When I do research for these weekly essays I always come across article proclaiming that movies are dying. Like all things, it’s easy to proclaim the demise of something, but it is really not accurate. Things change in the movie exhibition business, then they change back. It is like an odd ballet of brinkmanship with Wall Street interjecting its motivations that currently has a hold on the industry.

I think there are some simple truths in the business of motion picture exhibition. The business of exhibition is both business and art. You can crow about the importance of digital projection accompanied by 84 million channels of audio, comfy recliner seating and the rapid and necessary availability of chicken tenders. Most of what I have seen barely resembles chicken and as for the tender part….well. Here are the simple truths as I see it, and as always I am prepared to be wrong. Truth one: It’s About Community; build your audience and their loyalty and you have built a business. Truth two: It’s about the movie; make a good movie that speaks to the aspiration of everyday people and well you have a winner sir.

Hollywood rule as of late has been OPM, Other People’s Money. When China showed an interest in Hollywood they decided to dispense those whiny theater owners and look to the fertile fields of Asia in which to grow it’s market.

I think the movie business has been greatly damaged by the manipulations of Wall Street, but at the same time, Wall Street has been seduced by the movies only to find out in short form that it is a business unlike any other and as a result, they have been damaged. It is not a good or natural relationship. The Chinese market, with its burgeoning wealth and it’s odd mixture of a free market economy coupled with deep State controls decided to dip its toe in the glorious waters of the American movie studio. The studios in their turn always looking for someone to take all the risk and they reap all the reward, they got Chinese gold fever….and got it bad.

It did not work out for either of them.

Wang Jianlin, founder of Wanda Dailan, egged on the Chinese government who are grimacing over the financial roller coaster being imposed by Hollywood on many Chinese companies, announced he was selling 22% of his company’s share holdings to private equity firm Silver Lake Partners. Silver Lake is a large holder of equity in big technology players and might see it’s new equity in AMC, giving Silver Lake a seat at the entertainment table in possible future negotiations in regards to the acquisition of AMC by a streaming company. Wand Dalian and other Chinese companies are being mightily encourage by Chinese regulators to move off of position controlling foreign companies, especially one who have entangled themselves in the movie business.

At one time the Chinese government thought that Chinese money in movies would allow it to exert “soft power” over all things cultural. Soft power is the ability to attract and co-opt, rather than by coercion, which is using force or giving money as a means of persuasion. Soft power is the ability to shape the preferences of others through appeal and attraction. A defining feature of soft power is that it is non-coercive; the currency of soft power is culture, political values, and foreign policies. Xi Jinping in a speech to the Chinese Communist party, stated that the Chinese government was going to start looking at soft power for re-shaping the world culturally. It is working in Africa in the natural resource sector, but in the movie business….kind of a bust. They made movies that kind of flopped in both markets. Injecting a Chinese plot line, like in The Great Wall, or injecting Chinese actors in major roles…..did nothing for the cause of increasing Chinese influence. Both Hollywood and their new Chinese pals forgot that at the core of movie making, the nature of the story….in the case of East and West their form of storytelling are very different. Stories from Western cultures are individualist and idealize victory, while East Asian cultures celebrate collectivism and idealize harmony. It did not work, all that came out was the summer of 2017 and a lot of really bad movies.

Dalian Wanda took a majority stake in AMC in 2012 for $2.6 billion, which Reuters said was then the largest overseas acquisition by a privately held Chinese company. The Chinese are now beating a little bit of a hasty retreat.

The Hollywood studios thought that China was one big market they could conquer. Since all Chinese are mandated to speak Mandarin, the studios thought China was just Chinese…..wrong. The majority of the people are Han, which make up 92% of the population, but on top of that there are 55 identified minority groups within China. The simple truth which Hollywood was not aware of was that Chinese audiences are not a homologous group. There is a a big difference in the movie habits of China’s rising middle class of young adults residing in big cities like Beijing and Shanghai, and the working class Chinese who for the most part migrate to the big cities for work or stay in the rural areas.

While wealthy, and entitled upper classes hungrily consume Hollywood blockbusters and foreign movies, the majority of Chinese by big numbers prefer original Chinese language movies and most have little interest in foreign movies. Media literacy in China is still developing, and many less privileged Chinese prefer to watch movies set in, and which reflect their own interest and values, as well as reflect an Asian view of storytelling.

There has been a boom in building theaters in China, but increasingly the theaters after having been built are not doing much business. The Chinese Exhibition business in getting hit by scandal after scandal. Chinese authorities fined over 300 cinemas in spring of 2017 for cooking the books. Claims of under-reporting of ticket sales of Hollywood blockbusters and pocketing profits, to the shifting of ticket sales from popular movies to lesser performing domestic movies that have more agreeable profit sharing agreements have long been a concern for both domestic and foreign movie makers.

In China, locally made movies grossed a combined $4.5 billion during January-August 2018, an increase of 46% over the same period in 2017. This gave local movies a market share of 66%, compared to 53% for the first eight months of last year. Based on these figures, local productions have already out-grossed the combined box office they took during the whole of 2017.

This year no big Hollywood titles were allowed to be released during the peak Chinese New Year and summer box office periods. In 2017, a big chunk of market share for local movies was accounted for by just one title an action movie Wolf Warrior 2, which grossed $830 million. Hollywood had plans to put that money in it’s pocket, but that was not in the cards. China thought it could tame Hollywood studios, but that was not in the card’s either. Because of the allure of China the studios dispensed with the needs of the smaller and independent theater markets in North America, effectively saying “what do we need you guys for…we got China”. Indeed.

Now that the studios are slowly walking back to the reality of doing business in China, those smaller and independent theaters are starting to look pretty good.