Selling Hollywood to China

James McMahon
15th April 2019

Working Paper. Do not cite without author’s permission. Contact

author at [email protected].

Abstract
From the 1980s to the present, Hollywood’s major distributors have
been able to redistribute U.S. theatrical attendance to the advantage of
their biggest blockbusters and franchises. At the global scale and during
the same period, Hollywood has been leveraging U.S. foreign power to
break ground in countries that have historically protected and supported
their domestic film culture. For example, Hollywood’s major distributors
have increased their power in such countries as Mexico, Canada, Aus-
tralia and South Korea (Jin, 2011). This paper will analyze a pertinent
“test case” for Hollywood’s global power: China and its film market. Not
only does China have a film-quota policy that restricts the number of
theatrical releases that have a foreign distributor (∼20 to 34 films per
year), the Communist Party has also nurtured a Chinese film business
that has steady film releases and its own movie star system. Theoreti-
cally, China would be a prime example of a film market that would need
to be opened with the assistance of the U.S. government. Empirically,
however, the case of Chinese cinema might be a curious exception; we
can investigate how a political economic strategy rooted in explicit power
is reaching a limit. Hollywood is, potentially without any other option,
taking a more friendly, collaborative approach with China’s censorship
rules and its quota and film-production laws.

1 Introduction
Hollywood has recently been working hard to sell itself to China. The interna-
tional cut of X-Men: Days of Future Past included lengthier scenes set in Hong
Kong. Skyfall, the 2012 James Bond film, has an action sequence in Shanghai.
Looper also has a significant scene in Shanghai, but in the original script this
scene was meant to be filmed in Paris. The change to Shanghai was one of the
conditions of China’s DMG Entertainment, who invested in the production of
Looper (O’Connor & Armstrong, 2015, p.10). DMG Entertainment was also

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able to partner with Disney for the Chinese release of Iron Man 3. The Chinese
release of this Marvel blockbuster contained an extra side-story that was exhib-
ited in no other country. This side-story breaks from the main plot and has
Tony Stark (a.k.a, Iron Man) travel to China to undergo heart surgery. Tony
Stark’s surgeon, Dr. Wu (played by Chinese star Wang Xueqi), is given screen-
time that involves placing a phone call to Stark’s A.I. assistant J.A.R.V.I.S.,
having a conversation with another doctor (played by Fan Bingbing), and pour-
ing a glass of Chinese-brand milk in an advertisement-like shot (Daniel, 2013;
Langfitt, 2015; Tsui, 2013).
Examples of Hollywood trying to appeal to the Chinese film market are
interesting but perhaps not very surprising. Hollywood’s success in China could
be key to growing the theatrical revenues of its biggest blockbusters and to
helping the media strategies of its parent conglomerates. The 2016 Theatrical
Market Statistics report, published annually by the Motion Picture Association
of America (M.P.A.A.), opens with statistics on the international box-office and
lists China as the largest box-office market outside of the United States (US$
6.6 billion).1
Hollywood’s ambitions make sense, but its recent push into the Chinese film
market is more complicated than it first appears. In fact, the Chinese film
market is a pertinent “test case” for Hollywood’s global power. Not only does
China have a film quota policy that restricts the number of theatrical releases
that have a foreign distributor (∼20 to 34 films per year), the Communist Party
has helped the Chinese film business grow to have steady film releases and its
own movie star system. These circumstances have made it more difficult for
Hollywood to dominate in China, a country with a movie-going public that is
estimated to be over two hundred million people (Curtin, 2007). Moreover, the
pressure of the M.P.A.A. and the diplomacy of the U.S. government has not
been as effective as it has been in other countries (Jin, 2011; Trumpbour, 2008).
Thus, the case of China cinema might be a curious exception to how Holly-
wood behaves as a global enterprise, whereby its biggest blockbusters dominate
foreign markets and suffocate national film production. Thus, we can investigate
how a political economic strategy rooted in explicit power is reaching a limit.
Hollywood is, potentially without any other option, taking a more friendly,
collaborative approach with China’s censorship rules and its quota and film
production laws.

2 The Obstacles in Hollywood’s Way

The place of Hollywood cinema in our conceptions of mass culture makes it dif-
ficult to think that Hollywood’s major studios sometimes struggle for the dollars
of moviegoers. But, like any other business enterprise, Hollywood experiences
financial ups and downs, which can be investigated empirically. For instance,
in the U.S. domestic market, the period from 1980 to the present has been one
1 After China there are the box-office markets of Japan (US$ 2.0 billion), India (US$ 1.9

billion) and the U.K. (US$ 1.7 billion) (MPAA, 2016).

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McMahon Working Paper

of the best periods for Hollywood’s major distributors, who strengthened their
grip over the North American theatrical market.2 Much of this recent success
has been due to the effect of blockbusters on the overall distribution of the-
atrical revenues and opening-theatre sizes. Partly because Americans are not
seeing more films per year, the major studios have increased the opening-theatre
size of its biggest films to better the chances of Americans saving their “theatre
dollars” for the widest-released films (McMahon, 2018).
At the international scale, contemporary Hollywood has been leveraging
U.S. foreign power to make its biggest stars and films global phenomenons,
particularly in countries that do not have the tools to protect or support their
own domestic film culture. Through both the U.S. government’s opposition to
the U.N.E.S.C.O. convention, which aims to “protect and promote the diversity
of cultural expressions,” and the free-trade agreements that remove barriers to
American film production, Hollywood major distributors have found political-
economic opportunities to dominate the markets of such countries as Mexico,
Canada, Australia and South Korea (Jin, 2011).
In the case of selling its cinema to China, Hollywood has not had the same
opportunity to establish dominance. Hollywood has made entry into the Chi-
nese theatrical market, but gains to its size and strategic position in China have
only come incrementally, often through pressure from the U.S. State Depart-
ment. The following subsections outline two key ways the Chinese State is still
protecting its own market from Hollywood domination. Quota policies and state
censorship do not keep Hollywood out of China completely, but they control
and limit the ways foreign film producers and distributors can make money in
China. These “obstacles” in Hollywood’s way have also been giving China the
time and space to build a blockbuster-heavy film industry of its own.

2.1 Quota policies

Quota policies can protect domestic cultural production by setting limits to the
import of foreign cultural products. They also can restrict how much foreign
investment can be involved in domestic cultural production. China is using
quota policies in these two ways. Consequently, Hollywood has access to Chinese
audiences but not in an environment where the biggest American studios are
primarily in control.
As of 2018, China allows, per year, 34 imported films to have revenue-sharing
deals between Chinese and foreign distributors. This number of 34 is the sum
of two “types.” China agreed to 20 film imports per year when it rejoined the
WTO in 2001 (Su, 2011). An additional fourteen “enhanced format” revenue-
sharing films (i.e., 3D) do not count towards this 20-film commitment, as was
agreed by the United States and China in 2012 (U.S. Department of State,
2012). A revenue-sharing deal must go through a Chinese distributor that holds
a state-sanctioned import license. The Chinese distributor in this deal, who is
2 For an analysis of how the wide-release strategy, in combination with the blockbuster

style and the high concept standard, enabled the major distributors to lower their systemic
risk, see McMahon (2018).

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McMahon Working Paper

almost always the China Film Group (O’Connor & Armstrong, 2015; Yeh &
Davis, 2008), has a percent share of the imported film’s gross revenues.
The current allowance of 34 imported films evolved from Chinese cultural
policy that began in 1994, when China introduced a new revenue-sharing system
for film imports. The first film to be imported through this system was Warner
Bros.’ The Fugitive. From 1994 to 2001, China only allowed ten revenue-sharing
imports per year. While this limit was restrictive, the handful of Hollywood films
that were imported during this period did quite well; they were sometimes able
to collectively claim as much as 70 percent of China’s box-office revenues per
year (Su, 2011). The first version of the film import system produced debates
in China’s academic and cultural circles about the benefits of China welcom-
ing Hollywood imports. Some film critics, professors and journalists were not
concerned that the majority of theatrical attendance was going to American
films. These commentators envisioned Hollywood being able to lift Chinese
movie attendance overall, foster cultural liberalism and boost the creative out-
put of Chinese film production. The argument against Hollywood’s presence in
Chinese theatres often claimed that an influx of Hollywood films would promote
American individualism, tell superficial stories or fail to admit that there were
social problems in the West. Critics of Hollywood’s influence, such as Li Yim-
ing, Zheng Dongtian and Dai Jinhua, also argued that it was naive to think that
China’s film industry could be lifted on the wings of Hollywood imports; the
growing influence of American-style of cinema would weaken the opportunities
for Chinese filmmakers to create a distinct national cinema (Su, 2011).
When China joined the W.T.O. in 2001, the quota limit was doubled, from 10
to 20 films per year (Su, 2014). For those who were openly critical of Hollywood’s
growing popularity with Chinese moviegoers, this doubling would clearly have
appeared as a bad sign for the future of Chinese cinema (Su, 2011). However,
from a perspective that can analyze what happened after China’s W.T.O. entry,
we can see how the C.C.P. put Chinese cinema in a stronger position in the
2000s, despite the increase in foreign imports per year. In the years before
China’s W.T.O. entry, the Chinese government often funded and promoted the
strictly-domestic production of “Main Melody” films (zhuxuanlu), which were
meant to promote “patriotism, socialism and collectivism” (Su, 2014). “Main
Melody” films continued to be produced from the year 2000 onwards, but in
the 1990s the total output of Chinese film production was low, and this forced
these films to be some of the only domestic alternatives to Hollywood imports.
“Main Melody” films were not the best alternatives to glossy entertainment, as
they were of much lower production quality than the Hollywood blockbusters
of the late 1990s (Wang, 2007).
As summarized by Yeh and Davis (2008), state policy after 2000 created
opportunities for China to use Hollywood as a “a financial and institutional
instrument” (Yeh & Davis, 2008, 40). Changes to cultural policy allowed foreign
investors to fund Chinese film projects, as long as the investor group partnered
with one of China’s state-owned studios (Su, 2014). The biggest and most
influential state-owned studio is China Film Group. China Film Group is a
horizontal and vertical consolidation of technical studios and the China Film

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McMahon Working Paper

Corporation. The benefit of this consolidation was that China Film Group’s
corporate structure updated its production system for creating blockbusters,
which are more expensive to produce and that rely on state-of-the-art equipment
(Yeh & Davis, 2008).
Foreign interests in Chinese cinema can offer capital and technical know-how,
but the Chinese state has also made it clear that it sets the terms to foreign
partnerships with its domestic film business (Su, 2014). During the first years
of the 2000s, China allowed foreign shares of investment in film production to
reach 49 percent, and allowed theatre ownership in major cities to go as high
as 75 percent. In 2005, China’s Ministry of Culture and other ministries issued
an edict that pulled foreign ownership in theatres down to 49 percent. This
edict also stated that Chinese investors must play the leading role in all joint
venture projects (Su, 2014). “Leading role,” according to a U.S.-China Economic
and Security Review Commission report, can mean “having at least one scene
shot in China, casting at least one Chinese actor … and, in general, illustrating
“positive” Chinese elements” (O’Connor & Armstrong, 2015, 8).
There is empirical evidence to suggest that strong protectionism gave China’s
film industry the time and space to increase the quantity and quality of nationally-
produced films. Figure 1 presents the number of films produced in China per
year; where data is missing, estimates are made through linear trends (see note
in Figure 1). As was stated above, China’s output in the 1990s was averaging
below one hundred films per year. By contrast, China produced 140 films in
2003 and 411 national films in 2007. This output kept increasing, putting China
firmly in Diana Crane’s category of “super-producer”3 (Crane, 2014). In 2013,
for example, a total of 638 films were produced by the Chinese film industry.
Just as importantly, some of the newer films were of much higher production
quality and, when needed, their stories could be told with better film technol-
ogy and special effects. A key reason for this jump in quality was that Chinese
producers and directors could partner with American studios and gain access to
filmmaking techniques that were responsible for the glossy style of Hollywood
blockbusters (Fraser, 2015; O’Connor & Armstrong, 2015).
To estimate the qualitative power of nationally-produced films we can mea-
sure how many times nationally-produced films become some of the most well-
attended films in a domestic market. Strong attendance is not a simple measure
of aesthetic quality, but it is a form of qualitative power. Nationally-produced
films that can rise to, for instance, the top ten grossing films per year have
found ways to win popularity over Hollywood’s big-budget releases. China’s
protectionist policies would give its nationally-produced films some advantages
in this competition, but it is unlikely that policies can fight the sparkle and
glamor of Hollywood alone. In fact, there are many countries that have strong
domestic film industries but that are still unable to get nationally-produced
films to become some of the top ten grossing films per year. For example, take
three countries that Crane (2014) would categorize as being major producers
3 Crane uses data from 2009 to group countries into four categories: super producers (>

400 films); major producers (> 100 and < 401); medium producers (> 51 and < 101); and,
minor producers (> 25 and < 51) (Crane, 2014).

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McMahon Working Paper

750

700

650

600

550

500

450

400

350

300

250

200

150

100

50

1980 1985 1990 1995 2000 2005 2010 2015

Figure 1: Chinese Film Production, 1980-2015

Note: Missing data for China film releases (1971-1973, 1978-1979, 1981-1983,
1988-1989, 1991-1993, 1998) are interpolated as linear trends between adjacent
observations.
Sources: Screen Digest for the film releases of China 1970, 1974-1970, 1980, 1984-
1987, 1990, 1994-1997, and 1999-2006; UNESCO UIS Statistics data.uis.unesco.org
for 2007-2015.

(> 100 and < 400 per year): South Korea, Italy, and Spain. They are similar in
annual output but dissimilar in their ability to compete against the glamour of
Hollywood blockbusters. The average number of Hollywood films in the coun-
try’s top ten box-office revenues (in parenthesis), from 2005 - 2015, are: South
Korea (3.4), Italy (6.7), and Spain (8.5).
Figure 2 shows the average number of Hollywood films that compose the
annual top ten box-office revenues of countries around the world, from 2005
to 2015. The darker the shade, the greater the average number of Hollywood
films to have placed in the country’s box-office top ten (data is unavailable for
countries in white). For parts of the globe, such as Latin and South America,
Australia and parts of Europe, the facts match our common ideas of Hollywood
being a global cultural power. Yet interestingly, there are many countries, from
Turkey to Japan, where Hollywood has had a weaker presence at the top. China
is one of these countries where Hollywood is relatively weaker (an average of 5.1
Hollywood films in the country’s top ten).

2.2 State censorship

China is not the only country to ban films for their content or demand that some
go through edits and cuts before being approved for exhibition, but China might
be distinguished for its ability to wield state censorship with such strength that

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1 2 3 4 5 6 7 8 9 10

1 2 3 4 5 6 7 8 9 10

Figure 2: Hollywood’s Box-Office Share, 2005-2015: Average number

of Hollywood films in Top-Ten Box-Office Revenues per National Market
Source: U.N.E.S.C.O. U.I.S. Statistics (data.uis.unesco.org) for 2005-2015.

7
McMahon Working Paper

it can weaken Hollywood’s financial power. As was established above, China is

not trying to close its film market to Hollywood entirely, especially since joining
the W.T.O.. Nevertheless, China shows no signs of removing state censorship
from its toolbox, even at the cost of straining its relationship with the United
States.
From the mouths of the C.C.P., government censorship of cinema in China
is rationalized in nationalist language. This rationalization started in the early
years of the People’s Republic, when all film studios in China were nationalized
and cinema was treated as a cultural product that could support broader social
processes with “propaganda and thought work” (xuanchuan sixiang gongzuo).
During this period, the film bureau responsible for overseeing the form and
content of Chinese film production promoted the aesthetic of socialist realism,
much like the Soviet Union (Meyer-Clement, 2017). The style of socialist realism
is now out-of-date, especially because China has been opened to Hollywood, but
the C.C.P. maintains its interest in what a film shows and says. A film can be
entertaining, and even have some of the gloss of a Hollywood film, but approval
for exhibition in China must be sought from the State Administration of Press,
Publication, Radio, Film and Television (S.A.P.P.R.F.T.).
The standards of the S.A.P.P.R.F.T. require that all films in China, both of
domestic and foreign origin, adhere to “the principles of the Chinese Constitu-
tion and maintain social morality” (O’Connor & Armstrong, 2015, 9). These
standards are maintained through the prohibition of certain images and scenes
that depict

demons or supernaturalism, crime or any other illicit or illegal ac-

tions within China’s borders, disparagement of the People’s Lib-
eration Army and police, and anything that could be perceived as
anti-China—including merely damaging Chinese sites or monuments
(O’Connor & Armstrong, 2015, 9).

The S.A.P.P.R.F.T. also checks that films are always suitable for a broad group
of moviegoers. China does not have a tiered film-rating system that allows
moviegoers above certain ages to see theatrical releases with increasing degrees
of “adult content.” No film can offend the values and tastes of what the Chinese
state thinks is a “general audience” (Langfitt, 2015).
Incidents of the S.A.P.P.R.F.T. censoring Hollywood films are covered in
the Western news media, but coverage can be superficial. News media prefers
detailing individual examples to writing a more systematic analysis of what
China gains from repeatedly giving Hollywood studios a hard time over this
or that scene.4 Beyond the primary need to obey what is in its own policy,
the S.A.P.P.R.F.T. can also use censorship guidelines to throttle the poten-
4 For the sake of space, examples will not be detailed. Hollywood films that have had

difficulty with the SAPPRFT include: the 2010 remake of The Karate Kid, Life of Pi, Mis-
sion: Impossible III, Pixels, the 2012 remake of Red Dawn, and the 2014 of RoboCop. For
descriptions of what the SAPPRFT objected to in these films and others, see Baldwin and
Cooke (2015); Cieply and Barnes (2013); Langfitt (2015); O’Connor and Armstrong (2015);
Rosen (2006).

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McMahon Working Paper

tial financial impact of a film that is imported into China. For example, the
S.A.P.P.R.F.T. can delay the Chinese release of a Hollywood film by asking
for more edits or by taking longer to give final approval. Imported films are
already banned from being exhibited during key holiday periods, such as the
Lunar New Year, but the U.S.-China Economic and Security Review Commis-
sion claims that “manipulating the timing of a foreign film’s release is common
practice for [the] SAPPRFT” (O’Connor & Armstrong, 2015, 10). Affecting the
timing of Hollywood imports can create situations like what happened to Min-
ions and Pixels, which were released in Chinese theatres only two days apart.
Conversely, less-than-ideal clusters of Hollywood releases advantage Chinese
films, which then face less direct competition on their days of release (O’Connor
& Armstrong, 2015).
Without open access to the decision-making process of the S.A.P.P.R.F.T.,
we can only build a proxy to substantiate the claim that the Chinese state can
use censorship to throttle the financial impact of Hollywood films. Figure 3
helps us confirm, with some certainty, that domestic and imported films have
an inverse relationship–i.e., domestics are popular when imports are not, and
vice versa. Figure 3 uses gross revenue data and plots each revenue total on
the date of the film’s release in China. Panel B visualizes the relatively-clean
alternations between the releases of domestic and imported films.

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McMahon Working Paper

A. Cumulative Revenues (2010 − 2017)

Billions, Chinese Yuan Renminbi

50

20 Domestic
10

5
Import
2

2010 2011 2012 2013 2014 2015 2016 2017 2018

Date
B. Revenues by month
Billions, Chinese Yuan Renminbi

6
5
4
3 Domestic
2
1
0
−1
−2
−3 Import
2010 2011 2012 2013 2014 2015 2016 2017 2018
Date

Figure 3: China’s Biggest Theatrical Grosses: 60 Domestics v. 60

Imports
Note: Import data in Panel B are presented as negative numbers for the
purposes of visual clarity. They do not signify costs or net income.
Sources: cbooo.cn/Alltimedomestic for overall gross revenues of the top 60 domestic
releases and the top 60 foreign releases in China.

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McMahon Working Paper

3 Hollywood’s Struggle
So far we have outlined key political economic obstacles that prevent Hollywood
from entering the Chinese market with ease. We can now analyze the signif-
icance of China’s film market to Hollywood. By making estimates of China’s
future potential in cinema, we can theorize what Hollywood can gain from ac-
quiring a stronger position in this market. We can also empirically demon-
strate that it is presently difficult for Hollywood’s major studios to acquire this
stronger position. This forward-looking analysis from the present is important,
as it mirrors the forward-looking logic of capitalization, which discounts future
expected earnings to present prices (Nitzan & Bichler, 2009). Moreover, Holly-
wood’s struggle in China would certainly be a factor in how capitalists weigh
their future expectations of global income from Hollywood cinema (McMahon,
2015).
China’s theatrical market is big now, but it also has room to grow. When we
account for China’s massive population, we see the potential for the Chinese the-
atrical market to multiply in size. Figure 4 plots the average annual attendance
per capita of the world’s most populous countries. The average is taken from
attendance data between the years 2005 and 2015. On account of its population
size and the differences in consumerism between its urban and rural regions,
China’s average consumer is still only seeing less than one theatrical film per
year. This movie-going habit is relatively low; China’s significance to Hollywood
has an opportunity to multiply if the country can grow its movie-going culture
to the size of countries like Japan, France and the United States.
As a way to speculate about the future trends in the Chinese theatrical
market, Figure 5 visualizes data from a M.P.A.A. report that has theatrical
revenue data for groups of Chinese cities. The report uses the “Tier classification
system”, which uses
variety of population, economic, political and industrial criteria used
to distinguish between Tiers. Tier 1 cities are generally defined
as Beijing, Shanghai, Tianjin, Chongqing, and Guangzhou. Tier 2
cities tend to be provincial capitals. Tier 3 cities tend to be pre-
fecture capitals. Tier 4 and 5 cities are smaller country cities, with
populations of 150,000 or less. (Oxford Economics, 2017, 8)
The upward trajectory of Chinese box-office revenue might not continue, but if
it does, the crucial point is that state control of the Chinese film market has
protected national interests up until this point, when Chinese movie businesses
are big enough to reap significant future rewards. The China Film Group is
a consolidated firm that has technical capacity for large-scale production and
wide distribution (Yeh & Davis, 2008). Private film production has been offi-
cially legal since 2001 and is contributing to the growth of national film releases
(Meyer-Clement, 2017). Additionally, some of the biggest Chinese firms, such
as Wanda, Baidu, Alibaba and Tencent, have acquired smaller media firms and
invested in all sides of cinema, from production facilities to online streaming
(Frater, 2015).

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United States of America ●

Republic of Korea ●

France ●

United Kingdom ●

India ●

Mexico ●

Italy ●

Germany ●

Japan ●
Country

Russian Federation ●

Philippines ●

Brazil ●

Turkey ●

South Africa ●

Thailand ●

China ●

Egypt ●

Indonesia ●

Iran (Islamic Republic of) ●

Ethiopia ●

0 1 2 3 4 5
Annual attendance per capita, average 2005−2015

Figure 4: Average annual attendance per capita, sample of the most

populous countries
Source: U.N.E.S.C.O. U.I.S. Statistics (data.uis.unesco.org) for Annual Attendance
Per Capita, 2005 - 2015.

50
Billions, Chinese Yuan Renminbi

20

Tier
10 1
2
3
5 4
5

2012 2014 2016 2018 2020

Year

Figure 5: Chinese box-office Revenue, by city tier

Source: Oxford Economics (2017)

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McMahon Working Paper

When a national competitor is unable to fight Hollywood for the top-grossing

ranks of its own market, Hollywood is content to have its international strategies
mirror its strategy in the United States. In other words, Hollywood’s most
straightforward strategy is to take what is successful at home and export it
abroad (Fu & Govindaraju, 2010). The unattractive situation is when, like in
China, Hollywood cannot expand the social order that favours its own interests,
whereby its biggest films are at the top of the revenue pyramid and everything
else (smaller budget; niche market; independent) is on the bottom. The inability
for Hollywood to produce a favourable order in the Chinese market can be seen
in two ways: (1) in the levels of total revenues and (2) in the relatively low
predictability of American box-office successes having success in China.
To identify the problem with the levels of revenues that Hollywood gains
from China, we need to look beyond the performances of individual films, which
is a scale that can make Hollywood look strong; films such as Avatar, Zootopia
and Furious 7 have been smash hits with Chinese moviegoers. A wider perspec-
tive shows there is evidence that Hollywood needs to be much more dominant
in China, especially if this country has the potential to be a keystone of future
international sales. As shown in Figure 6, Asia’s contribution to the interna-
tional revenues of American motion picture firms has been shrinking. Data is
taken from the U.S. Bureau of Economic Analysis (B.E.A.). Panel A shows
the annual revenue total of U.S. motion picture sales outside of the United
States (referred in the data as “services to foreign persons”). Panel B shows the
percent distribution of international revenues across regions. Both panels use
the regional categories already set in the B.E.A. data. The category “Africa,
Middle East, Asia and Pacific” is huge geographically–and less-than-ideal for
focusing on China–but a large majority of the revenues in this category come
from Australia, China, Japan and South Korea.
Assuming that Hollywood’s major studios are responsible for the majority
of American film exports, Figure 6 indicates that international revenues of Hol-
lywood have stagnated for the last ten years. Moreover, Panel B shows that
Europe, Hollywood’s largest source of international revenues, has been declining
since the late 1990s. Just as importantly, it is Latin America that has compen-
sated the most for Europe’s declining share after 2005. Canada and Africa,
Middle East, Asia and Pacific have smaller total shares after 2005 than they did
in the late 1990s.
What is visible in Figure 6 can be connected to Hollywood’s struggle in
China, even if the B.E.A. data is too broad to make any causal claim. Figure
7 can help us see relevant contemporary processes. The figure visualizes the
international revenues of the “Africa, Middle East, Asia and Pacific” category,
but as a rate of change from a 3-year trailing average. The other series (thin
line) is the annual output of Chinese film production, also visualized as a rate of
change from a 3-year trailing average (absolute numbers are shown in Figure 1).
Other factors would certainly have an impact on the rise and fall of Hollywood’s
international revenues in Asia, but Hollywood’s fall is contemporaneous with the
rapid growth of China’s film production. Moreover, Hollywood’s short burst of
revenue growth around 2010 is coincident with a Chinese film industry that was

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McMahon Working Paper

A. International, Total (Billions of US$)

15

10

0
1985 1990 1995 2000 2005 2010 2015

Africa,
Latin
Middle East, Canada Europe
America
Asia and Pacific

B. Share of International, Total (%)

100%

75%

50%

25%

0%
1985 1990 1995 2000 2005 2010 2015

Africa,
Latin
Middle East, Canada Europe
America
Asia and Pacific

Figure 6: U.S. Motion Picture Services to Foreign Persons, Interna-

tional Total
Note: When disaggregated data are available, values for services to foreign
persons by U.S. multinational enterprises through their majority owned foreign
affiliates are motion picture and video industries. For the years when disaggregated
data are unavailable, weighted estimates of the motion picture and video industries
are made from the aggregated values of motion picture and sound recording
industries. The weight of Middle East, Asia and Pacific (0.85) is the average share
of motion picture and video industries, when available.
Sources: B.E.A. International Services data for services to foreign persons by
U.S. multinational enterprises through their majority owned foreign affiliates, by
industry of affiliate and by country of affiliate.

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McMahon Working Paper

still growing, but not as rapidly.

Services to Foreign Persons: Chinese

100% Africa, Middle East, Film Production
Asia and Pacific

75%

50%
Rate of Change

25%

0%

−25%

1985 1990 1995 2000 2005 2010 2015

Figure 7: U.S. Motion Picture Services to Foreign Persons (Africa,

Middle East, Asia and Pacific) v. Chinese film production, rates of
change
Note: See note in Figure 6.
Sources: B.E.A. International Services data for services to foreign persons by
U.S. multinational enterprises through their majority owned foreign affiliates, by
industry of affiliate and by country of affiliate.

The predictability of how Hollywood films will perform in China is another

key factor in Hollywood’s struggle. The ideal situation for Hollywood would
be a state of low risk, whereby confident estimates about future streams of in-
come reduce the uncertainty about aesthetic decisions and distribution strate-
gies (McMahon, 2015; Nitzan & Bichler, 2009; Wasko, 2008). Some of my past
research on risk has used data on the number of opening theatres per film as a
proxy to measure the risk perceptions of Hollywood. Opening-theatre data can
function as a proxy because each commitment to the size of a film’s theatrical
release is, essentially, an expectation about its future revenues. To release in
many or few theatres, or to exhibit nation-wide or start in select cities–these are
just some of the choices that must be decided well before opening night, before
any revenue dollars start flowing. Without reliable opening-theatre data for the
Chinese film market, we can use American opening-theatre indirectly. In the
contemporary period, Hollywood has been enjoying a period of low risk in the
American market. An important consequence of this low risk is that there is
a strong correlation between a film’s revenue rank (nth place in largest gross
revenues) and its rank in the largest number of opening theatres (nth place in

15
McMahon Working Paper

most opening theatres) (McMahon, 2013, 2018). In other words, we can select
Hollywood’s top grossing films in recent years, which the major studios were
confidently predicting would be the biggest hits in America, because they had
the biggest opening-theatre releases (McMahon, 2013, 2018; Nitzan & Bichler,
2009).
Figure 8 estimates to what degree the composition of international markets
mirror the ranking-order of the largest grossing films in the U.S. market. The
figure cannot explain how Hollywood produces a mirroring effect, but its major
studios would benefit from any mirroring with the United States film market.
Promotion and advertising are key factors of a theatrical-distribution strategy
(Wasko, 2003), and uncertainty about how much promotion and advertising are
necessary would be reduced when a film’s success in one place can indicate how
it will perform elsewhere. This benefit in reducing uncertainty was recently
demonstrated in the negative, when Disney promoted the latest Star Wars films
in China. The original Star Wars films were not previously exhibited in China
and its moviegoers did not grow up in an environment where, for generations of
people, the Star Wars franchise was one of the centerpieces of popular culture.
Thus, Disney added extra doses of promotion in China, but reports indicated
that the effects of the extra promotion were still uncertain. For franchises the
size of Star Wars, there might be few certain substitutes for the knowledge
that an entrenched, dedicated fanbase will very likely make the next film a
top-ranking success (Frater, 2018; Greenberg, 2016).
Figure 8 covers the period from 2007 to 2016. The x-axis plots a film’s
revenue rank in the U.S. market (e.g., a rank of 1 means the film had the
highest gross revenues of its year). The y-axis plots each film’s revenue rank in
a foreign market (nothing is plotted if a film was not exhibited in the foreign
market). For each year, only the top one hundred films in the U.S. market are
counted, as the goal is to focus on major Hollywood releases that were successful
in American theatres. In addition to China, Figure 8 has five other countries for
comparison. Availability of data was a factor in the selection of these countries,
but another factor was the differences in how these countries control the flow
of U.S. cultural imports. Australia, Mexico and South Korea have free-trade
agreements with the U.S. and, as of 2018, China, France and Japan do not.
The correlation between the revenue ranks of films are higher in countries
with U.S. free-trade agreements. Figure 8 also puts the Chinese market in
context: China’s correlation is the lowest of the six countries that are shown.
Table 1 selects a few films that contributed to China’s relatively low correlation.
Each of the six films was very successful in the United States but could not
reproduce a similar box-office ranking in China. Because of our earlier reference
to the Star Wars franchise, it is interesting that neither Star Wars: The Force
Awakens nor Rogue One: A Star Wars Story reached the top ten of China’s
annual box-office revenues. Table 2 illustrates that, in this case, China’s film
market is similar to South Korea’s, somewhat similar to Mexico’s, and dissimilar
to the markets of Australia, France and Japan.

16
McMahon Working Paper

Australia ( r2 = 0.91 , n = 832 ) China ( r2 = 0.342 , n = 194 )

200 ● 200 ●

● ● ●
● ●

●
● ●
● ●
● ● ●
● ● ●
●
●
● ● ●
● ●
●

150

Revenue Rank
●

150 ●

●
●
●
●
●

●
●

●
●

●
●
● ●

● ● ● ● ●
● ●
● ● ● ●
●
● ● ●
●● ●
● ● ●
● ● ● ● ●
● ● ●● ●
● ● ● ● ●
● ●●● ●
● ●● ●●● ●
● ● ● ● ● ● ● ●
● ● ● ●
●● ● ●
● ● ● ● ●

100
● ● ● ● ●

100
● ● ● ● ● ●
● ●
● ● ●●● ● ●
● ●
● ● ● ●
● ●
● ●
● ● ● ● ● ●
●●●●● ● ● ●● ●●
● ● ● ●● ● ● ●● ● ● ● ●
● ● ● ● ● ●
● ●● ●●●● ● ●●● ● ●
● ● ● ● ●●
● ● ●
● ●● ●● ● ● ● ●
● ● ● ● ●● ● ● ● ● ● ● ● ●
● ● ● ● ● ● ●
●● ● ●● ●● ●
●●●

75
● ● ●

75
● ● ● ● ●
● ● ● ●●●
● ● ● ● ●
● ● ● ● ● ● ●● ● ● ●
●● ●● ● ● ●● ●● ● ● ● ● ● ● ●● ● ●
●● ● ● ●
● ● ●● ●● ●●●
● ● ● ● ●●● ●●● ●● ● ● ● ●● ● ● ● ● ● ●
● ● ●● ● ● ●● ●
● ●
● ● ●● ● ●● ● ● ● ●
●
● ● ● ●●● ● ● ● ● ● ● ● ● ●
● ●● ● ● ● ● ●
● ● ● ●● ●● ● ● ●
●● ● ● ● ●
● ● ●● ● ● ●● ● ● ●
● ●●●● ● ● ● ●● ●
●
● ●
●
● ● ●
●
●
● ● ● ● ● ● ● ● ● ●● ●● ● ● ● ● ● ● ●
● ●● ●● ●

50
●●●●●●● ● ●●● ● ●

50 ●● ●●
●● ● ●● ● ● ● ● ● ●
● ● ● ●● ●● ● ● ●● ● ●● ● ● ● ● ● ● ● ● ● ●
●● ●● ●●
● ● ● ●● ●
● ●● ● ● ● ● ● ● ●● ●● ● ● ● ● ●
● ● ● ● ●●
● ● ●● ● ● ● ●
● ●● ● ● ● ● ●● ●● ● ● ● ● ● ●
● ●● ● ● ● ● ● ●
● ● ●● ● ●● ● ● ● ● ●●●● ● ● ● ● ●● ● ●
● ● ●●●● ● ●●●●
●
● ●● ● ● ● ● ● ● ● ●
● ●
● ● ●● ● ●●● ●●
●
● ● ● ●
● ●● ●
● ● ● ●
● ● ● ● ●
●●●● ● ●
●●●● ●●●
● ●
● ● ● ● ●
● ● ● ● ●●● ● ● ● ● ● ● ●

25
●●● ● ●● ● ● ●●●● ●

25
● ● ●● ● ● ● ● ● ● ●●
● ●● ●● ● ●●●●●● ● ●●
●
● ● ● ●● ●● ● ●●
● ● ● ●
● ● ●●● ●● ● ● ●● ● ● ● ●● ●
● ●●● ●●● ● ●● ● ● ● ● ● ● ● ● ●
●●● ● ●● ●
●●● ● ●● ● ● ● ● ● ● ● ● ● ● ●
● ● ●● ● ● ● ●● ● ● ● ● ● ● ●●● ●●
● ●● ●●●● ●
●●● ● ● ● ● ●
● ● ●●● ●
●●●
● ●●●
●●
●● ● ● ●
●
● ●●●● ●● ● ●●
● ●●●● ●● ●● ●● ● ● ● ● ●●
● ●●●●●● ●●●●
●●●
●
● ● ● ● ● ●
●●●●● ●●● ● ● ● ● ● ● ● ● ● ●
●●
● ●●● ● ●●● ● ● ● ●
● ● ●●● ●

1 1
●●●● ●●● ● ● ● ● ● ● ● ● ● ●
●
●●● ● ●
● ●●●● ● ● ●
● ●

1 25 50 75 100 1 25 50 75 100

France ( r2 = 0.424 , n = 340 ) Mexico ( r2 = 0.77 , n = 839 )

●
200 ●

●
●
●
●
●
●

●
●

● ●
● ● ●
● ● ● ●
● ● ● ● ●
●

400
● ● ● ● ●
● ● ● ● ● ●
● ●
● ●
● ● ● ●
● ● ● ●
Revenue Rank

●● ● ●

150
● ● ● ● ● ●
● ● ●
● ● ● ●
● ● ●
● ● ● ●
● ● ● ●
● ●●●
● ● ●● ● ●
● ● ● ● ● ●

300
● ● ● ●
● ● ● ● ● ● ●
● ● ● ● ● ●
● ● ● ●
●● ● ●
● ●●
● ● ● ●
● ● ● ● ●● ●●● ●
●
●
● ● ● ● ● ●
● ● ● ● ● ● ● ●
● ● ● ● ● ●
● ● ● ● ●● ●
● ● ● ●
● ● ● ● ● ● ● ● ● ●
● ● ● ●●
● ● ● ●● ●
● ● ● ● ●

100
● ● ● ●●
● ●
● ● ● ● ● ● ● ● ● ●
● ●●● ●● ● ● ● ● ●
● ●
● ● ●● ● ●
● ●
●● ●● ● ● ●●
● ● ● ● ● ●● ● ●
● ●
●
● ●●
● ● ● ●●● ●
●
● ●● ● ●● ● ● ●
● ●● ● ● ●

200
● ● ●●
● ● ● ● ●
● ● ● ● ●●● ● ●●●
●●● ● ● ● ● ●
●
● ● ● ● ● ● ● ●● ● ●
●
● ● ● ● ● ●
● ● ● ● ●●
● ●
● ● ● ● ● ●● ●

75
● ● ● ● ● ● ● ●● ● ● ●
● ● ● ● ●
● ● ● ● ● ●
● ● ● ● ● ● ● ● ●● ●
● ● ● ●● ● ● ● ● ●
● ● ● ●● ● ●● ● ●
● ● ● ● ● ● ● ● ●● ● ● ● ●

150
● ● ● ● ● ● ● ● ● ● ● ●●● ●● ● ●
● ● ●
● ● ● ● ● ● ● ●● ● ● ●
● ● ● ● ● ● ● ●●
● ● ●● ●● ● ● ●
● ● ● ● ● ● ● ● ●
●● ● ● ●● ● ●●●
● ●● ●● ● ●
●
● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
● ● ● ● ● ● ● ● ● ● ● ●
● ● ● ● ● ●
● ● ●
● ●● ● ● ● ●● ● ● ● ● ●●

50
● ● ● ● ●● ● ● ● ● ● ●
●●
● ● ● ● ● ● ●● ●●● ● ● ●●●
●
●● ●●● ● ● ●
● ● ●
●● ●● ● ● ● ●● ● ●● ● ● ● ● ● ● ● ● ●●
● ● ●●● ● ● ●

100
● ● ● ● ● ● ● ● ●●
● ● ● ● ●●● ● ● ● ● ●
●
● ● ● ● ● ●
● ●
● ● ●
● ● ● ● ● ●
● ●
● ● ● ● ● ●
●● ● ● ● ● ● ● ● ●●● ● ●● ● ● ●● ● ● ●● ●
●● ● ●●
● ● ● ● ● ● ● ●● ● ● ● ●● ● ● ● ● ● ● ● ●
●●● ● ●
●
● ● ● ● ●● ● ●● ● ● ● ●● ●
● ● ● ● ● ● ●
● ● ●● ● ● ● ● ●●● ● ● ● ●
● ● ● ● ●●● ● ● ●●● ● ● ● ● ● ● ● ● ●
● ● ●● ● ●●● ●●
● ●●● ● ●● ● ● ●●● ●
●● ●

25
● ● ● ● ● ● ● ● ● ● ● ● ● ●
● ● ● ●● ● ●● ● ● ● ● ●

50
● ● ● ● ● ●● ●● ● ● ● ● ● ●● ● ●
● ● ● ● ●
●● ● ● ● ● ● ●● ●●● ●● ●● ●
●
●
●●●
● ●●
● ●
●
●
● ● ● ● ● ● ● ● ●●● ● ●
●● ●● ●
●
●
● ●● ● ● ● ● ● ●●● ● ● ● ● ●
●
● ● ●
●
●
● ● ● ●● ● ● ● ●
● ●●●●● ●● ● ● ●● ●
● ● ●●● ●●● ●● ●●● ● ● ●● ●
● ● ● ●
●●● ● ● ● ● ● ● ● ● ● ●
● ●●
●● ● ● ● ● ● ● ● ● ● ●●● ●●●● ● ●
● ●
● ●● ●●●● ● ● ● ●● ● ●●●
●
●●●●●● ● ●●
●
●●
● ●●
● ● ● ●
●●● ●●●● ●● ● ● ● ● ● ●● ● ● ● ● ● ●● ●
●● ● ● ● ●●●● ● ●● ●

1 1
●●●● ● ● ● ● ● ● ● ●●●
●
●● ● ●●●●● ● ●●● ●●●●● ● ●
●●● ●● ●● ●●●●●● ● ●● ● ●

1 25 50 75 100 1 25 50 75 100

Japan ( r2 = 0.576 , n = 343 ) South Korea ( r2 = 0.589 , n = 634 )

● ● ●
● ●
●
●
●

● ●
●

200 ● ● ●
●
● ●

300
●
Revenue Rank

●
● ●
● ●
● ● ● ●
●● ●
● ● ● ●
● ● ●
● ●● ● ●

150 ● ● ●
● ● ● ● ● ●
● ● ● ● ●
● ● ● ● ●
● ● ● ●
● ● ● ● ● ● ●
● ● ● ● ● ● ●
● ● ● ●

200
● ● ● ● ● ●
● ● ● ●●
● ● ● ● ●● ● ● ●
●
●
● ● ● ● ● ●
● ● ● ● ● ●●
● ● ●● ● ●● ● ● ●
●● ● ● ● ● ● ●
● ● ● ●
● ●● ● ● ●
● ● ●
● ● ● ● ● ● ● ● ● ●
● ● ● ● ● ●● ●
●● ● ● ● ● ● ● ● ● ●

100 ● ● ● ● ● ● ● ● ● ● ●●● ● ●
● ● ● ●
● ● ● ●● ●●
● ● ● ● ●●

150
● ● ●
● ● ●
● ● ●● ● ● ● ● ● ● ● ● ● ● ● ● ● ●●
● ● ● ● ● ●● ● ● ● ● ● ● ●
● ● ● ● ● ● ●●
● ● ● ● ● ● ●●
● ●
●
● ● ● ● ● ●● ● ● ●● ●
●● ● ●
● ● ● ● ●● ●●
● ● ● ●● ● ● ●● ● ● ● ● ●●●
● ●● ● ● ● ● ● ● ● ●● ●
●●● ●● ● ● ● ●●
●●● ● ● ●●●

75
● ● ●
● ●
● ● ●● ● ● ● ● ● ● ● ● ●
● ● ●● ●● ●● ●
● ● ● ● ● ● ● ● ● ● ●● ● ● ●●● ● ● ●
● ● ● ● ●● ●● ● ● ●● ● ● ● ●
● ● ●● ● ● ● ●● ● ●●
●●●●

100
● ● ● ● ●●●● ● ● ●●
● ●●● ● ●
● ● ● ● ● ● ●● ● ● ● ● ●● ● ●
●● ●
● ● ● ● ●● ● ● ● ● ●● ●●
● ●
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1 25 50 75 100 1 25 50 75 100
Revenue Rank in USA Revenue Rank in USA (log10)

Figure 8: Box-office revenue rank of U.S. top 100, U.S. market v.

foreign, 2007 - 2016
Notes: Data on France includes revenues from Algeria, Monaco, Morocco
and Tunisia. Axes are in log10 scale.
Source: boxofficemojo.com for gross revenues of a films in the theatrical markets
of the United States, Australia, France and Algeria, Monaco, Morocco and Tunisia,
China, and Japan.

Table 1: Comparison of Ranks: Selection of Films

Film U.S. Rank China Rank

Star Wars: The Force Awakens 1 13
Rogue One: A Star Wars Story 1 36
The Hunger Games: Catching Fire 1 40
Finding Dory 2 53
Shrek the Third 2 59
Inside Out 4 81

17
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Table 2: Comparison of Box-Office Revenue Rank:

The Star Wars Franchise

The Force Awakens Rogue One

U.S. 1 1
China 13 36
Australia 1 1
France 1 1
Japan 1 9
Mexico 7 24
South Korea 18 48

4 Conclusion
Coming to a definitive conclusion about Hollywood’s position in China is diffi-
cult, because the issue is still open. The United States’ WTO complaint against
China lead to a co-signed Memorandum of Understanding (signed in 2012),
but this document was essentially a deferral: it gave China five years to keep
its quota system in place, at which point all parties will begin to “discuss the
matter of China implementing the [WTO Dispute Settlement Body’s] recom-
mendations and rulings” (WTO, 2012). There are also ways for Hollywood’s
ambitions to be affected by larger issues in Sino-U.S.trade relations, which has
been an on-going news story of Donald Trump’s presidency (Maddaus, 2016;
McCoid, 2017; Wolf, 2018). It is beyond the scope of this paper to predict
how the WTO talks will resume or what will become of America and China’s
relationship under Presidents Trump and Xi.
Nevertheless, this paper has analyzed how we have gotten to where we are
now. The Chinese film business has grown under state protection, to a size that
enables its largest film producers and distributors to be formidable competitors
in the Chinese theatrical market. Hollywood films still do well in China, but
American studios are forced to choose from alternatives that each gives Chinese
partners some advantage. If Hollywood exports a film through the quota system
it must give a share of the film revenues to a Chinese distributor and lose direct
control over scheduling. Hollywood must also try to pass films it has already
produced through the approval process of the SAPPRFT. Should the SAPPRFT
have an issue with a film, there are likely to be added costs and delays caused
by editing or re-shooting.
Analysts of Hollywood and China identify that the main alternative to the
quota system is co-production with a Chinese studio (Curtin, 2016; O’Connor
& Armstrong, 2015). Co-production appears to be a suitable option because
foreign investment can still take place and Chinese partners can help tailor
stories to the expectations of Chinese audiences and the SAPPRFT. But co-
productions with a Chinese studio are less-than-ideal if Hollywood is simply a
glorified foreign investor (Hollywood’s participation in production is different

18
McMahon Working Paper

from an absentee owner who simply wants a return on Chinese cinema). Holly-
wood prefers to export its films to multiple regions around the world, rather than
make a set of films for each region. Hollywood also rarely cedes key pieces of
control to others, such as distribution and licensing rights, final cut, advertising
and promotion, scheduling and intellectual property.5 While the recent strategy
with China might indicate that Hollywood could alter the ways it accounts for
regional differences in language, culture and politics, Hollyood’s compromise
with CCP policy could put its studios on a slippery-slope. And is China the
only country that can force Hollywood into compromise?

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