MEDIA: China Trips up Disney, Paramount; Draws Comcast to DreamWorks

Bottom line: New China setbacks for Disney and Paramount look relatively minor, and reflect their growing involvement in a market whose fast growth is also driving Comcast’s pursuit of DreamWorks Animation.

DreamWorks’ China exposure draws Comcast

In a very rare occurrence, 3 top Hollywood studios are all in the China headlines today, reflecting the growing links between these media titans and a country that could become the world’s largest entertainment market in the next decade. Leading the headlines are relatively minor China setbacks for Disney (NYSE: DIS) and Paramount Pictures, which are facing new battles with Beijing censors and unhappy local clients, respectively.

Meantime, DreamWorks Animation (NYSE: DWA) is reportedly in talks to be bought by US cable TV giant Comcast (Nasdaq: CMCSA), and some are pointing out that a major driver behind the deal may be DreamWorks’ strong China exposure. That’s because DreamWorks Animation has bet big on the market, with a major joint venture in Shanghai that produced the latest installment in its Kung Fu Panda series.

China is the setting for the Disney story, which has seen the US entertainment giant suddenly suspend its young video partnership with local e-commerce leader Alibaba (NYSE: BABA). The pair announced the partnership to distribute Disney content over a dedicated channel on Alibaba’s online video platform in December, and at the time I predicted it would struggle due to overcrowding in the market. (previous post)

But now it seems that Disney and Alibaba won’t have to worry about competition, since they’ve abruptly shuttered the channel due to unspecified objections from Beijing censors. (English article) Alibaba simply said the channel, called DisneyLife, was being taken offline for a service upgrade and that it was issuing customer refunds. But people familiar with the matter said the move was due to objections from government regulators.

One report notes that tech giant Apple (Nasdaq: AAPL) has also recently clashed with Beijing censors, resulting in the shutdown of its China book and movie stores earlier this month. (previous post) Apple has said it hopes to have the service restored soon, but I suspect that Disney may halt its Alibaba tie-up for now as it seeks to avoid negative publicity in the run-up to the opening of its huge Shanghai Disneyland next month.

Breach of Contract

Next there’s Paramount, which is being sued by Wulong Karst Tourism for reneging on a product placement deal related to the studio’s last Transformers movie. (English article) The plaintiff is asking for 180 million yuan ($28 million) in damages, saying the logo for the karst topography park it operates was omitted from the final film in violation of an agreement.

Scenes from the movie were shot in the park, but Paramount concedes that the park’s actual logo didn’t make it into the final movie. The same Transformers film was also at the center of a conflict 2 years ago when a Beijing mall operator tried to delay its release until scenes of its properties were edited out of the movie. (previous post) Such small conflicts are inevitable for big companies like Paramount and Disney, though resolution in China could be tricky due to the immaturity of the nation’s legal system.

Finally there’s DreamWorks, which was one of the earliest Hollywood studios to bet big on China when it set up its Oriental DreamWorks animation joint venture with Shanghai Media Group (SMG) 4 years ago. That joint venture released the newest Kung Fu Panda movie, and DreamWorks and SMG are also building a $2.4 billion entertainment complex in Shanghai. (previous post)

The latest media reports say Comcast is in talks to buy DreamWorks Animation for $3 billion, though no deal has been reached yet. (English article; Chinese article) Comcast already owns the Universal studio, which is currently building a Beijing theme park but has relatively little presence here. By comparison, one report points out that a DreamWorks purchase would instantly give Comcast far larger exposure to the fast-growing China entertainment market. (English article)

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