DreamWorks Animation Announces China Venture as Xi Visits
Feb. 18 (Bloomberg) -- U.S. filmmakers won improved access to China's $2.1 billion box-office market in an agreement that resolves a five-year dispute between the two countries at the World Trade Organization.
The deal, announced yesterday as Chinese Vice President Xi Jinping wrapped up his U.S. visit, will increase the number of American films shown in China and gives producers such as Walt Disney Co., Viacom Inc. and Time Warner Inc. a "fairer" slice of ticket receipts, according to a White House statement.
Trade dominated the agenda of the visit by Xi, who is expected to be China's next leader. The Asian nation is the second-biggest U.S. trade partner, and two-way commerce rose 10 percent last year to $503.2 billion. Xi's tour included stops in Washington for talks with with President Barack Obama; Iowa, where China agreed to buy $4.3 billion of soybeans; and to the Port of Los Angeles, the biggest entry point for Chinese goods.
The movie agreement will support "thousands of American jobs in and around the film industry," U.S. Vice President Joe Biden said in the e-mailed statement.
Access to China's film market has been a point of friction. The Chinese government last year failed to meet a WTO deadline to lift restrictions on U.S. movies. The industry is a key export for the U.S., which enjoys a $12 billion global trade surplus on films and other audiovisual products, the White House said.
China is one of the world's fastest growing film markets. In 2010, the Asia Pacific box office grew by 21 percent, the Motion Picture Association of America said in February 2011. China accounted for 40 percent of the growth. In 2011, China's box office reached $2.1 billion, the MPAA said yesterday, without saying what the percentage increase was.
Under the agreement, China will ease restrictions on enhanced formats such as 3-D and IMAX Corp. widescreen technology, enhance commercial terms for filmmakers and open up the state's monopoly on distribution, the White House statement said.
The MPAA said the agreement would let 50 percent more U.S. films into the Chinese market
China, which now allows 20 foreign films into its market each year, will permit an added 14 enhanced-format films, said Howard Gantman, a spokesman for the MPAA, which represents Hollywood's biggest movie studios. Under the new revenue-sharing contract, studios will get 25 percent of box-office proceeds, up from the current 13 percent.
Some Hollywood movies get around the quota if they are Chinese co-productions or if some filming takes place in the country.
The deal "represents a significant opportunity," Disney CEO Robert A. Iger said. Warner Bros. Chairman and CEO Barry Meyer said: "This begins a new era in the history of our relationship."
While the biggest studios will reap benefits, independent filmmakers also saw promise in China's agreement to allow more local distributors and increase the transparency of its censorship and importation decisions.
"For independents, this agreement is momentous," Jean Prewitt, president and CEO of the Independent Film & Television Alliance, said in a statement.
The U.S. had complained to the WTO that China was violating obligations made when it joined the body in 2001.
"We will further increase our imports from other countries, in light of our social and economic development and consumer demand," Xi, 58, said at a luncheon yesterday, joined by Biden and California officials. "We will actively expand imports from the U.S., including from L.A."
The U.S. exported more than $100 billion of products and services to China in 2011, Biden said.
Xi's trip also highlighted an announcement that DreamWorks Animation SKG Inc., creator of the "Kung Fu Panda" films, formed a venture with Chinese state-owned companies to develop entertainment projects there.
The agreement with China Media Capital and two other groups will create Oriental DreamWorks. DreamWorks Animation will own about 45 percent of the company, according to a statement.
Oriental DreamWorks will be capitalized with cash and intellectual property valued at $330 million, the companies said. China Media Capital, along with Shanghai Media Group and Shanghai Alliance Investment Ltd., will own about 55 percent. They plan to begin operations in Shanghai this year.
"This is a huge bet for the future for us," Jeffrey Katzenberg, DreamWorks Animation's chief executive officer, said in an interview. "If we succeed, this opportunity is greater than anything else we could be doing. It's a long-term bet, but it is in what unquestionably will be the largest entertainment market in the world."
DreamWorks Animation, based in Glendale, California, rose 0.9 percent to $19.52 yesterday in New York. The stock has gained 17.6 percent this year.
Los Angeles Mayor Antonio Villaraigosa, who accompanied Xi on his visit to the city, said China's ZTE Corp. telecom company will expand business there and across California. The city also plans to open a trade and tourism office in Chongqing, China, after last year setting up one in Beijing.
Obama told Xi China's yuan remains undervalued relative to the dollar. The U.S. also disagrees with China's decision to veto United Nations Security Council calls for Syrian President Bashar al-Assad to step down, Biden said.
Xi is "absolutely responsive when we disagree -- it's a clear statement of disagreement," Biden told reporters.
California Governor Jerry Brown and Villaraigosa joined Xi for a tour of China Shipping (Group) Co.'s Los Angeles cargo terminal. China Shipping is doubling the size of the facility to 142 acres as part of a $121 million expansion to be completed in 2014.
After leaving Los Angeles, Xi flies to Ireland for an official visit. He then travels to Turkey to meet with Prime Minister Recep Tayyip Erdogan in Ankara on Feb. 21 before returning to China.
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