U.S.-Asia Business
How to Navigate New Regulations in China’s Entertainment Industry
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China announced new foreign TV and streaming restrictions—what does this mean for Hollywood?
China’s entertainment overseers are in the midst of an overhaul. China eliminated the State Administration of Press, Public Radio, Film and Television (known as SAPPRFT) in March. The government placed regulation of television under direct control of a new State Council agency called the National Radio and Television Administration (NRTA), and the regulation of film under the central Publicity Department. In its first move, NRTA announced draft regulations in September that would ban foreign content during primetime television hours (defined as from 7 p.m. to 10 p.m.) and limit the volume of imported content on both broadcast TV and domestic streaming platforms to 30 percent. The agency also announced it will be limiting the number of foreigners who can work on domestic broadcast Chinese shows: Foreigners can comprise no more than one-fifth of the crew, a show’s leading writer and director can’t both be non-Chinese, and the leading actor and actress can’t both be non-Chinese. For the movie industry, a slowdown of imported film approvals also indicated that Chinese regulators might be getting stricter. However, such regulatory changes and slowdowns seem par for the course in China’s still-maturing entertainment industry.
Fluctuations in China’s regulatory environment
China’s entertainment market may be a powerhouse, but the boom happened relatively recently. As a result, there are often changes to its regulations as it tries to keep up with the shifting landscape.
After film oversight shifted to the Publicity Department, there was a slowdown of foreign film approvals, but China recently released a list of foreign films slated to open later this year. The titles included typical blockbuster fare like Sony’s “Venom,” but also “Crazy Rich Asians,” which some had speculated would not be released in China due to its portrayal of decadence and wealth. The sudden influx of Hollywood films could partly be because Chinese authorities want to boost overall box office sales: This year, China had a disappointing National Day box office showing, which saw a 23 percent drop in attendance from last year.
Jing Cao, an attorney at law firm O’Melveny & Myers who focuses primarily on the entertainment and media industry, points out that the film approval slowdown is not an uncommon result of the administrative changes. “The new authority is trying to catch up and get to know the process, and also decide which types of movies they are going to approve and let in,” she says. “Overall, the amount of movies that got approved is basically on par with the amount approved in previous years. There was a delay, for sure, but I think it was because of the government was trying to keep up with the new responsibilities.”
Similarly, China’s primetime television regulations are nothing new, says Bennett Pozil, executive vice president and head of the entertainment group at East West Bank. “That previous tightening is something we’ve seen for a while,” he says. “That part about who can work on these shows is probably related to political tensions between the U.S. and China, but there always has been restrictions governing the local media markets.”
“I don’t think any serious player is going to quit this business because of the change in regulations… If you want to do something, you always figure out a way to deal with it.”
Cao adds that such restrictions of foreign content on primetime television is unlikely to affect Hollywood producers because Chinese-language productions tend to dominate the domestic market. “It’s been a long time where you don’t really see foreign TV shows [on primetime],” says Cao. “There were times they imported foreign TV shows and dubbed [them] into the local language, but even when there was no such ban, those TV shows only accounted for a small portion of airtime.”
These fluctuations are pretty normal for Chinese entertainment agencies, states Cao. “Given that the television and film industries in China are relatively new, the regulations will continue to evolve over the years to come,” she says.
Imported streaming content to satisfy a growing market
Chinese regulators have also capped the amount of foreign content that can be streamed on online platforms at 30 percent in any one “category.” Already a relatively narrow cap, Cao doubts the government would tighten it further in the short term.
Although China’s streaming platforms like iQiyi and Youku have been churning out original content left and right, they are still limited in their production capabilities. China’s over-the-top (OTT) streaming is projected to grow 16.3 percent from 2017 to 2022, buoyed by the anticipated commercial rollout of 5G internet in China in 2020. Despite Chinese consumers’ appetite for streaming content, the number of web series released in the first half of 2018 was down almost 22 percent to 145 titles, compared to the same period in 2017.
“The market is huge, and in order to support the market, you need to have content,” Cao points out. “When there is not enough content, you need to source it from somewhere—I don’t know how you can cap it further and still have a healthy business.”
Pozil points out that, with a country as large as China, it can also be difficult to effectively regulate what consumers are watching. “Streaming is a lot tougher to get in front of,” he says, adding that what plays on OTT channels often varies from what is on TV or in theaters. “It might make sense that they would want to make some commonality between those things, but it’s a lot harder to control the internet, and I think it’s a much slower, deliberate process.”
A move towards more co-productions and Hollywood-China collaborations
Although co-productions for television content are uncommon, that may be the future. At MIPCOM, an entertainment content market conference and event, numerous Western production companies have announced partnerships with Chinese entities as a way to circumnavigate the quotas, since co-productions are treated as domestic productions by the Chinese government. The Netherlands-based Endemol Shine signed a deal with Hunan TV, China’s second-largest TV network, to create new television formats, since some imported formats like China’s version of “Saturday Night Live” have been taken off the air. Nickelodeon launched a five-year deal with NRTA called Nickelodeon Chinese Animation Development Project to develop animation co-productions for China and abroad.
Co-productions certainly seem like a good way to go, but Cao emphasizes that they can be quite challenging—although not necessarily from a regulatory standpoint. “There are inherent issues with the form itself,” she says. “But it’s not necessarily a problem with the format, but the parties involved.” She states that some Hollywood-China partnerships have ended poorly because usually the Western studios saw the Chinese side as only financiers rather than true collaborators. But with the tightening of regulations, now could be the time to strengthen Hollywood-China content partnerships, and understand what Western studios can really offer Chinese ones.
“If I was a studio or producer here, one approach could be to see how to become more involved with local China productions, how to be more involved in the burgeoning local businesses and to be investing in it,” says Pozil. “Or maybe there’s other expertise that can be shared.”
Whether the regulations become tightened or not, Hollywood-China collaborations won’t be going anywhere soon—it’s just a matter of understanding how those changes affect you and figuring out the best methods to work with or around them.
“I don’t think any serious player is going to quit this business because of the change in regulations,” states Cao. “Each time there is a change in regulations—either imposing some restrictions, or creating some hurdles—but if you want to do something, you always figure out a way to deal with it.”