Posters of film ‘Despicable Me 4’, film ‘Stand By Me’ and film ‘A Legend’ are displayed at the entrance of a cinema on July 16, 2024 in Shanghai, China.
Vcg | Visual China Group | Getty Images
Hollywood is being pulled into President Donald Trump’s trade war.
After Trump escalated tariffs on Chinse imports earlier this week, the Chinese government retaliated, including by restricting the number of Hollywood films it would allow to be showcased in its movie theaters.
Disney and Warner Bros. Discovery were among the companies that saw their stocks dip this week during volatile trading in response to tariff changes. Both stocks were trading down early Friday.
The Chinese box office was once a coveted space for American-made movies, so much so that studios produced films that would appeal directly to an international audience. However, as China has expanded its local film production, its audiences have gravitated toward the country’s own domestic fare, and Hollywood films have seen a significant decline in ticket sales from the region.
“The Chinese market has become very challenging for U.S. studios,” said Ann Sarnoff, former CEO and chairwoman of Warner Bros. “Rental rates at 25% were already significantly lower than other markets, and over the last few years, it’s become harder and harder to get your movie into the Chinese market.”
Audiences have been prioritizing home-grown Chinese movies, she added.
“This really affects the economics for U.S.-based studios,” she said. “They used to be able to count on the Chinese market to help bolster the profits on a movie. Now when studios make financial estimates for a given movie, they put much less, or in some cases, zero, in the projections for the Chinese box office.”
The expiration in 2017 of the U.S.-China Film Agreement, which had guaranteed 34 U.S. films would be released a year in China, hasn’t helped, said Aynne Kokas, a professor at the University of Virginia and author of “Hollywood Made in China.”
“During the first Trump administration trade war with China, there was emphasis on negotiating trade in a lot of other sectors, and motion pictures weren’t featured prominently. And during that time the China box office began growing rapidly,” Kokas said.
China’s home market for filmmaking has grown with the increase of more sophisticated technology, which has produced the market’s own blockbusters, she added.
In 2019, nine Hollywood titles generated more than $100 million at the Chinese box office, with Disney and Marvel Studio’s “Avengers: Endgame” collecting more than $600 million from the region. In the last five years, only eight American films have generated more than $100 million and only one has topped $200 million, according to data from Box Office Mojo.
In the meantime, China’s domestic film market is thriving. This year, the Chinese movie “Ne Zha 2” became the only movie in history to generate $1 billion at the box office in a single market and is now the only non-Hollywood movie to cross $2 billion at the global box office.
While the decrease in releases of Hollywood films will have a slight impact on overall global box office for some blockbuster features, industry sources told CNBC that the real economic issue for Hollywood is the currency weakening.
Box office returns come in at a higher rate internationally when the value of the dollar is lower. Of course, the trade-off is that the cost of doing business increases, they noted. Given the volatility of the stock market and the whipsawing of tariff decisions, Hollywood executives are not sure what the ultimate impact of this trade war will be on the industry.
