Hollywood on the Yellow Sea

Most americans probably associate Qingdao, China, with beer. In 1903, German and British settlers founded the Tsingtao Brewery there, and Teutonic influence can still be seen in some of the architecture in older parts of town. But the city’s temperate climate and coastal setting, almost 350 miles north of Shanghai, lend it an atmosphere that more strongly recalls Southern California, an association lately reinforced by the new buildings going up on the coastline southwest of town. There, on a steep green hillside that overlooks the Yellow Sea, you’ll see a gigantic sign with white freestanding characters: 东方影都, which translates literally as “Eastern Cinema.” It’s like the Hollywood sign that has overlooked Los Angeles since 1923, only bigger.

On a sprawling 1,200-acre site at the foot of that hill, a gaggle of construction cranes is noisily building Qingdao Oriental Movie Metropolis, a vast development that includes a movie studio, a theme park and entertainment center, a 4,000-room resort-hotel complex, a shopping mall, a 300-berth yacht club, a celebrity wax museum, and a hospital. The Dalian Wanda Group, China’s biggest commercial real-estate developer and the world’s largest owner of movie theaters, has committed $8.2 billion to the project. Wanda Studios Qingdao is the linchpin of the new development, and when it opens its doors in April 2017, it will be one of the largest and most technologically advanced feature-film-production facilities in the world, encompassing 30 soundstages; an enormous temperature-­controlled underwater stage; a green-screen-equipped outdoor stage that’s still larger, at 56,000 square feet; a permanent facsimile of a New York City street; and much more.

Earlier this year, we traveled to China to see the project and get a better sense of the ambition of the man behind it: Wang Jianlin, the 61-year-old founder and chairman of the Wanda Group, who is frequently described as the richest man in China. As we drove around the rock-strewn, half-constructed site, we came across a set featuring a life-size segment of the Great Wall of China. A small army of extras was practicing scenes for The Great Wall, starring Matt Damon and directed by Zhang Yimou, the internationally acclaimed filmmaker who staged the opening ceremony of the 2008 Beijing Olympics. The movie, which will be released next November, is the largest Chinese-American co-production in history, with an estimated budget of $150 million. Its financiers include the state-owned China Film Group; Universal Pictures; and Legendary East, the Beijing-based division of the Hollywood production company that helped bankroll Jurassic World, Christopher Nolan’s Dark Knight trilogy, Inception, and more.

Wang wants to make such collaborations routine—and to eventually create one of the world’s premier entertainment companies. It may sound like folly. For all the strengths of China’s economy, the country has made few successful forays into high-end, globally competitive creative industries. And the government’s censorship would seem to limit the creative freedom that the film industry demands. Yet it is hard to dismiss a man with Wang’s talent and track record. The enormous bet his company is making at Qingdao mirrors investments made in manufacturing across China in the 1990s and early 2000s. It isn’t that hard to envision moviemaking coming to resemble the making of iPhones—with design in California and production in China. But Wang’s ambition is larger: He wants to create a cultural platform that is in every sense Hollywood’s rival.

The long arc of moviemaking history may not bend inevitably toward China, but it does lead away from Hollywood, whose rise and long dominance of the film industry was predicated on a series of conditions that no longer exist. Like the manufacturing of many products, the making of motion pictures started out as a craft industry. Very early in the 20th century, most films were produced on a small scale, using methods adapted from live theater. But by the 1910s and early ’20s, the mass-market potential of movies had become evident to the leading film­makers of the time—Cecil B. De­Mille, D. W. Griffith, Thomas Ince. Ince in particular envisioned a production process akin to that of the auto industry, where Henry Ford had pioneered the moving assembly line and the standardization of the vast majority of jobs.

Ince, who set up a film studio on Sunset Boulevard, established an assembly-line approach that brought effi­ciency to film production. His “continuity script” rearranged scenes into the most economical sequence for shooting, minimizing downtime. Every­thing from camera angles to actors’ facial expressions was specified. When shooting was finished, editors would piece scenes together in a precursor to what we now call “post­production.” Using this process, Ince, sometimes called the “father of the Western,” began cranking out as many as two short Westerns a week. He and his fellow innovators set up shop in greater Los Angeles largely to take advantage of the year-round filming opportunities and the vast expanses of open (and inexpensive) land. But once begun,industrialization favored scale and drew in talent, lending Holly­wood, like Detroit, a compounding advantage.

And like the automakers of the era, studios sought control through vertical integration. They had their own writers on staff, built their own sets, made their own costumes. Actors and directors were often locked into long-term contracts. In 1944, more than half of all box-office receipts were claimed by theaters owned by the five major studios (Paramount Pictures, RKO Radio Pictures, Loew’s, Twentieth Century–Fox Film Corporation, and Warner Brothers Pictures), and the film industry employed 33,000 people in greater Los Angeles.

And yet Hollywood’s very success in converting creative enter­prise into discrete tasks performed by different people foretold the decline of the studios’ power. Antitrust suits, one of which resulted in a 1948 Supreme Court decision, forced the studios’ divestiture of their theater chains. But over the next two decades, the big studios voluntarily began to pull apart the movie­making process itself. Competition from television pushed them to improve and differentiate their films in order to maintain box-office revenues. To broaden the funnel of projects with strong box-office potential, the studios increasingly turned to independent producers. Likewise, they began working more with freelance specialists in lighting design, set decoration, and more. All of these measures reduced costs, as studios could choose suppliers as needed, film by film, rather than employing them full-time. By the 1970s, the studio’s role had become that of a system integrator.

That’s also about the time that Hollywood’s grip on movie­making began to slip a little. Technological innovations like the Panaflex handheld camera, which enabled studio-quality results in a more authentic setting, had led to an expansion of location shooting. Directors could achieve a more realistic look. And by avoiding the union work rules of Los Angeles and taking advantage of tax incentives offered by other cities—­domestic and foreign—producers could save money.

Many industries, from automobiles to consumer electronics, have followed a similar path toward disintegration and offshoring. But the speed with which large parts of the movie industry have recently decamped from Hollywood is striking. According to the Monitor Group, a consulting firm, in 1990 just 14 percent of film and television productions developed by American studios were shot outside the U.S. for economic reasons. By 1998, that figure had nearly doubled, to 27 percent, resulting in the loss of 20,000 full-time jobs in Los Angeles. A recent study by FilmL.A., the area’s film-production-licensing organization, found that of the 106 films released in 2014 by Southern California’s major and “mini major” studios, only 22 were primarily produced in California. New York, with its generous tax incentives, was the most favored out-of-town location, landing 13 feature films, followed by the United Kingdom and Canada with 12 apiece. As for 2015 releases, the report said, “there isn’t a single live-action movie with a budget estimate over $100 million that shot primarily in California.”

Much of the work that comes after filming has also moved on. Postproduction used to have a natural home in Los Angeles for the simple reason that it involved the manipulation of film. As recently as 2007, most major motion pictures were shot with color film, and it made sense for the shooting, the film-­processing, and all the assorted film-doctoring that followed to occur in close proximity. But that’s no longer true. Make no mistake, post­production is more important to movie­making than ever: According to FilmL.A., movies like Iron Man 3, the top-grossing movie of 2013, spend between 30 and 40 percent of their budget on special effects. But special effects now involve the creation and manipulation of computer files, which can happen anywhere. Iron Man 3’s special-­effects work occurred not only in California but also in New Zealand, Canada, Germany, England, and Australia.

In 2011, the research firm IBISWorld named post­production one of America’s “dying industries,” along with DVD, game, and video rental; newspaper publishing; and photofinishing. In 2013, Bill Westenhofer’s acclaimed visual-effects company, Rhythm & Hues Studios, filed for bankruptcy a couple of weeks before he accepted the Oscar for Best Visual Effects, for Life of Pi. (As he started to explain the filing in his acceptance speech, the ominous theme song from Jaws drowned him out.) Digital Domain, another top-end visual-effects studio, had filed for bankruptcy six months earlier. The key assets of that company, which played a major role in films such as Titanic and Apollo 13, were acquired for $30 million by China’s Galloping Horse America and India’s Reliance MediaWorks.

Wang jianlin started his career in the People’s Liberation Army and spent 16 years climbing its ranks, before taking a city-government job in the northeastern city of Dalian. He was named chairman of a state-owned residential real-estate company in 1989, at age 35. Wang transformed the business into the Dalian Wanda Group, making it one of the first shareholding companies in Communist China in 1992 and then aggressively expanding its activities across regions at a time when that was rare. In 2000, Wanda entered the commercial-property market, building its first Wanda Plaza, in the city of Changchun, with Walmart as its anchor tenant. In the ensuing decade, Wang built Wanda Plazas in prime locations in every major city across China, usually incorporating shopping, a high-end hotel, and a cinema.

In an interview at his Beijing office in August 2014, Wang wore an open-collar pin-striped shirt and displayed a relaxed, down-to-earth demeanor. But he is, of course, extremely driven. (Jeffrey Katzen­berg, the CEO of DreamWorks and himself no wallflower, has described Wang as “a force of nature.”) Wang explained that he is guided by Confucian beliefs, which empha­size the long term. “Over the past 200 years, there have been no big, strong Chinese multinationals,” he said. “Most of the multi­nationals are either American companies or they are European. So one of my dreams has been to develop Wanda into one of the top 100 companies worldwide.”

Beginning in 2010, Wang decided to focus his ambitions on what he called “cultural industries,” a move that paralleled the Chinese government’s push to increase the nation’s nonmilitary influ­ence. Gerry Lopez, the former CEO of AMC Enter­tainment, the parent company of the movie-theater chain, told us about meeting Wang for the first time in May 2011, in the midst of a trip to Asia to visit an AMC franchisee in Hong Kong:

“So we go see him, and in that meeting, he laid out a vision,” Lopez recalled. “He said he was in four different businesses. Commercial real estate was the core of the company, and those Wanda Plazas are anchored by hotels, a department store, and a cinema … He wanted to become No. 1 across all of China in each of those businesses. And upon achieving that status in China, he then wanted to become No. 1 in every one of those around the world.”

Wanda was already the largest operator of cinemas in China, with 86 theaters, and China was one of the fastest-growing markets for theatrical exhibition in the world. That same year, Wang offered to buy AMC.

At the time, the chain was the second-largest in the United States. But it had been caught in a wave of overbuilding, and was owned by five private-equity firms. With the rapid spread of big-screen TVs and the proliferation of home-entertainment options, the future looked bleak. Wang’s view was more positive. He saw AMC as “a strong man who just caught a cold,” and its acquisition as Wanda’s “first step in going global.” When he closed the deal in August 2012, he empowered Lopez and the rest of the AMC management team to embark on a bold strategy to reignite growth. AMC ripped out two-thirds of the seats in many of its theaters—they were rarely full anyhow—and installed cushy recliners. Then it established bars and dine-in options, allowing customers to order food and get seat-side service with the touch of a few buttons. These changes nearly doubled traffic in these theaters; revenue per patron also grew. In February 2014, after Wanda had made a public offer­ing of AMC stock, The Hollywood Reporter could not hide its astonishment: “Wang Jianlin has seen the value of his controlling stake in AMC Entertainment more than double since he purchased it 18 months ago,” it reported, a result that was “all but unthinkable back in 2012.” Wanda’s profit was roughly $900 million.

To further raise his company’s visibility in Hollywood, Wang is now building a $1.2 billion mixed-use development in the heart of Beverly Hills, at 9900 Wilshire Boulevard. The develop­ment is being designed by Richard Meier, the architect behind the Getty Center, and will be anchored by a Wanda hotel.

The company’s press materials announced that the develop­ment “is expected to aid in China’s entry into Hollywood’s film industry and generally promote Chinese culture abroad.”

Meanwhile, in China, Wang has continued to build theaters rapidly, particularly the sort of world-class multiplexes that spur moviegoing. As it grows wealthier, China is becoming a nation of moviegoers. Box-office revenues grew by roughly a third in 2014, and even faster in the first half of this year. With North American box-office receipts essentially flat in recent years, some analysts expect that within five years, China will be the world’s box-office king (it is now No. 2). In 2012 alone, the country added 10 theater screens a day; it now has more than 28,000. Only the U.S., with close to 40,000 screens, has more, and Wanda owns more than 5,000 of those.

Wanda’s qingdao oriental movie metrop­olis was created, in part, to capitalize on the de­construction of the Hollywood business model, appeal­ing to Holly­wood studios with its state-of-the-art facilities and low labor costs. Yet paradoxically, the new studio is very much part of a vertically integrated chain. After Wang announced the studio complex, he outlined his vision in an inter­view with The Telegraph: “There’s no single company in the whole world that has a big-scale production base, and at the same time has screening and distribution channels. Wanda Group is the first one in the world.”

That’s not really true, of course. Holly­wood assembled all the same pieces decades ago, before disassembling them. Wang is trying to buck a very long trend. What’s more, he’s doing it in a place that does not always appear conducive to creative endeavor. The Chinese government prohibits movies made or released in China from showing nudity, strong violence, ghosts, time travel, or other subjects deemed unsuitable by the State Administration of Press, Publication, Radio, Film, and Television. The Holly­wood moviemakers that film at Wanda Studios Qing­dao will probably become increasingly adept at negotiating their way around the harshest restrictions, but it is unlikely that R-rated films will be shot in Qingdao anytime soon.

Earlier this year, at Wanda’s head­quarters in Beijing, we met Nancy Romano, then the chief operating officer of Wanda Studios Qingdao and formerly the head of Fox Studios Australia, the largest production facility in the Southern Hemisphere. (The Wolverine and The Great Gatsby are among the films that have been made there in recent years.) “We are creating an industry in Qingdao,” she told us. As she talked, the vision behind all the odd-seeming pieces of the complex started to take shape. “You are selling a lifestyle, because the cast has to come with their families. And they travel with an entourage. So you have to create a lifestyle for them, not just a film studio. A stage is a stage no matter what country you are in. But it is what they are doing outside of work, and what their families are doing—their children, their mother, their nanny, their hairdresser, their makeup artist. So we also have to create a lifestyle that enables them to commit to spending three to six months in a city.” Qingdao Oriental Movie Metropolis—its hotels, shops, yacht club, and other amenities—“lends itself to being really, really attractive,” she says.

Wang truly is trying to create an industry essentially from scratch. One reason Hollywood went vertical back in the 1920s was that at the time, there were no well-developed networks of specialist suppliers or independent contractors to do the work that was arising as the industry grew. Wanda’s approach is born of similar necessity, and the company is not dogmatic about doing every­thing itself if it doesn’t have to. The sprawling production operation at Qingdao, for instance, is being constructed under the guidance of Pinewood Shepperton, a studio-­facilities oper­ator based in the U.K. best known for running the main filming site of the James Bond franchise. And walking around Wanda’s headquarters, it is impossible to miss just how many people the company has recruited from overseas.

As for his movie theaters, Wang may be ahead of Hollywood rather than behind it. In the United States, the Supreme Court forced the separation of moviemaking from theatrical distribution because too much power was concentrated in the hands of the studios. No comparable action has occurred in China, of course. But even in the U.S., the game today is very different than it was in the mid-20th century, as is the judicial environment. Many distribution channels, including HBO and Net­flix, have moved into creating their own content. In that light, Wanda’s global distribution footprint—it owns about 13 percent of America’s theatrical screens, and about 6 percent of China’s—doesn’t look like a trust that needs busting. Still, its theaters will likely give it at least some leverage in attracting top projects and top talent—a small edge that over time could create a virtuous circle.

The size of the Chinese market is doubtless Wang’s greatest source of leverage, and the best reason to believe his project might succeed. Like audiences around the world, Chinese multiplex-goers have shown a strong preference for the action-packed, special-effects-laden spectaculars that are developed, if no longer made, in Hollywood. In 2014, the top-grossing film in China was Transformers: Age of Extinction, which grossed $320 million there. In the spring of 2015, Furious 7 brought in $391 million in China, eclipsing the film’s U.S. take by $40 million. Imported movies now reportedly account for approximately 50 percent of Chinese ticket sales, but collectively, foreign studios are permitted to distribute only 34 films a year in China. The import limit has spurred great interest in co-productions filmed in China, because those are exempt.

That fact, perhaps more than any other, has put Hollywood’s concerns over censorship in the backseat. The event announcing the creation of Qingdao Oriental Movie Metropolis drew Nicole Kidman, Leonardo DiCaprio, John Travolta, and the Oscar-winning producer Harvey Weinstein, among many other celebrities and power brokers. Wanda has announced that in addition to commitments from more than 50 Chinese companies to shoot 100 films and TV series at the new facility each year, it has reached preliminary agreements with foreign producers to film 30 productions there. The Great Wall is one of many recent Chinese-Hollywood partnerships, some of which go well beyond the making of a single movie. In September, for instance, China Media Capital, a private-equity firm led by a former government official, Li Ruigang, announced a new co-­production venture with Warner Bros. and other partners. Li was also instrumental in the creation of Oriental DreamWorks, a Shanghai-­based studio co-owned by the Holly­wood company DreamWorks Animation SKG and three Chinese companies. The company’s Web site explains that it makes films “in China for China and for export to the rest of the world.” To underscore its intentions, the new studio replaced the boy with a fishing pole in the DreamWorks logo with a panda, and changed the color of the moon from white to red.

The development in Qingdao of a rich ecosystem that can support the full range of moviemaking—­including the high-end creative work that Hollywood is best known for—is no sure thing. Ultimately, the realization of Wang’s vision will depend on his ability to attract and develop top-tier talent—­not just actors who fly to Qingdao for a six-month shoot, but sound editors, costume designers, special-effects experts, writers, and other creative professionals, in large numbers, who will live there year-round. For all of Wanda’s recruiting success so far, the creation of that kind of ecosystem is likely to take decades, not years; that’s another lesson from Holly­wood. But then, Wang calls Wanda a “centennial company,” meaning “we would like to develop our business for over 100 years’ time.”

Some inkling of the prospects of Qingdao Oriental Movie Metrop­olis might be found in other industries. In the electronics industry, in the automotive industry, in so many indus­tries that have moved to China, piecemeal off­shoring initially involv­ing the more routine parts of the manufacturing process­ eventually gave way to a more wholesale relocation once localized supply chains had developed. When companies like IBM, Dell, Compaq, and HP ruled the roost in PCs, most people would never have imagined that a Chinese company founded in 1984, Lenovo, would become the No. 1 PC supplier worldwide. Already Apple and its iPhone are facing competition from several Chinese companies, including Huawei and ZTE, which are gaining market share around the world.

The plot’s a little different, but we may have seen this movie before.