One learns, after a few years in the media industry in China, to ignore the chest-thumping threats of media moguls to withhold something from China. This is for good reason: the threats are usually empty.
Such was the case several years ago when Disney (NYSE:DIS) CEO Robert Iger told the media in Hong Kong that unless China gave Disney a full-time TV channel, there would be no Disneyland on the mainland in China. The reason you heard no angry (or even stern) response from the Chinese government after Iger's comment is that Chinese officials were laughing so hard they couldn't compose a statement. The threat was hollow - having just opened Disneyland in Hong Kong, Disney was in no rush to open a park on the mainland. And, frankly, China's officials knew that if they really want the people to go to Disneyland, they don't need a park in Beijing or Shanghai - they just need to grant more permits for folks to visit the conveniently-located Hong Kong park.
Beware of Angry Lawyers. They Bark.
Last week, MPAA Chief Dan Glickman (aka, Hollywood's hired gun in DC) told The Hollywood Reporter that if China didn't do something about ending piracy, the industry could choose to boycott China. I don't expect an official response - I think, once again, the government officials with remit over Hollywood's fortunes in China are probably too paralyzed with paroxysms of mirth to compose a response.
I will, however, respond.
I can only surmise that Mr. Glickman dared to suggest the possibility of Hollywood divesting from China in order to play to his clientele, to prove that, like the recently departed Jack Valenti (rest in peace, Jack) he could play tough with the Chinese. Or, perhaps, he was pissed off at having to sit in economy class on his redeye from DC to the Coast. Or perhaps it was indigestion.
Because as far as anyone on this side of the Pacific was concerned, his offhand remark came off at best as reckless, and at worst profoundly ignorant, particularly in light of his distinguished background.
China Can Live Without Hollywood...
First of all, as Mr. Glickman himself noted, any sort of organized, multilateral action on the part of the major studios would likely be viewed by U.S. regulators as a violation of the Sherman Anti-Trust Act. So coordinated unified action is out.
And any non-coordinated unity of action is highly unlikely. Apart from the fact that Iger, Parsons, Stringer, Redstone, Murdoch, and Zucker don't like each other any more than Disney, Warner, Zukor, Mayer, Cohn, Fox, and Laemmle did at the height of the studio system, each company knows that the departure of one would be to the advantage of another. If there are only so many slots each year, one guy walking away means more slots for someone else.
Most important, perhaps, is this: If the major US media companies simply packed their bags and left, in all likelihood they would suffer far more for their actions than China. Divestment may scare smaller countries who depend on foreign direct investment, or might concern China if the push to divest was broad-based. But given the microscopic footprint of the film industry's investment in China (or, indeed, that of the entire entertainment business), divestment wouldn't even be a rounding error in the overall flow of FDI in a given year.
We also should not forget that China is in the midst of a major policy shift away from encouraging foreign investment because of fears in Beijing that the country has sold its industry to a bunch of big-noses to the growing disadvantage of China's domestic enterprises. While the rest of us might feel that concern is a tad overblown, it holds a lot of currency in Beijing, and they got the idea from U.S. economists.
So China's attitude toward Hollywood packing its bags would probably amount to something like "don't let the doorknob hit you on the ass as you leave."
...Does Hollywood Want To Live Without China?
After over two decades of trying to figure China out, there are signs that a very small number of companies in Hollywood are beginning to build real businesses here. Of all of the majors, Warner (NYSE:TWX) has arguably done the best job of turning China into a business. They've built a music label. HBO and Cinemax have a profitable business here, as does CNN. And...here's the kicker...in a nation of pirates, they actually have a modest but growing business in legitimate home video.
There are other examples. Despite a miserable system, the box office take for Hollywood films in China continues to grow, especially as the cinema experience improves in major cities and same-day releases become the rule rather than the exception.
To give up now - to just walk away - would be to ignore the progress that has taken place, and it would be tantamount to saying "we are NEVER coming back." Because let's not have any illusions: memories are long here. Much longer than your typical Hollywood career.
One day, you may realize there is actually a great value for you here.
Dreaming of Chollywood
I suspect that a lot of very senior people in the motion picture business - and in the entertainment industry - are starting to realize that the Chinese government at the moment has little interest in being a part of Hollywood's world, and that China is just large enough - and developed enough - to say "no" to Hollywood and just not worry about it. The fault for that lies as much with Hollywood as it does with Beijing. It's time to fess up to that.
Being confrontational, issuing ultimatums, and divesting (or even threatening to do so) are not going to solve the problem. Especially right now, with China prickly and sensitive, having a representative of the industry suggesting the global business equivalent of the nuclear option is just baiting the dragon. Come on, you big beast. Bite me. I dare you.
Trying to change the government's mind - or forcing it to - won't work as long as you are an outsider fighting for the interests of outsiders.
The only way things are going to change significantly in China for the global entertainment industry is to start playing an inside game.
First, stop focusing on piracy, and return the focus to access. Get more product into more stores. Where are the HMV and Virgin megastores? Or their Chinese equivalent? If Warner can build a home video business, why are they the only ones?
Next, get the consumer onside. Trust me, there is growing discontent about paying even $0.75 for a pirated DVD and then having it freeze up 5 minutes before the end of the movie. It happens ALL THE TIME here. And it doesn't matter that the store or the guy on the street corner will give you a refund - the evening is already toast. Consumers are ready to pay for the real thing, and many are ready to DEMAND the real thing. Deliver it at a competitive price, and they'll buy. But unless the real stuff is ubiquitous, forget it.
Then, start working with your Chinese counterparts. If you think you're hot about piracy, talk to some of these guys. Your movie gets ripped off in China, you shave a few points off of the global home video numbers. Their movie gets ripped off, and a massive chunk of their theatrical AND their home video is gone.
Start supporting their films. Start distributing them overseas. Build the kind of partnerships with mainland Chinese filmmakers that you've built with American, British, Canadian, Australian, German, Russian, and Hong Kong directors, producers, and independents. At the very least let them know that you're on their side and want to help, then listen to them.
Hollywood's greatest allies in China are consumers and filmmakers. And they are being ignored because it is a lot easier to listen to your lawyers than it is to think creatively about the problem. If the entertainment companies would simply form common cause with their natural local allies, more progress would be made in a year than has been made in the last 20 toward ending piracy.
The Other Side of China
A parting thought.
Even if you resign yourself to the possibility that China will never buy a lot of Hollywood entertainment, it would be foolhardy to remain blind to an important fact: Even if you can't make much money IN China, there are a growing number of ways you can make money WITH China.
The industry simply needs to take China as it is and discover where China fits in the broader scheme of things. Look at what your business needs, look at what China offers, needs and permits - and figure it out. Next week, I'll look at a set of opportunities for Hollywood in China.
China is like nothing the industry has ever dealt with before. China will change the rules of the game. That's not going to be pleasant for anyone, but there it is. There is opportunity here, but it's going to require intelligence, creativity, and flexibility - not Mr. Tough Guy - to capture it.