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Sunday, July 15, 2018

U.S./China Trade Issues May Impact H'wood

Beijing and Washington trade talks may scuttle the booming China box office and delay film-quota negotiations. Protracted trade tit-for-tats between the U.S. and China may soon draw Hollywood into the fray.

President Trump could have last laugh on Hollywood
The U.S. film studios are exposed and vulnerable regarding U.S. and China relations. Hollywood tentpoles currently make a significant amount of gross profits in China. For example, Universal's Jurassic World:Fallen Kingdon earned over 25% of its $1.1b in global ticket sales in China. This year China's box office is up 16% over last year and is anticipated to surpass N. America as the world's biggest theatrical movie market within two years.

Thus far, the trans-Pacific trade spats have had no impact on films as Beijing has been very specific with its retaliatory tariffs and if you want to hurt Trump you don't go after Hollywood (where anti-Trump sentiment is high from left-leaning Tinseltown glitterati).

Another issue is that the big Hollywood blockbusters keep seats full in Chinese cinemas, which if cancelled would probably push the Chinese box office into the red. But that equation could change if the trade spat escalates into a war.  The Chinese have already threatened to hold up licenses for U.S. companies, delaying merger approvals, and increasing border inspections of U.S. goods.

The highest grossing Chinese film released in the U.S. last year was Wolf Warrior 2 with a $2.7m take. The highest grossing U.S. film released in China was Fate of the Furious with a $393m gross.

The biggest issue for studios is the on-going, and now stalled, negotiation on China's U.S. film quota. Under the current deal, which expired in 2017, the number of films accepted for release was controlled but also the when and how titles could be released and how much revenue foreign studios could take home (the studios currently take just 25% of admissions).  The push by the studios to renegotiate had made little head-way before the trade spat, now it is essentially dead.

Like most companies doing business with China the idea of selling to the world largest middle class prompted Hollywood to take aim at the (soon to be) world's biggest movie market - but like most companies in any industry that idea is a dream - and don't expect China to change, with or without a new trade regime.

Just saying,
Jim Lavorato

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