China's new regulatory czar Wang Taihua
Rupert Murdoch is always about to leave for China, it seems, and Sumner Redstone has just returned.
The test of executive chops nowadays isn't putting together multi-billion-dollar media mergers -- it's logging plane time: jetting to China, hopping from Beijing to Shanghai to Guangzhou, and dining on a whole fish with ministers in each city (the fish head directed at the highest-ranking individual).
Viacom chairman Redstone is treated like a rock star in China. News Corp. chairman Murdoch is planning to build a home in the center of Beijing just off Tiananmen Square.
Up and down Wall Street, talk of China, the 'next economic engine,' coats CEO presentations like plum sauce on moo-shoo. China is a big bone to throw investors as growth prospects for media and entertainment stocks dim Stateside.
But congloms also admit they're fretful that revenues trail great expectations and see signs that the Chinese regime is resistant to incursions of the West.
Of late, meetings with top bureaucrats have been harder to come by -- even for the Rupert Murdochs of the world -- and censorship is tightening, reminding Western companies that China has by no means signed on to the free-market economy.
Still, "The biggest deals I will do in my career, every young executive says, is in China, maybe India at some point," predicts Ed Cunningham, senior VP of Clear Channel Entertainment which recently pacted with Beijing Gehua Cultural Development Group for arenas and live entertainment.
Showbiz congloms are forging ahead, working variously in film and TV production, video distribution and exhibition.
News Corp. and Viacom own two of only four foreign-held channels available in Chinese households - STAR's entertainment net Starry Sky and MTV, respectively. Phoenix, a Hong Kong subsid of STAR, has a channel. So does Tom Group, also of Hong Kong. Time Warner is a minority investor in that net, called CETV. The conglom used to own it outright but opted to cut its losses and sell to Tom in 2003.
All other foreign nets are limited to three-star hotels and compounds.
Viacom's Nickelodeon is about to launch a co-production joint venture with Shanghai Media Group.
Sony has been successfully co-producing Chinese films for years, including "Crouching Tiger, Hidden Dragon" and "Kung Fu Hustle," through its Hong Kong-based Columbia Asia Film Production Ltd.
Sony's TV studio inked a production venture called Huaso with China Film Group and is developing TV movies and other programming.
Warner Bros. created Warner China Film with the China Film Group and Hengian Group in '04. It's in ventures with several partners to build movie theaters. And it inked a novel deal with China Audio Video to distribute and market videos.
Walt Disney's Hong Kong Disneyland bows in September.
NBC Universal is still "exploring its options."
For the most part, local partners are government entities, ventures are highly regulated, product heavily censored and profits slim to nil.
Execs are frank about the red ink but passionate that they can't afford
not to be in China.
Like early immigrants who believed the streets of America were paved with gold, the sheer size (population 1.3 billion, an estimated 180,000 hours of weekly broadcast time across all TV platforms) and untapped cash-generating potential of the Chinese market has media companies lining up for months or years to get the necessary permits.
The expectation seems to be this: that a series of aligned interests will spark true reform over the next three to five years -- drivers being China's accession to the World Trade Organization two years ago and the 2008 summer Olympics in Beijing.
In a broader sense, the true emergence of a Chinese middle class will push change. There are 100 million households with annual income of $18,000 a year, leading to more spending on leisure, entertainment and consumer products.
The WTO supposedly opens China's market to a new group of foreign manufacturers each year. Media and entertainment, considered particularly sensitive sectors, are not among those listed, but many execs are convinced an inflow of foreign business will drive ad demand from both Chinese and foreign companies -- highlighting the need for a dynamic media industry with appealing content and basic market research.
Nielsen is in China but has to operate with a partner.
"The Chinese government is hesitant to let foreigners go knocking on people's doors and asking them all kinds of questions," notes one exec.
As for the Olympics, "You cannot imagine how important that is to them in every aspect of the government. All the central planning, legislation is seemingly driven with 2008 in mind," says Chris Stephens, a partner in Hong Kong law firm Coudert Bros., which works with foreign companies looking to do business in China.
It's been reported that China has earmarked some $35 billion in Olympic-related spending.
Separately, the government has promised to publish by year-end a revised set of media regulations, addressing issues like censorship and a movie ratings systems.
China has indicated it might be willing to raise the quota on imported films from the current 20 non-Asian pics it lets in each year for theatrical release. But the quota seems almost irrelevant just now since there are very few movie theaters in China and rampant piracy makes any and every film available on video -- dirt-cheap and uncensored.
According to one U.S. TV exec, China's TV imports are limited to 20 hours annually per broadcast network for live action. And a net can import an hour of animation for every hour it produces -- a reg meant to encourage and strengthen the local industry.
Last year was a landmark as the Chinese government first allowed foreign media companies direct equity participation in TV and film production joint ventures, resulting in a slew of deals and applications - resulting in pacts with Sony, Warner and Viacom.
Hollywood execs praise the progress in China and stand by their predictions of an ultimate opening up - even while they acknowledge an unsettling backpedaling of late.
In February, a new head arrived at the all-powerful SARFT - China's State Administration of Radio, Film and Television. Wang Taihua hasn't been taking meetings with media execs, in contrast with his more available predecessor.
Execs who travel and work in China were abuzz recently that Murdoch himself had been denied a solo audience on a trip to China last month.
"He's always had ready access to the minister. It's completely bizarre. Now there are all kinds of noises and gossip about closing the window to some extent," says one exec.
"People are wondering -- was the previous minister pushed out because of some of his relationship, because he was too much in bed with some of the western companies," he adds.
Meanwhile, few new foreign ventures have been approved.
The sense is, "Now Warner's in, Sony's in, Viacom's in - maybe we need to slow down. That's what's making everyone really nervous. There's a pileup of applications on the desk," says another exec.
"It's good for people already in. It protects them for a while," he adds.
One film studio exec says China's questioning motives. "They're not just interested in providing a cheaper place to shoot U.S. films," or to distribute them. "They say, 'What about distributing Chinese films in the rest of the world?' They ask, 'What's the purpose behind this?"
"After years of being on the outs, they wonder why we've fallen in love. Is it love, or is it self-interest? When they're suspicious, they move slowly," he adds.
Peter Loehr, a Beijing-based film producer and rep for CAA in China, says, "Last year was a great year. But as so often happens after a great year, there's a period of conservatism - which will be followed by another period of opening up."
Loehr's made six movies in China through his company Ming Productions. He's also a partner with China's Hengdian in Dragon Studios, production services outfit aimed at foreign companies who want to film in China.
Others figure the new minister is just getting up to speed.
Just about everyone who works in China says the 'one step forward, two steps back' approach is typical.
TV execs would like to ramp up production but need more clarity on censorship and broadcast regs.
"We spend an inordinate amount of time figuring out just what is permissible from a content point of view. The winds of permissibility change. When it takes 12 to 18 months from concept to production to broadcast, you want to be certain you have a viable product," says one exec.
About a year ago, he adds, SARFT banned all crime-related themes from broadcast in primetime, he adds. Some companies "had a lot of product anticipating the primetime berth. And Chinese partners are in the same boat. It's not just discrimination against foreigners."
Piracy's the other bugaboo.
Warner Bros. has been particularly aggressive in attacking both issues "holistically" - trying to undercut pirates by offering cheap - under $2 -- but legitimate video fare through retailers, as well as forming a new joint venture to build theaters.
Universal Studios is expected to formally join Warner in the video pact within the next week.
Currently there are about 1,188 movie theaters in China with 2,400 screens - compared with some 35,000 screens in the U.S. By the end of this year, Warner will have 120-130 screens, says Warner Bros. chairman-CEO Barry Meyer,
"We'll continue to build local capital there. The investment isn't that expensive right now. The potential is enormous," Meyer says.
A local partner is key - since local government is often receptive to homegrown businesses interests.
"There's nothing like a local Chinese company saying (to a government official) 'We've got empty seats in our multiplex.' "
Meyer would be thrilled if a growing demand for product boosts Chinese film production - since the Chinese government is more concerned about the ratio of local to foreign film than the absolute number.
"This is one of the only places in the world where we're trying an economic model to fight piracy, versus legal or law enforcement," Meyer says.
A clampdown may come as local production increases. Piracy hits homegrown fare like "Kung Fu Hustle," "Hero" and "House of Flying Daggers" as much as it hurts "Harry Potter."
One studio exec observes that pirated copies of "Hero" and "Kung Fu Hustle" took two to three weeks to appear - versus the typical Friday to Monday turnaround for non-Chinese pics.
All execs who work in China say patience is the key.
Clear Channel's deal took three years. Sony's TV venture has been waiting 18 months for approval.
Even the biggest names get the runaround.
An old anecdote goes like this: "Sumner Redstone wanted a television station. He kept going to China. Playing by the rules. He said 'Premier Zhu Rongji (the premier in the last administration) I've done everything you asked me for. Still, no landing rights for MTV and what more can I do?' The premier said, 'Maybe you should marry a Chinese woman.' "
Notes another exec: "There's a thing they say about China: It has a lot of potential, and it always will."
(Arthur Jones in Shanghai contributed to this report.)
Contact Jill Goldsmith at
jill.goldsmith@variety.com