. Something, maybe, under the commerce secretary that allows this complementary effect of federal dollars, helping extra subsidization of production with individual states and various other entities that are trying to bring back production. If we bring back production, that brings back jobs, that helps our middle class, our craftsmen all have jobs, all that kind of stuff. So, that’s one thing.

The second thing is, when it comes to China, I don’t really know if anything we do in the entertainment space is really going to matter all that much. The tariff issue, in terms of pressuring China to rebalance the overall playing field of trade between the two superpowers, is crucial. When it comes to entertainment, though, we sort of did what they needed us to do. And now they don't need us because, remember: everything that we make here in the United States of America or part of the Western apparatus of making entertainment content is seen by Beijing as Western propaganda, whether it's TV or film, and it's supposed to be entertaining. It doesn't matter.

The aspirational qualities of democracy, things that are different than their system, is seen even in something that is sort of innocent, like a romantic comedy. It doesn’t need to be a pushed narrative of China bad, U.S. good, like the way we used to do with the Rusky movies and spy movies. The bottom line is, it does spread that aspirational quality of democracy in a propagandist fashion. Beijing know it’s soft power, whether it’s really subtle or not.

And the fact is, they used us to build their own domestic industry. So, what do they need us for? And 5% of their market is not selling a lot of theater seats. It’s not going to help their theater ecosystem stay alive with all the real estate development around it and all that kind of stuff. So, we sort of got used and now we’re cast to the curb. So, the only thing that’s going to save us is just making really good content that resonates with their audience.

ERIC: That’s phenomenal. For the listener who probably may be listening to this at seven in the evening or midnight, we’re doing this at 10 in the morning. And what a great conversation to have at 10 o’clock in the morning. You hit all the right buttons, Chris. I mean, you’re absolutely elegant in the way that you express the situation with China. In essence, it’s forget about it. Just make good films and what gets in gets in, and how much money we make, we make it, and it’s over.

ERIC: You’re so close to everything. I want to ask you, if you don’t mind, a pretty general question. There are so many rapid developments going on in the world. In the entertainment industry and film in particular. What are some of the concerning issues you have about filmmaking today and where it’s going? And this is Hollywood, but it’s something that you come back from South Carolina and you just kind of shake your head at. What are some of the burning issues that you want to look at?

CHRIS: Number one is, I would love to see the fact that we were the best in the world at making entertainment content continue to stay that way, regardless of what technology is used or AI or any of that kind of stuff. Let’s bring back a lot of that production and put people to work. Because we really did create this storytelling apparatus that is working around the world, and we need to protect that. Ok, that’s one thing.

The second thing is, I would like us to really pursue making great storytelling and entertainment content that is essentially not political. Because the best way to tell stories is just to entertain and create escapism for people. And that resonates around the world. So, I would like to see more of that, in order for us to generate more box office revenue around the world and also generate more consumer interest in the content that we make. It also bridges countries together, just by having good storytelling.

So, I’d like to see that now–bigger issues. I think, for instance, we talked about having Ruth Vitale on, who’s the head of Creative Future, part of an offshoot of the Motion Picture Association. And she’s out there really trying to ring the alarm bell about the protection of copyright issues that AI and that AI technology disruption are starting to threaten. I think that’s something that’s super crucial because if we have AI available to tap into anything that used to be copyright-protected, we’re going to have a lot of big issues in terms of creating a way to monetize really good storytelling, really good filmmakers, really good screenwriters and all the process and the hard work they put into their work. It’s going to be tough for them to monetize and actually create a living out of it. So, somehow, we’ve got to find a nice balance there.

On top of that, I do think tech disruption is going to create a lot of loss of jobs. But I think, at the same time, people need to look at it as true chaos breeds opportunity. And perhaps we can create storytelling at an even more elevated level at a cheaper cost basis that allows us to get out there more and actually generate better profitable returns. Maybe the returns won’t be as high on a revenue basis. But we’ll be better on a profitable basis, which would be really good for all of us in the industry at large.

ERIC: You’re brought up every subject that I’d love to talk about. A quick follow-up. I’d love to get Ruth on and talk about this because I think it’s vital. It goes against my nature, but in a previous podcast, I spoke about the regulation of AI and its limits. I have a growing concern. Just this morning and yesterday, reading more about the developments of humanized robotics and the level of unemployment this possibly could create, combined with everything else the tech industry is providing…

I’m wondering–and maybe next time we speak about it, we talk about the ethics of economics–is there a point of return where you have such a high level of unemployment that they’re not affording a $20 or $25 film ticket any longer? These are real questions, I think, down the road. But it does concern me, as much as I love it and want to embrace it–the technology in all industries. The fact that we have a growing global population, a growing unemployment, as well, worldwide.. I just see this getting somewhat darker of a conversation. I hope I’m wrong and I’d love to have a conversation about that.

ERIC: The other conversation that I would like to explore–getting us out of the darkness of unemployment–is how does Chris and how does Eric and some of our friends in the industry discuss with the federal government in creating a federal commission for film and really get the right things done in a way that would attract international film production. Encourage American production anywhere in the United States. You have a federal and then you have state production where, hopefully, you can get up to 60% of your budget covered–30 or 15, whatever. But incentive… The glass half full, rather than that glass half empty, which is the tariffs going on now. Chris, how do we get that ball rolling?

CHRIS: Well, the ball is rolling. But there is a macro issue that, I think, we need to tackle in that case. Look, news, pundits, journalists, people that write opinion for a living. They need to cover government, and cover policy, and cover politics better than they ever have or have failed to do recently.

ERIC: Question a press release, basically.

CHRIS: Yes, exactly.

ERIC: Or read a press release and find out if those numbers are accurate.

CHRIS: Exactly. There’s a real reason for scrutiny and an industry that does that. But Hollywood, on the other hand, needs to start behaving a little more like a smart fiduciary for stakeholders and investors. Which means our job is to create good storytelling and great entertainment. And some of that can be politically-motivated content. That’s fine. But for the most part, our industry needs to stay out of the fray of politics and essentially making enemies of half of Washington, D.C. Because if we really want to get things done, we need to have bipartisan consensus, in order to push things through that help our industry.

So, declaring war while you’re in a rock concert on stage against one side or the other side, or in a movie, or at an award ceremony when you’re giving your acceptance speech, is not going to do us any good. And I don’t care what side of the aisle you’re on. We need to think about fiduciaries. Being fiduciaries for the money investors give us, the stakeholders that we’re obligated to. To help them get returns on what we’re creating. And we need to foster the best environment possible to get support out of Washington, D.C., to support our industry. That is the bottom line.

The second thing I’d like to bring up is on the tech front, which you were talking about. And the robots and all that kind of stuff. I think one of the big questions–technology, Silicon Valley, and those behind tech need to ask themselves is whether they support a globalist outlook of ‘we’re about the world and we’re not about borders,’ or whether they’re pro-America. Because right now–I don’t know if they notice–we have borders. We have border policy.

There are things that have to be pro-American in the way we view the world. So, they need to think about whether they’re citizens of the world and they’re just going to move wherever they want or whatever. It’s all nice to be and everybody agrees with what they’re trying to create. This non-bordered type of technology that is going to decimate some places and help others or whatever it is. Or whether they’re going to be pro the country that has allowed them to thrive in the way they’ve done, the place they’re raising their kids, where their families are, their friends are.

In a way, we need to go back to that, “hey, we’re Chelsea and you’re Man United,” or whatever it is. We have rivalries, we have a lot of fun in those rivalries. We shake hands at the end of our games. But we are in a global competition as the United States of America. And people need to start stepping up and helping us maintain our leadership position.

ERIC: Wow. Chris, I’m kind of disappointed in you , really. I mean, you’ve got to start saying things that I disagree with because in the good old days, we would really have some fun, intelligent, non-partisan arguments. Boy, you’re absolutely correct.

At the end of every single show, I usually come up with a verdict and I don’t know what verdict I can come up with except this, Chris. My verdict is that we need Chris back on the show. We need your voice. I think we don’t just need your voice. We need mature, intelligent thoughts, whether you agree or you disagree. I think you and I are a great example.

There are so many issues that perhaps you and I over the years disagreed upon. And out of that came a friendship and respect. I think, number one, that's where we all have to get back to in our own countries, in our own states, in our own places. Let's agree to disagree. And I can guarantee you, if one has an open mind, you're always going to learn something.  By the way, changing one's mind is not a sin. It's called maturity. It's called intelligence. It's called progression. Going forward.

I think I'd love to have more of these conversations with you, and I'm sure that we're going to find ways to sort of disagree, and you won't be shy about it, and neither will I. But I got to tell you, my verdict here is: more of this. More voice. I'd love to get Ruth Vitale here. I'd love to get others involved and discuss not just Hollywood, but the entertainment industry.

I always used to say, and I don't know if it's true, Chris, any longer… But I always used to say that the entertainment industry is the largest exporting business the United States has. It sells more entertainment products than it does wheat, bombs, guns, and anything else combined. And I absolutely agree. What a wonderful thing to be known for, storytelling, as a nation. A creative storytelling nation. So, with that said, my verdict is: let's have Chris Fenton back on the show, Matt, and continue these great conversations. Thanks so much, Chris. 

CHRIS: Sounds good, and I really enjoyed it. Thanks for having me, and great meeting you, Matt. And Eric, great to see you again.