How the Deal for AMC Entertainment Furthers China's Culture Agenda - BusinessWeek

It’s China Inc.’s biggest move yet into the U.S. Dalian Wanda, the largest entertainment group in China, yesterday revealed its $2.6 billion purchase of AMC Entertainment Holdings, the second-largest operator of movie theaters in America. The deal is much larger than the previous record for a Chinese company, the $1.8 billion purchase of IBM’s PC business by Lenovo in 2005.

The purchase might give a boost to a campaign by the Chinese government to boost the country’s “soft power,” or cultural influence, in the U.S. and other countries. The country’s Communist Party leaders have expressed worry about what they consider to be the outsized influence of foreign culture inside China. Why, they ask, should filmmakers, musicians and other artists from the world’s second-largest economy attract so little attention around the world? Last October, Party leaders vowed to boost China’s soft power and maintain what the official Xinhua news agency called “cultural security.” According to Xinhua, the Party’s Central Committee said “China is facing a difficult task in protecting ‘cultural security’ and feeling the urgency of enhancing its soft power and the international influence of its own culture.”

Taking control of AMC help Wanda move closer to that government goal. Relax: You shouldn’t expect the multiplex at your nearby mall to take down The Avengers and instead show Chinese propaganda like The Beginning of a Great Revival, last year’s government-approved celebration of the 90th anniversary of the Party. China’s leaders aren’t naive enough to expect results overnight.

More likely, the AMC deal will provide a building block for the development of the Chinese film industry, with Wanda using its American acquisition to gain some expertise in operating the kind of large, nationwide cinema chains that China’s film industry now needs. For all of its growth, the country is still far behind the U.S. in movie infrastructure. For instance, Wanda has only 86 locations in China, compared to AMC’s 346 in the U.S. The Chinese company can learn from how AMC manages that kind of scale. And unlike the Lenovo IBM deal, Wanda is unlikely to face any challenges from critics worried about national security. “Movie theaters aren’t politically sensitive assets, so this deal probably won’t encounter as much regulatory oversight as others,” Ronald Wan, managing director at China Merchants Securities in Hong Kong, told Bloomberg News.

Some of Hollywood’s biggest names figure they can capitalize on China’s soft power obsession. Eager to gain greater access to Chinese consumers, studios are making deals with local partners. In Shanghai, a barren stretch of land on the western bank of the Huangpu River is now home to abandoned warehouses and large oil tanks. If all goes according to plan, the area will become a new cultural district, with theaters, clubs and a studio that will be the home of Oriental DreamWorks, a joint venture DreamWorks Animation formed in February with three government-backed companies, China Media Capital, Shanghai Alliance Investment and Shanghai Media Group (SMG).

The DreamWorks deal is one of several recent China breakthroughs for Hollywood. In February, at the end of Vice President Xi Jinping’s trip to the U.S., the Chinese government agreed to improved market access for Hollywood movies; the government also agreed to give the studios a bigger take of China’s $2.1 billion box office receipts last year, third in the world behind only the U.S. and Japan. News Corp. this month bought a stake in Beijing-based Bona Film Group, a movie producer and distributor. In April, Disney teamed up with Tencent, the giant Chinese gaming and instant messaging company, to develop animation content; the American company also announced plans to work with Beijing-based DMG Entertainment to co-produce the latest installment in Robert Downey, Jr.’s Iron Man series, Iron Man 3.

For Hollywood, the goal is to gain more access to Chinese consumers. China’s leaders, however, have another objective in mind. The riverfront area where DreamWorks will have its studio will also include a special zone targeting international recording companies that can help make China’s industry more global, says Bill Zang, an executive with Shanghai Synergy Culture & Entertainment Group, an SMG subsidiary. Zang, a Shanghai Synergy vice-president, wants to make Chinese musicians more popular worldwide. “China is an economic superpower, China is a manufacturing superpower but the international influence of China’s culture is very small,” he says Zang. “We have a lot of good things that laowai (foreigners) don’t know about.”