Universal Studios Beijing has attractions themed to Universal-owned movies, as well as licensed properties from other companies.
In 2012, the United States reached an agreement with China to gain greater access to China's lucrative movie box office. Hollywood executives faced the challenge of balancing the improved access with pleasing a very risky and uncertain audience.
A paper from the Atlanta Fed, "Globalization and Heterogeneity: Evidence from Hollywood," establishes that Hollywood studios responded by redirecting resources to sequels, remakes, and spinoffs, which are seen as less risky than original movies to take to the Chinese market. Hollywood increased its output of science fiction movies and coproduced films with Chinese studios in deals that enhanced market access. US filmmakers also have reduced investments in R-rated movies and comedies, two genres that don't fare well in China.
The premise that the prospect of Beijing's censorship and market restraints influences US filmmakers from the inception of a movie has circulated for years. The United States-China Economic and Security Review Commission reported such effects in 2015, as did a 2020 report by Pen America, an international advocate for free expression.
The latest addition to this discussion is a working paper released in October 2022 by Konrad Adler, a postdoctoral researcher at Bonn University, and Simon Fuchs, a research economist and assistant adviser with the Atlanta Fed. These findings add the weight of economic research to considerations of the effects of Beijing's sway over US filmmakers.
While the relative importance of different [global] regions varies little over time, the stunning increase of the importance of the Chinese market after 2012 stands out.
— Konrad Adler and Simon Fuchs
"Globalization and Heterogeneity: Evidence from Hollywood"
As Adler and Fuchs observe, firms that sell across borders face the challenge of balancing products and distribution among major markets, including countries that present a vastly diversified customer base. Fuchs compared the challenge to one that stock investors face when deciding to either put all their money in one major company or diversify across several companies.
The purpose of studying movies was to evaluate models for the global trade of products that face a volatile market containing groups of consumers with multiple preferences. Movies are an ideal research vehicle because their characteristics are easy to observe, prices are fairly consistent, and findings can be applied to other products.
The authors created a sample that included most US productions that were internationally released and generated nearly half their revenues abroad. The sample was started in 2004, when international data on box office revenues were deemed reliable, and ended in 2019, before the COVID-19 pandemic altered moviegoing behaviors.
The authors' observations led them to conclude: "While the relative importance of different [global] regions varies little over time, the stunning increase of the importance of the Chinese market after 2012 stands out." Getting there, they note, took nearly two decades:
- 1994: China had barred foreign movies until it agreed to allow 10 films a year, provided China’s censors selected them.
- 2001: China entered the World Trade Organization (WTO), agreed to abide by its trade treaties, and raised its quota of foreign movies to 20 per year.
- 2007: The United States filed an action in the WTO to challenge China’s trade restrictions of movies.
- 2009: The WTO issued rulings favorable to the United States.
- 2012: A watershed year for the US movie industry. The United States and China signed a memorandum of understanding (MOU) that expanded US exports to China of enhanced movie formats, including 3D and IMAX, and strengthened opportunities for film distribution.
Hollywood’s reaction to the MOU was swift.
The Atlanta Fed's paper observed, "we find the post-2012 to be stronger for types of movies which are likely to be greenlighted by Chinese censors, i.e., unrated movies, action movies, but not, for example, for comedy movies or movies involving nudity."
Censors weren't the only viewers Hollywood producers kept in mind. The authors noted, "We also expect that Hollywood studios have changed movies towards the taste of Chinese audiences and not only the Chinese censors." To woo Chinese audiences, Hollywood stuck with proven formulas in the form of recycled content. As the authors observe, "It seems that the increase in the importance of Chinese audiences after 2012 has also led to higher risk, which Hollywood studios have tried to address by producing more movies with nonoriginal content."
As Adler and Fuchs conclude, Hollywood studios catered to the global region that offered the largest box office. "We apply our model quantitatively to the international box office market and demonstrate that the rise of China shifted the market composition, led to changes in product composition on the supply side, and finally led to distributional welfare effects across countries," the paper states. "The model quantitatively rationalizes the effect of the rise of China had on the international box office."
David Pendered
Staff writer for Economy Matters