DreamWorks Animation (NASDAQ:DWA) is dropping the "animation" part of its name in its year-old China joint venture, with word of a major new expansion that underscores the Chinese film market's growing clout. Word of the expansion comes as Wang Jianlin, China's newly named richest man, also makes a big bet on Hollywood with his multiple investments in movie theaters and related technology via his Wanda Group empire. DreamWorks and Wang are both chasing a Chinese film market that is growing at breakneck pace, and is now the world's second largest after only the U.S. DreamWorks is also setting its sights on China's rapidly transforming TV market, where the Internet and other new delivery channels look set to shake up the traditionally slow-moving sector.
Let's start with a look at DreamWorks Animation, which made headlines last year when it announced its formation of an animation studio joint venture called Oriental DreamWorks. The venture's original mandate was to make animated content for China's TV and movie industries, drawing on DreamWorks' expertise in the area, which includes its popular franchises such as "Kung Fu Panda."
Now, media are citing Oriental DreamWorks' Production Chief Joe Aguilar as saying the joint venture, whose partners include leading Shanghai media company SMG, will significantly expand its scope to also include live-action TV and movies both for the Chinese market and for export. As part of the live-action expansion, Oriental DreamWorks will produce both scripted and unscripted material, drawing on the Chinese fondness for talent shows and other reality TV formats.
This kind of major expansion from its original mandate is interesting, as Beijing is traditionally quite sensitive about foreigners making content for the Chinese media market. I presume the joint venture has already cleared this expanded agenda with SMG, which in turn has probably gotten the OK from central propaganda authorities. If all goes well, I could see this joint venture potentially earning as much as or more money than the original DreamWorks Animation within the next decade. But then again, nothing ever goes smoothly in China's tightly controlled media world, and I would expect at least one major crackdown on the sector by Beijing during that time.
DreamWorks is chasing a Chinese box office that grew nearly 30% last year to $2.7 billion, and could reach $5 billion by 2015. By comparison, the U.S. box office was worth around $10.6 billion last year. I haven't seen any figures for the value of China's TV market, but that sector could also have huge potential with the arrival of new products and services that offer national distribution for program makers using the Internet and other developing channels.
One of the film industry's biggest local boosters is Wang Jianjin, who has just been named China's richest man in a new list compiled by Forbes. Wang's estimated fortune of around $14 billion comes from his real estate company Wanda, which is best known locally for its chain of shopping malls and high-end hotels. But Wang has also been aggressively expanding his movie theater holdings both at home and abroad, including his landmark purchase of AMC Entertainment, the second largest U.S. theater operator, for $2.6 billion last year.
Most recently, Wang has signed a deal with Imax to aggressively expand the Canadian company's trademark big-screen technology into Wanda's China theaters. Both Wang and DreamWorks are among the most aggressive investors in China's filmed entertainment industry, but others like Disney (NYSE:DIS) are also making big bets on the market. As I said above, I do think their bets will ultimately pay off with handsome returns, though I also think the road for both domestic and foreign players into this tricky market will include several major speed bumps.
Bottom line: Big bets on China film and TV by Wanda Group and DreamWorks Animation will yield big returns in the next decade, but not without some growing pains.