Go big or go home: How major Hollywood studios can jump over the Great Wall of China

The internationalization of firms is a well-explored topic in the field of Business Management: through the last couple decades, corporations rode the wave of globalization to seize previously unknown markets, adapting their offering to regional differences. There are, however, instances where the alteration of a product is only possible on the global level – think of big Hollywood blockbusters, where the movie-goer experience is largely the same, regardless of where in the world one purchases a ticket. Thus, major studios’ local adaptation is witnessed by all consumers, especially their efforts to break into the Chinese market. Can they please everyone without alienating western audiences?

The increasing importance of China’s movie industry - bolstered by a boom in the country’s middle class population - has been watched with amazement by western industry players. The market overtook the United States as the biggest by revenue in 2020, partly due to the pandemic: but from the mid-2010s, China was evidently becoming number one, sooner rather than later. Chinese audiences gradually became a “must-have” as major Hollywood studios continue to struggle with huge financial constraints and risks associated with every release. Movie-goers would like to watch big blockbusters, but not all films can succeed at the box office: with a price tag of anywhere between $150-250 million, productions would need to make approximately double the amount of money by ticket sales just to break even. Thus, captivating the Chinese market with major releases could reduce financial risks and significantly contribute to revenues; explaining the industry-based considerations of why Disney and co. are increasingly pushing for a secure market position in Asia. (The exploration of Chinese market by studios could be seen as a market seeking activity under Dunning’s (2000) eclectic paradigm.) Entering this market, however, comes with a set of requirements every studio must adhere to.

Big budget blockbusters often make as much money in the US as in China – if not significantly more

Not Playing on a Level Field

Cinema could be defined as a cultural map of one’s surroundings: it is then only natural, that the most important facet of the CAGE distance framework explored by Ghemawat (2001) is the cultural distance to Hollywood studios. The cultural and national identity of Chinese moviegoers is vastly different from western audiences, thus filmmakers cannot fall back on a one size-fits-all solution when trying to appeal to a global market. Studios inherently face a liability of foreignness in the Chinese market: government policies stemming from this cultural difference further increases the administrative distance of the country. To enter the market, corporations must abide to a set of well-established rules by the government, as China limits and controls its film industry through specific protectionist regulations and policies: most importantly, there’s a quota on the number of movies that can be released in any given year, limiting the market entry to only 34 productions. Furthermore, China imposes a revenue-sharing model for studios, retaining a significant share of profits.

This is just intermission: As cinemas closed during the COVID-19 pandemic, the Chinese market, with its rapid recovery, became more important for Hollywood studios. Photo: Nick Bolton // Unsplash

To differentiate from failed attempts at a market entry, major players – e.g. Disney and Universal, two of the largest Hollywood studios – must facilitate a non-market strategy (interactions intermediated by the public) to overcome the administrative distance imposed by the Chinese government and reserve a societal license to operate. As the government has a major impact on both the mode of entry and on the performance of studios (market opportunities are controlled by the government), producers have to cooperate to successfully enter the Chinese market and to be able to capitalize on the large audience it offers.

As for content, government policies dictate under which conditions can studios successfully engage with Chinese audiences. Censorship guidelines indicate that no obscene or vulgar content is allowed to be presented, nor violence and terror or homosexuality should be depicted. Excessive drinking, smoking and other bad habits are also a no-go zone for filmmakers, as well as themes threatening the territorial integrity or harming the interest of the state. Things can get tricky for studios just wanting to enter the market, as blockbusters often have to be cut or altered in a way so that they comply with these rules (an example includes Disney’s Pirates of The Caribbean severely cut as the movie included a character that was deemed to be a racist portrayal of Chinese people). But in recent times, an entirely another approach arose: changing the content for both Chinese and western audiences. This includes Marvel Studios’ change of a Tibetan character to an actress of English nationality; or the re-writing of Mulan, a Disney classic which was adapted as a live-action movie together with a Chinese production company.

Pandering Doesn’t Mean Success by Default

With the rules loud and clear for market entry, studios have to consider more to appeal to a global audience. As industry players try to both adapt and aggregate, certain difficulties can arise in some – or all – markets: for example, the Disney’s live-action Mulan seemed to be a runaway success, with an intellectual property already well-known to western audiences now also tailored to Chinese tastes. Trying to appeal to different markets came with a headache for Disney: the release was deemed as a commercial and critical failure in both the US and China. Furthermore, the decision to cooperate with a Chinese production company near to internment camps near Xinjiang led to severe criticism of Disney in western countries. The controversies are likely to increase both in multitude and magnitude, as western consumers increasingly demand for companies to be held accountable in regards to societal issues: Hollywood studios, which essentially represent the culture with their output, are especially exposed to scrutiny. As their actions and end-product are now watched by everyone – thus local adaptability not being an option – can they really navigate between the standards of westerners and steering clear of Chinese regulations?

Mentioned theories:

Dunning, J. H. (2000). The eclectic paradigm as an envelope for economic and business theories of MNE activity. International Business Review, 9(2), 163–19

Ghemawat, P. (2001). Distance still matters: The hard reality of global expansion. Harvard Business Review, 79(8), 137-147