Lawmakers Raise Questions About Chinese Investment in Hollywood

[MikeWB]

The rise of Chinese investment in Hollywood is raising alarms in Congress, which could complicate studios' ambitions to strengthen ties to the Middle Kingdom.

The latest salvo came in a letter from 16 members of Congress last week, which called for closer scrutiny of Chinese investment in the U.S. entertainment and media sectors. The letter cited the Dalian Wanda Group's acquisitions of Legendary Entertainment, AMC and Carmike Cinemas, and warned of "growing concerns" of Chinese efforts to exert "propaganda controls on American media."

Wanda has been on a buying spree, of late, announcing a merger between AMC and Carmike that would make it the largest exhibitor in the world. Earlier this week, news broke that Wanda plans to form a multi-picture alliance with Sony Pictures.

Rep. Chris Smith, a Republican from New Jersey, warned that growing Chinese investment could raise strategic concerns.

"Would we raise questions if Russia or Iran was buying large parts of U.S. media and entertainment companies? Of course we would," Smith said in a statement to Variety. "Raising questions about Chinese investment is no different."

The principal author of the letter is Rep. Robert Pettinger, R-North Carolina, who has been outspoken in the past about various Chinese acquisitions in other sectors. Two Democrats joined 14 Republicans in signing the letter, which seeks a review from the Government Accountability Office of existing regulations. Under current law, foreign deals that may pose national security concerns go before the Committee on Foreign Investment in the U.S., a body made up of various administration agencies. The letter also warns of foreign investments in agribusiness and telecommunications, and includes some pointed commentary about the level of overseas money in the media business.

"Should the definition of national security be broadened to address concerns about propaganda and control of the media and 'soft power' institutions?" the letter writers ask at one point.

Derek Scissors, a scholar at the American Enterprise Institute, said that with China breaking records for U.S. investment it was inevitable that Congress would get involved.

"I think we're gonna get Congressional hearings, and I think the entertainment industry is going to get pulled into it," he said. "I'm not sure this is a serious threat, but I am sure the numbers are big enough that you're gonna get Congressional questions about this."

Spokespeople for Wanda and AMC declined to comment. However, an individual familiar with Wanda's acquisitions process noted that the company follows strict regulatory guidelines and gets the necessary for approvals for its deals.

The prospect of greater government scrutiny comes as Hollywood studios have become increasingly interested in the Chinese market. The country is attractive both because it ranks as the second-largest market for films and because several financiers and conglomerates, such as Hony Capital, Tencent, and Wanda have shown an eagerness to invest in film slates and production entities. The letter may signal that AMC will face more hurdles as it seeks regulatory approval for its purchase of Carmike.

"This is the beginning of a much stronger response to Chinese investment in Hollywood," said Aynne Kokas, an assistant professor of media studies at University of Virginia. "Historically, Hollywood has not needed any kind of protection from foreign investment because film remains a major U.S. export, but the amount of cash being infused by a small group of Chinese companies makes it potentially anti-competitive."

In his statement, Rep. Smith quoted Dalian Wanda chairman Wang Jianlin as saying that he wants to "change the world where rules are set by foreigners."

"If this is the case, we should worry about distorted news and entertainment content and restrictions on creative freedom," Smith said. "We should worry that movies about Tibet will never again get made. Hollywood fought against the 'black list,' but will it accept without question the red-lining of scripts and content to show authoritarian China in the best possible light? It better not."

Scissors suggested that Congress is unlikely to intervene in deals if Hollywood stays somewhat below the radar. But if a Hollywood studio were to release a film that conveyed overt Chinese propaganda, or if it sold itself to the Wanda Group, that could trigger a backlash.

"I would like to avoid Wanda for a little while," Scissors said. "I'd go deal with somebody else who doesn't have that big of a footprint. Be smart. Don't pour oil on the fire."

Wanda is facing political scrutiny at the local level as well. UNITE HERE Local 11 on Thursday filed complaints that Wanda is using foreign money to defeat a Beverly Hills ballot measure.

Lindsay Conner, chair of the media and entertainment group at Manatt, Phelps & Phillips, has worked on a number of deals between China and Hollywood, including slate deals involving Perfect World and Universal Pictures and STX and Huayi Brothers. He said that the blowback reminded him of the furor over Sony's decision to buy Columbia Pictures  in 1989 and Matsushita's  purchase of Universal in 1990; moves that triggered alarm about Japanese companies' designs on the media business. A bruising presidential race between Hillary Clinton and Donald Trump may be stoking these fears, Conner argued.

"Hollywood has welcomed lot of investors from around the globe over the years without serious political interference," said Conner. "So far, the same is true of the Chinese investment that is being welcomed."

Conner said the rate of dealmaking hasn't changed. But the backlash may be building, particularly as  lawmakers find themselves under more public pressure. Richard Berman, a lawyer, public relations executive, and former lobbyist, has launched a campaign called "China Owns Us," that he believes will draw attention to what he views as a dangerous intimacy between media companies and the communist country. Berman is a controversial figure, having represented alcohol and tobacco companies in the past. Yet, he maintains that he is acting out as a concerned citizen.

"Wanda is not buying all these properties because they like buttered popcorn," he said. "Something else is going on here."

Berman tells Variety that the campaign has solicited some donations from a few friends with "security interests," but that the campaign is mostly self-funded. In addition to a website, he's put up two billboards in Los Angeles and Kansas City criticizing Wanda's investment in AMC and has also has employed someone to lobby lawmakers. Berman said he felt that the issue was taking hold on Capital Hill and expects that a number of senators will echo the sentiments raised in the lawmakers' letter.

"This thing has a life of its own," he said. "The trajectory of interest is going up at a steep angle."