Entertainment executive John Maatta and University of Virginia professor Aynne Kokas discuss Hollywood's inroads into China.

When the blockbuster Marvel movie Avengers: Infinity War opened in China, it made a record-breaking $302 million in just 10 days. The movie’s unprecedented success is a testament to the massive profits that come from appealing to Chinese moviegoers. But experts say it’s not an easy market to enter.

To discuss China’s cinematic appeal, John Maatta, CEO of events company Wizard World Inc. and a former executive with The CW television network and Warner Bros., joined Aynne Kokas, a media studies professor at the University of Virginia and author of the book Hollywood Made in China, on the Knowledge at Wharton show, which airs on SiriusXM  channel 111. (Listen to the podcast at the top of the page.)

Following are key points from their conversation.

China’s entertainment market is experiencing ‘dynamic’ growth.

Maatta recently returned from a 10-day trip to China, where he met with various business representatives to negotiate bringing content from his company, Wizard World, into the country. He described the entertainment industry there as “explosive.” With a population of 1.4 billion people, China has a vast number of new viewers for American show creators to capture.

“I’m very bullish on the Chinese market,” Maatta said. “I think there are going to be twists and turns. This is a market that has been developing over the last 10, 15 years, and I think that the Chinese view it as a huge industry. They’re allowing the construction of a huge number of motion picture theaters. They’ve changed the reporting structure of SARFT (State Administration of Radio and Television), which is the national censor. I think there’s going to be lots of change, and I think the doors are going to swing more widely open.”

Kokas, who has studied U.S. and Chinese entertainment industries for years, noted that China became the largest box office in the world in the first quarter, an indication of the opportunity that lies ahead. But she pointed out the challenges for American companies that want to do business there.

“I’m very bullish on the Chinese market.” –John Maatta

“I absolutely agree with this dynamic growth of the Chinese market,” Kokas said. “But the strategic challenges are that the U.S. and China are still currently renegotiating the film import quota, which means that there is a limitation on the number of Hollywood studio films that can be exported to the Chinese market.”

China wants to expand its own entertainment industry.

While the welcome mat may be out for American entertainment companies, those companies also face competition from within China. Kokas warns that Hollywood’s ability to penetrate in China depends on the growth of the domestic film market.

“There’s a huge push for growth of the Chinese domestic market across a wide range of technologies and knowledge industries. If China is able to produce their own films that they’re able to export into global markets, then I think we may see a contraction of the number of films that are allowed within the Chinese market,” she said. “However, if that doesn’t happen — and so far, we’ve seen big films within the Chinese market but not big film exports — then I think we will see Hollywood studios still allowed within that market to build and grow their box office.”

Disney, for example, has been able to sell its films in China and build a resort in Shanghai. In contrast, DreamWorks Animation pulled out of a joint venture with China Media Capital (CMC) to run Oriental DreamWorks, which is now wholly owned by CMC.

“We see a path forward for some companies, and we also see some companies pulling back,” Kokas said. “That’s really the interesting part of the market.”

Chinese tech giants Alibaba and Tencent are also making forays into film by producing their own content. Much like Netflix does in the United States, those companies are able to use the data they gather on customers to guide production toward shows that Chinese viewers want to watch. “We are seeing a lot of applications of these technologies within the Chinese domestic market,” Kokas said. “But because a lot of Chinese social media platforms rely primarily on the domestic market, we’re not seeing as much of that as for global audiences.”

Technology and regulation remain barriers to foreign entry.

In addition to the film quota, China has strict technology regulations that also dampen the entry of foreign entertainment.

In 2017, China implemented a cybersecurity law requiring that all companies that store personal data about Chinese citizens do so within China. Apple was able to migrate its data storage to a Chinese government-run data center. But that kind of change isn’t easy for many other companies. Both Facebook and Google have either pulled out of China or not been allowed into the market because of the perceived security risks. Netflix content is available in China, but the Netflix platform is not.

“U.S. and China are still currently renegotiating the film import quota.” –Aynne Kokas

“While foreign digital companies have been able to distribute their content, they have yet to be able to successfully enter that platform market precisely because of the technical infrastructure that it demands,” Kokas sad. “This is a huge potential challenge for market entry with regard to this sector of the market.”

Maatta said China’s system of governance, large population and sheer size have created such hurdles. Companies operating in China need a license to distribute programming.

“The interesting thing to me is that in the United States, if you have a camera and a computer, you can effectively have a television network. You may not aggregate an audience, but you can have a television network,” he said.

While conducting interviews for her book, Kokas learned both American and Chinese filmmakers must deal with an uncertain regulatory environment for content within China.

“It’s difficult for producers to make films and ensure that they’re distributed because at times it’s unclear what type of content can be distributed, what type of content may be cut for final distribution,” she said. “Even in the case of films like Django Unchained, it’s possible that films can be pulled on the actual day of their planned distribution in the market.”

There are parallels between China and Saudi Arabia.

Maatta compares what’s happening to entertainment in China with similar changes underway in Saudi Arabia, which is governed by a strict interpretation of Islam. Crown Prince Mohammed bin Salman has been loosening some traditional restrictions, including a ban on most Western films, since he was elevated to his position last year. American movie theaters are being built, and there’s a multibillion-dollar fund to bring American entertainment to the kingdom.

“Hollywood will always be Hollywood. Bollywood is Bollywood, but it’s not Hollywood.” –John Maatta

“It’s the biggest opening of a territory since China. I think China’s going to progress and Saudi’s going to progress, and I think it’s all good for the American film industry,” Maatta said. “A year ago, two years ago, it would have been unthought of. That is a culture that was resistant to the importation of culture from America or other places, and now the door’s wide open.”

Kokas also sees the parallels, saying both countries are trying to diversify their industries and move toward more creative, knowledge-based and tech-driven businesses like entertainment. She agreed that the growth will continue, but it could hit a wall when the content challenges authority. That’s why superhero and sci-fi films do so well in places like China and Saudi Arabia.

“We’re dealing with imaginary worlds and non-politically critical content,” she said. “Those are the specific genres, along with things like animation, that have the most potential traction in global markets with strong media regulatory regimes.”

China has an appetite for American culture.

America’s biggest export has long been its pop culture, which has found a global audience ready to consume it and hungry for more. It seems Chinese audiences want a bigger slice of the American pie.

“All around the world, there’s an interest in pop culture as we create it here,” Maatta said.

Kokas said Hollywood has a knack for developing universally appealing storylines that can be adapted to different cultures.

Maatta agreed. “Hollywood has shown a unique ability to create content that is internationally desirable,” he said. “There are certainly many territories that could replicate that, but nobody really has. At least in the popular imagination, there is nothing like Hollywood. Yes, I think China can and will have a vibrant film industry, but I think Hollywood will always be Hollywood. Bollywood is Bollywood, but it’s not Hollywood.”