China's Bona Film Sees Hollywood Deals Amid New Rules - BusinessWeek

Bona Film Group Ltd. (BONA) (BONA), a Beijing- based film distributor and producer, is in talks with several Hollywood studios about co-producing projects and distribution to help drive future growth.

The Nasdaq-listed company is in discussions with studios including News Corp.’s Fox, Viacom Inc. (VIAB) (VIAB)’s Paramount and Comcast Corp. (CMCSA) (CMCSA)’s Universal about “a lot of projects,” founder and Chairman Yu Dong said in an April 20 interview ahead of today’s opening of the second Beijing International Film Festival. He declined to give details.

“It’s a win-win,” Yu said at his office in Beijing. “The most important thing is for the local Chinese films to cooperate with Hollywood’s big producers and distributors. They can use Hollywood’s global distribution network.”

Chinese companies are gearing up for more partnerships with Hollywood as Western studios seek exposure to one of the world’s fastest-growing movie markets. Walt Disney Co. (DIS) (DIS) highlighted the potential for collaborations with an agreement, one week before the festival, to co-produce “Iron Man 3” in China with Beijing-based DMG Entertainment.

“Every day I have Hollywood producers who come to visit the office, give me scripts or find investments,” Yu said.

Bona Film’s goal for the next few years is to make as many as two major co-productions with U.S. studios a year on movies like “Spider-Man” and “Iron Man,” Yu said.

Beverly Hills Office

Bona Film and Hong Kong actor Andy Lau’s Focus Films co- produced “A Simple Life,” the movie that earned Deanie Ip the best actress award at last year’s Venice Film Festival. Bona plans to open an office in Beverly Hills, California, to seek projects, Yu said.

China, the world’s most populous nation, has drawn more attention from Hollywood since February, when restrictions on film imports were loosened and the revenue-sharing formula was altered. Foreign studios can keep a bigger share of ticket sales, making the market more attractive, Yu said.

Ticket sales in China rose about 30 percent to $2 billion last year, making it the biggest market after the U.S. and Japan, according to the Motion Picture Association of America. By comparison, worldwide box-office revenue rose 3.2 percent.

This year’s Beijing International Film Festival will draw film-industry heavyweights like James Cameron, who directed the only two movies that have grossed more than $2 billion in worldwide ticket sales, ‘‘Titanic’’ and ‘‘Avatar.’’

“Titanic 3D,” the three-dimensional re-release of the 1997 Cameron epic, has grossed $67 million in China so far, the biggest opening the country has ever had, according to researcher Box Office Mojo.

Production Hurdles

“Avatar 2” will be released in 2015 by News Corp. (NWSA) (NWSA)’s 20th Century Fox, according to researcher IMDB. The November 2009 original went on to be the top-grossing movie in China in 2010, ringing in 1.38 billion yuan ($220 million), the country’s record. Like many in the Chinese film industry, Yu said he is interested in making “Avatar 2.” News Corp.’s Fox declined to comment.

Significant hurdles exist. To satisfy Chinese co-production rules, for example, the movie, which takes place on a fictional planet called Pandora and involves both live-action and computer-generated visuals, would have to be filmed partially in China and with some Chinese actors.

Yu expects China’s market to reach $5 billion in the next five years, he said. That would be half of the about $10 billion ticket receipts in North America in 2011, a figure that has been little changed for at least five years. Bona Film, which also operates 11 cinemas in China, posted net income (BONA) of $14.6 million in 2011 on sales of $126.2 million. It had about a 10 percent share of the box-office last year, boosted by “Flying Swords of Dragon Gate,” the first Chinese IMAX movie.

Government Censors

Yu, 40, said that one challenge of co-productions is making U.S. studios understand the Chinese government’s requirement to alter scripts to meet censors. Ghost stories, explicit sex, excessive violence and negative themes about the Communist Party or the government are banned.

“They don’t understand the market,” Yu said. “There are a lot of problems. How could they want to enter the Chinese market while they want a Chinese actor to play a villain? Are you trying to damage the Chinese market?

‘‘That would be restricted by the government,’’ he said.

Still, Yu said many Hollywood films can easily be co- produced because they mostly involve universal storytelling topics such as ‘‘heroes and beauties, the good and the evil,’’ which shouldn’t necessarily clash with government rules.

Distribution Control

Another criteria that U.S. studios find it hard to accept is the government’s control of distribution of co-produced projects without its approval, Yu said. A film can only be distributed worldwide after it receives a go-ahead from the authorities, or it could be barred from being distributed even in the U.S., he said.

‘‘Just this line in the contract, not one person in Hollywood is willing to sign,” Yu said.

Yu said he believes the Chinese government will slowly open up the domestic film market, which would boost U.S.-China cooperation and help domestic films to exert influence overseas.

China in February increased the number of foreign films it allows in the country annually to 34 from 20. Studios will keep 25 percent of box-office receipts, up from the previous 13 percent. Movies with a qualifying percentage of Chinese stars, financing and shooting locations can avoid foreign quotas.

Hollywood’s bigger role in the Chinese market may increase competition, bring out local talent and help weed out low- quality movies, Yu said.

“Through the outside force, we can boost the growth of the local market so Bona will be prepared for that,” he said.

To contact the reporter on this story: Stephanie Wong in Shanghai at swong139@bloomberg.net

To contact the editor responsible for this story: Bret Okeson at bokeson@bloomberg.net