Hooray for Hollywood? – Where Hollywood Meets the PRC

Grauman's Chinese Theater Panorama

Grauman’s Chinese Theater. Samantha Decker (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

As more people move into the middle class in China, disposable income spent on goods and services will only increase. But disposable income extends far beyond goods and services, and to date some 300 million more people in the world are ready to start spending money on entertainment. In a 2013 study by Ernst & Young, the firm noted “spending on entertainment and recreation [in China] jumped from $350 billion in 2010 to $547 billion last year.” Because American content – whether television, film, or music – is universally revered, huge opportunities await US Media and Entertainment (M&E) companies in a region capable of hauling in more than $10 billion in value by 2017. Hollywood’s most successful films are reliably hitting the $100 million revenue mark at the Chinese box offices.

Well aware of these opportunities, American film studios have made China a top priority marking a dramatic shift in perceived foreign markets only a few years ago. Notably, Bank of America-Merrill Lynch Global Research released a study this year detailing these opportunities and reaffirmed that “from 2007-12, China’s box office has improved at a compound annual rate of 47% to $2.7 billion […] fueled by a 30% CAGR in screens […] The top 10 Hollywood films in China generated a steady 30% share of the 2012 box office.” Breaking down these statistics, 26% of the China box office goes to local films – roughly 560 Chinese domestic films get made every year – and 150 of those are released theatrically with only 70 becoming notable box office contributors. These statistics not only reflect the expanding local production industry in China, but also their preferential regulatory treatments standing as a major entry barrier for US film studios.

Along with preferential treatments, an import quota on Hollywood films makes for fierce competition among US studios. Before 2012, China capped the number of US films to be released in mainland cinemas at 20; only last year was President Obama able to get China to increase their quota to 34.

Looking to 2030, however, it is unlikely that China’s film quotas will disappear all together. With the Hollywood quota already maxed out for 2013, China’s domestic films have been able to flourish. As of November 25, 2013, Chinese films hit the $3 billion revenue mark with prospects of another late boost as cinemas rush for a photo year end finish marking a remarkable shift from a considerably more lackluster balance sheet just over a decade ago with FY2002 revenues below $164 million.

While still a burgeoning industry in China – America’s $385B industry dwarf’s the PRC’s $73.2b – Ernst & Young predicts Chinese M&E will grow 17% annually for the next five years. En masse injections of private capital have been the major driver, truly enabling the industry to soar. In 2013 alone, China built over 4,500 new movie theaters (over 10 per day) increasing their countrywide total to over 17,600.

A major bankroller in the industry has been Wang Jianlin who is Chairman of property giant Dalian Wanda Group Corp. along with being China’s richest man. Earlier this year he bought America’s second largest movie theater chain, AMC, for $2.4 billion. Following that, in November Wanda announced their plans to build China’s own version of Hollywood with a $4.9 billion to $8.2 billion investment in a mega-entertainment center. The Qingdao Oriental Movie Metropolis, or “Chollywood” as it is being called, will include 20 massive studio lots and is being supported by A-list stars such as John Travolta, Catherine Zeta-Jones, Nicole Kidman and Leonardo DiCaprio. With signing agreements with four top global talent agencies, by 2030 we could see a substantial “brain drain” from Hollywood into China. Because the US is unquestionable global hegemon in the entertainment world, the demand for American expertise in content, storytelling, marketing and distribution is very high in China. Yet, there is a great deal of doubt surrounding Wanda’s project.

China’s politicians have made clear that conceptual films portraying China in a negative light will have no market on the mainland, as highlighted in World War Z’s recent debacle with the PRC. In one of the first cuts of Brad Pitt’s zombie movie, there was a scene where his character concluded the zombie apocalypse originated in China. Fearing governmental backlash, Paramount producers changed the origin to South Korea. In sum, China wants non-controversial films that pay tribute to Chinese life and culture. However, even if Wanda’s “Chollywood” project is completed, and in 2030 China’s film industry becomes large enough that China no longer needs import quotas to achieve their growth objectives, the government’s intense and seemingly unrelenting relationship with censorship will become an impediment to future growth.

As stated above, out of the 560 films made per year in China, only 70 make it to the box office. Much of this is due to strict government examination. All 34 Hollywood films allowed in China also go through close inspections to ensure alignment with government principles. To mitigate potential issues with their films, US studios are increasingly re-editing content, and with some going so far as to shoot entirely different versions for a PRC release.

A recent example is Relativity Media’s 21 & Over, a story about a Chinese-American medical student besieged by parental-induced anxiety who chooses to alleviate exam stress by partying at a fraternity house. Before production began, Relativity Media told producers there would be two movies made, one for an American audience and one for a Chinese audience. With a vastly different storyline from the original plot, the movie’s director Jon Lucas said in an interview: “21 & Over, in China, is sort of a story about a boy who leaves China, gets corrupted by our wayward, Western partying ways, and goes back to China a better person […]” Hollywood is an industry where the realm of creative possibilities is endless. Studios have always strived to balance creativity with profits; movies like Gravity prove that you can have both, no matter how expensive. However, this question of balance is taken to new heights when looking ahead to 2030 and the inevitable interconnectedness that will define the China-Hollywood relationship.

At what point is the creative process impacted by geopolitical constraints that define China’s film market? The multi-billion dollar question facing Hollywood today is whether film studios can fully tap into the China market without marginalizing the creative process that should, and hopefully will continue to, define the industry.

Why Wendy Davis’ Pink Sneakers Mean Much More Than Late-Term Abortion

 

On June 26, 2013, Texas State Senator Wendy Davis executed an eleven-hour filibuster to stop a GOP-led effort to impose strict abortion limitations. Adorned with a back brace, skirt suit, and pink running shoes, Senator Davis was not allowed to sit down or use the bathroom; she had to continuously stay on topic for twelve consecutive hours in order to stop the bill. In a controversial call, GOP senate leaders attempted to prohibit Senator Davis’ filibuster on a procedural technicality an hour before the filibuster would have proven successful. The GOP’s efforts were quickly overtaken by a boisterous crowd of Davis and reproductive rights supporters delaying the GOP’s vote long enough to kill the bill. (See the video here).

This video went viral and sparked enormous media attention with the new “Stand With Wendy” slogan emerging. Her pink running shoes quickly became the most searched and sought after sneaker.  Senator Davis was interviewed by, and will be featured in, the highly coveted September 2013 issue of Vogue. Not surprisingly, an onslaught of op-eds and interviews by people in both the pro and anti abortion camps soon followed. There is, however, a secondary lens which must be utilized in observing Senator Davis’ filibuster, and that is the lens of empowerment.

It is difficult to conjure up another time when a female led a filibuster of this magnitude; Senator Davis gained national attention for her incredible achievement. She stood up, literally, for what she believed in. The topic that inspired her to should not be the sole source of debate. Senator Davis’ initiative is the real story; in a political scene paralyzed by inaction, her movement was refreshing and should be both celebrated and explored. Her pink sneakers represent a much larger picture: female leadership in the 21st Century.

In the US, there are a record 20 women serving in the Senate and 81 in the House, and more recently both the US House Minority Leader and US Secretary of State have been females. While this is a milestone well worth celebrating, the fact is that women are still greatly underrepresented. Yes, there are currently female heads of state, business leaders, and Nobel Peace Prize winners throughout the world, but they are few and far between compared to their male counterparts.

As Nicholas Kristof of the New York Times so eloquently pointed out in his recent article, female empowerment is not just another political buzzword, nor just a “woman’s issue or a man’s issue”. Female empowerment is a global issue. It can boost national GDPs, it can cure social ills, and it can lead to healthier societies. So what is preventing this global change? Apart from the clear social and educational hurdles, a large part of empowerment is having role models for guidance and support. When women come together in support of one another it can be hugely powerful, but the female leadership team in the global game of empowerment still remains small and runs the risk of being easily marginalized. Thus, Senator Davis’ stand should be seen as one more step towards greater female involvement. She is one more teammate and one more role model for future generations of female leaders.

The Shale Revolution: July’s Snapshot

July was an exciting month in the energy sector. The world’s second largest oil company, Chevron, signed a 1.24 billion dollar deal with Argentina – the world’s second largest holder of shale gas reserves – to develop their oil and gas opportunities. The total scope of Chevron’s investments could exceed 15 billion dollars. Chevron isn’t the only company jumping at the promise of shale. Dow Chemical Company and Bridas Corp., an Argentine-Chinese joint venture between CNOOC Ltd and the Bulgheroni family, have also signed development deals with their South American partners.

Across the pond in Europe, global consulting company Navigant Consulting released a new study backing UK Prime Minister David Cameron’s claim that shale expansion could cut gas prices by a quarter: “… estimates suggest northern England could provide enough shale gas to meet the UK’s needs for more than four decades.” Nonetheless, Cameron still faces an uphill battle. His continental partners in the EU have expressed concern with the potential environmental implications linked to the process of extracting shale oil and gas, known as fracking. Despite the European Union being known for its stringent environmental practices, some EU countries such as Romania and the Netherlands seem to be tiptoeing towards the idea of fracking and its encompassing economic benefits, while others states – France stands as a prime example – are sprinting in the opposite direction. Despite Europe’s unnerving reliance on Russian energy, the EU’s potentially game-changing relationship with fracking continues to move at a glacial pace.

In Asia, the effects of the North American shale boom are being felt. American shale oil opportunities have enticed national midsized energy companies producing abroad to come back home. After being drawn into untapped energy hubs in Asia, companies like Anadarko Petroleum Corp and Newfield Exploration have begun to sell their billion dollar Asian portfolios in Thailand’s natural gas hotspots and China’s Bohai Bay. Subsequently, these companies are beginning their triumphant return to American soil.

Recently predicted by the International Energy Agency to be the world’s top oil producer by 2017, many countries are jumping aboard the American energy bandwagon early. Highlighting the energy-starved nature of today’s world, Chile has shown how serious they are about its American shale gas interests by establishing a chancery in Philadelphia earlier this month. On a three-day trade trip to Pennsylvania, Chilean energy executives not only celebrated the opening of the Chilean Philadelphia consulate with Pennsylvania Governor Tom Corbett, but they also discussed Chilean interests in Pennsylvania’s Marcellus shale gas. Chile, a country whose energy demand is growing at five percent yearly, is preparing for increasing energy consumption rates. Governor Corbett, having visited Chile last April, reiterated to the Chilean executives that he is happy to export Pennsylvania’s natural gas: “As Chile’s manufacturing sector grows, she is clearly going to need energy […] we have it in abundance and we’re blessed by that.”

The global shale boom, supported almost wholly by American reserves, has continued to shake up the positioning of the world’s energy producers. While other countries may move to avoid the fracking boom, most governments seem pleased with America’s progress. Europe may still have the opportunity to ease their reliance on Russian energy with new American natural gas imports; North American energy companies are starting to come back home, which could boost America job creation statistics; and countries are beginning to open consulates in what would otherwise be obscure states. The shale revolution has begun, and it’s a game-changer for global energy.

Should Food Fill Stomachs or Gas Tanks?

Under a new U.S. Renewable Fuels Standard (RFS) program, created by the Energy Policy Act in 2005, the US became the world’s largest producer of ethanol fuel. By 2007, a second government mandate, the Energy Independence and Security Act (EISA), was passed which expanded the RFS program requiring 36 billion gallons of renewable fuel be used by 2022.While corn ethanol is not directly outlined under these policies, 98% of the biofuels produced and blended into gasoline in the US originate from corn. This de facto directive for corn ethanol has had negative impacts on global food market prices. In 2012, we experienced the worst global drought of the last half-century. With the US being the world’s largest exporter of corn, and their mandated 40% allocation of its corn for ethanol use, the already pressured corn prices skyrocketed.

In the past decade, prices of oil and food have significantly risen to historic levels. Because of the inextricable link between food and energy markets, the grain market has experienced volatility over the past six years. As a commodity susceptible to weather, it is apparent how much recent climatic events have distorted global grain inventories. This consumption mandate has turned out to be the most significant driver of ethanol demand, corn demand and corn prices as we can see the global food crisis correspond with the US expansion of corn ethanol in 2007. Agricultural commodity prices broke record highs in ’07-’08, in ’10-’11, and again with the US drought in 2012.

The most ethically heated issue with the RFS mandate is that corn is diverted away from the global food supply and towards the US’ domestic energy chain. This policy has had harsh repercussions on developing countries, which spend a much greater portion of their income on food and energy than the developed world. While the world’s wealthy states can substitute higher priced foods from elsewhere, the world’s poor cannot. As a country that sends almost a billion dollars annually in food aid to help the developing world feed itself, why does the US divert food into their energy chain and consequently increase the global price of food? Is putting food in gas tanks an ethical energy policy, food policy, and foreign policy? Pitting food policies against energy policies is illogical and proving to be destructive, thereby increasing vulnerability to weather risks suggesting the EISA/RFS is an unpredictable law.

The RFS/EISA has become a source of debate amongst Americans: some want it repealed; others want it left untouched. There is, however, little discussion on what a repeal would look like apart from a complete shutting down of the policy. Phasing out the RFS year by year – effectually reversing the policy over time – could provide a concrete policy solution.

Powerful industries and advocates have been created under US ethanol production, and with the current rise in vocal opponents of the RFS, these industries and advocates sense a direct threat. Removing newly engrained policies is politically difficult. However, if the US were to phase out the EISA year by year, it would help mitigate the economic and political shock currently felt by corn farmers and ethanol reliant industries. Reducing US ethanol commitments over time, thus reducing the amount of corn in gasoline, would also help alleviate pressures on global food prices.

An emerging development in America’s energy landscape, that poses a legitimate challenge to the use of food in gas tanks, has been the discovery of significant new natural gas reserves. This immense supply has been identified and tapped, subsequently forcing US natural gas prices down to attractive levels relative to both oil prices and international natural gas spot rates. The security, predictability and location of this supply are by far superior to that of global oil.

Already there are industry efforts to convert engines to burn natural gas and establish infrastructure to distribute it. This will take time and investment but represent a kind of phase-in calendar that could offset the phase-out use of ethanol. Moreover, converting vehicles to natural gas would create jobs: drilling, distribution, infrastructure and conversion. It would not encroach on food supply, or on American foreign policy, other than to reduce a reliance on foreign oil.

While there are some environmental concerns, natural gas is the cleanest burning and most efficient of all hydrocarbons and offers an environmentally preferred alternative to higher carbon emitting gasoline. While understanding the recent moratoriums on fracking in certain US states, US shale oil expansion has OPEC members and Gazprom taking notice.

In an energy hungry world, America has the opportunity to phase out ethanol and phase in an abundant, available, cleaner and less expensive fuel that is more secure. It might alleviate pressure on energy for others worldwide, as a gallon of gas not consumed in the US becomes available to others. Moreover, it would return the use of corn to the food chain where it belongs.