A Foreign Affair

Global markets used to be an afterthought in Hollywood--not anymore.

Just after last year's American Film Market, the annual indie-film confab, Sejin Park inked a deal to coproduce Shadowless Sword, an epic fantasy set in ancient Korea. For Park, the manager of acquisitions and coproductions for New Line Cinema, the deal marked a milestone: It was the company's first coproduction of a foreign-language film. She's hoping it won't be the last.

Park has yet to see the finished cut, but she has plenty of reasons to expect a hit. Made in China, the Korean-language film cost just $7.5 million. As a coproducer, Park and her team are keeping a close eye on the creative side, ensuring that the final version doesn't become bogged down in historical minutiae. And getting in on the production itself, rather than just waiting to bid on the finished film, had other benefits, including getting ahead of her rivals. "We showed the promo in Cannes, and there was a lot of buzz," she says. "A lot of our competitors were like, What is this movie? How come we didn't know about it?"

While Park and Camela Galano, president of New Line International Releasing Inc., certainly hope the film will have crossover appeal--they're already looking at distribution opportunities worldwide--they first want to see it succeed in the local market. "There's an appetite in Asia for Korean films, particularly in Japan," says Galano. Indeed, there's a rising global appetite for local films, and that has Hollywood, squeezed at the box office at home, scrambling to expand its international strategy.

Long one of America's most successful (and infamous) exporters, the U.S. film industry has traditionally made films for American audiences, viewing the interna-tional box-office take as mere gravy. The foreign market was "the after-U.S. market, so to speak," says Barbara Robinson, managing director of Sony's Columbia Pictures Film Production Asia, which coproduced Crouching Tiger, Hidden Dragon.

But now Hollywood is adding a pull strategy to its pushiness: By helping produce foreign-language films designed for foreign markets--German films for central Europe, say, or Korean films for Asia--it's turning the old model on its head.

Don't worry: Hollywood will forever peddle Scooby-Doo 2 and The Island to anyone who will sit still for them. In fact, with 8 of the top-10-grossing movies of 2004 making most of their revenues overseas, Hollywood is increasingly dependent on foreign markets. But one look at the success of films like Crouching Tiger, Hidden Dragon here at home, or at the long-term prospects of markets such as China or Russia, and the studios' logic is pretty clear. Coproducing foreign-language films "is never going to be at the foreground of production strategy," says Robert Rosen, the dean of UCLA's film school. "But it's a good secondary strategy that has a likelihood of being successful."

The major studios have long acquired and distributed foreign films, but it wasn't until the late 1990s that they began building relationships with foreign producers to develop and finance homegrown films. Disney and Sony have been two of the most active and are now adding markets such as Mexico and India, where 92.5% of the box office goes to local hits. Universal began coproducing movies in central Europe and South America two years ago, and 20th Century Fox, which has done so in Brazil, is eyeing projects in China, Korea, and Russia.

Part of the studios' interest simply reflects reality on the ground: Last year, the box-office share for local films in Russia nearly tripled, the largest jump of any country, according to media research firm Screen Digest. Germany posted its highest local film take on record, with indigenous movies nabbing 23.4% of the market in 2004. And Korean films, as New Line knows, have been on a tear, growing from just 32.6% of the local box office in 2000 to more than 54% last year.

There is also a need to just fill the pipeline--cheaply. "If you're going to rely on creating [films] solely out of the United States," says Gareth Wigan, a Sony Pictures vice chairman in charge of the company's international productions, "you're going up a very steep curve of expense."

But perhaps the biggest engine for growth in local coproductions can be summed up in a word: China. In the past five years, only China has produced four foreign-language films that have made $90-plus million on the world stage. American interest there isn't just about the current vogue for Chinese films, though. China caps the number of foreign films admitted at about 20 per year; all of those are vetted by censors, and revenues are parsed out sparingly, with a U.S. studio's take at about 13%. However, teaming up with local companies--even on a film-by-film basis--exempts foreigners from the quota and allows them to negotiate a higher share of revenues. And a new regulation by Chinese film authorities that lets foreigners create formal joint ventures with locals, as Warner Bros. has already done, could lead to still more coproduction.

Sony has been working with Chinese producers since Robinson established her office seven years ago. In that time, she has coproduced 12 Chinese-language films, taking a 30% to 40% share; several went on to become film-festival darlings. Robinson says that Sony benefits beyond its bigger slices of revenue. The company can start publicizing these films sooner and can suggest tweaks that might make the film more accessible to audiences abroad. Working alongside locals also means Sony gets around the vagaries of Chinese policies that set aside periods of the year for indigenous films. And of course, the company's long-term presence in China has paved the way for much smoother relationships with officials. "They love the fact that we have invested the time and money that we have," Robinson says.

But is China a long-term bonanza? Despite Sony's success with films like Kung Fu Hustle, which made about $100 million worldwide, one has to wonder how many more slow-motion flying warriors global audiences will turn out to see. (Wigan notes that Sony is planning a historical film for next year that will have "no flying.") Plus, with a scarcity of both theaters and Chinese who can afford a ticket, there's a long way to go before 1.3 billion pairs of eyeballs actually become an audience.

But with piracy in China costing most studios millions in lost revenues, making movies there could give Hollywood another benefit in the long run. "The issue of piracy--and controlling it--will be taken seriously by the Chinese when they have something on the street to protect," says UCLA's Rosen. "And so, obliquely, coproduction for [Chinese] audiences will have an impact on piracy as well. Protecting American films is not the highest priority. Protecting films that you have a stake in will be."

Sidebar: Where in the world movies are made

North America 680

U.S.A. 611
Canada 69

Western Europe 999

France 203
Italy 134
Spain 133
U.K. 132
Germany 121
Others 276

Asia 1,938

India 946
Japan 310
China 212
S. Korea 82
Others 388

Rest 542

Jena McGregor (jmcgregor@fastcompany.com) is Fast Company's associate editor.

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