Galloping Horse Film Archives ~ Business China : news for investors in China

China film house buys Digital Domain assets The growing China-Hollywood love affair has taken an interesting and new twist with the purchase of a major bankrupt US digital effects studio by a partnership between a Chinese production house and one of India’s leading communications groups. Adding further intrigue to the picture are the bankrupt US venture’s links to blockbuster director James Cameron, who seems to have taken his own a sudden interest in the China market. If all of this sounds like something from a Hollywood movie, then perhaps it’s because so many US entertainment executives are getting overly excited about the huge potential of the Chinese movie and TV markets, which appear to finally be opening after years of being largely closed to foreign investment. My main advice to all the excited parties, both in China and the US, would be to temper their big expectations with some realism, as it’s quite possible that either Beijing or Washington could quickly become worried about this rapidly evolving love affair and take steps to cool things off.

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Digital Domain joins China-Hollywood lovefest The new love affair between China and Hollywood seems to be growing day by day, even as signs of some minor alarm bells emerge in Washington at the rapid development of this budding romance. The latest twist in the China-Hollywood saga has Digital Domain (NYSE: DDMG), a leading visual effects company, teaming with Chinese partner Galloping Horse Film in a joint venture production house that will initially use Digital Domain’s technology to convert traditional films into 3D. (company announcement) But even as news of this latest Hollywood tie-up emerges, other media are reporting that the US securities regulator has informed several of the major studios, including Disney (NYSE: DIS) and DreamWorks, that they are being investigated for matters related to China. (English article) Perhaps not coincidentally, both Disney and DreamWorks Animation (NYSE: DWA) have both announced new animation joint ventures in China this year, marking major milestones as Beijing finally opens up the country’s long-closed media sector to foreign investment. (previous post) Let’s look first at the Digital Domain venture, which the partners are saying is designed to meet growing Chinese demand for big-budget films with all the latest visual effects, which are often quite costly to produce. The venture will initially be quite small, with Galloping Horse providing $50 million to build a facility and Digital Domain providing technology and training expertise. But obviously it can be quickly expanded if and when demand for its services grows, something that looks likely as China is already the world’s second largest movie market. This tie-up follows the Disney and DreamWorks ventures announced over the last 3 months, as well as another pending joint venture between US home shopping channel operator QVC and China’s leading radio broadcaster, China National Radio. (previous post) Perhaps in reaction to this sudden and fast-evolving love affair, the US Securities and Exchange Commission has reportedly sent letters to 4 studios informing them they’re under investigation, according to foreign media, citing unnamed sources. No reason for the investigations is given, but speculation is high that the studios may be suspected of bribing Chinese officials to get more of their films shown in China under the nation’s strict quota system that allows only 20 foreign films into the market each year. This investigation could ultimately result in 1 or 2 resignations, but is unlikely to have any major effect on the studios. Instead, it may be the US government’s more subtle way of telling the studios that they’re welcome to join hands with Chinese partners, but they also need to behave according to international norms and avoid becoming too hypnotized by the illusory myth of 1.3 billion potential movie viewers and TV watchers.

Bottom line: Digital Domain’s new joint venture is the latest advance in the growing love affair between China and Hollywood, which may be raising concerns in Washington.