With Kung Fu Panda 3, DreamWorks’ Chinese gamble looks like it’s starting to pay off

The American animation studio’s joint venture with the mainland has scored its first hit, with more in the pipeline – a sign of the growing creative and economic connections between Hollywood and China

PUBLISHED : Saturday, 06 February, 2016, 8:30pm
UPDATED : Saturday, 06 February, 2016, 8:30pm

Few Hollywood executives have invested as much in China’s film business as Jeffrey Katzenberg.

The head of DreamWorks Animation took a gamble in 2012 when he and his partners launched Oriental DreamWorks, a US$330 million joint venture that was the first of its kind.

That bet could pay off handsomely for the Californian studio, with the release last month of the third instalment of the popular Kung Fu Panda franchise simultaneously in mainland China and the US. The film opens in Hong Kong next month.

The film is projected to become a global hit for DreamWorks Animation – which has had a dearth of them in recent years – and strengthen the company’s foothold in a country that is on track to become the world’s largest film market by 2017.

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The making of Kung Fu Panda 3 is emblematic of the growing creative and economic ties between China and Hollywood. Produced by a team of American and Chinese artists in Glendale, California, and Shanghai, Kung Fu Panda 3 is the first movie to be animated in two versions so that the characters’ speech syncs up with English and Putonghua.

The American and Chinese filmmakers collaborated to make sure aspects of Chinese culture – including food, clothing and hairstyles – were accurately represented. The film versions also included separate casts of American and Chinese stars including Jack Black, Jackie Chan and actress Bai Baihe.

“Jeffrey is certainly one of the pioneers in this effort,” says Lindsay Conner, an entertainment industry lawyer and partner in Manatt, Phelps & Phillips. “He has placed a major bet on the ability to do animated co-productions between Hollywood and China. And Kung Fu Panda 3 could be a major pay-off on that bet.”

Indeed, Wall Street analysts think the movie will eventually gross US$150 million or more in the US, roughly in line with the results of 2011’s Kung Fu Panda 2. But international box-office numbers are expected to swell to about US$600 million – US$100 million more than the previous instalment’s tally.

And much of that growth will come from China. The movie is expected to double the box-office haul of the second Panda film, which made US$96 million in the country, in part because of the growing number of cinemas there, according to industry analysts.

Kung Fu Panda 3 is already showing signs of strength in China, where limited preview screenings were held last month, generating US$6.4 million in ticket sales.

The film, which had a production budget of about US$140 million, has the good fortune of opening around the Lunar New Year holiday, a time normally reserved for home-grown pictures. The project’s status as a US-China co-production also means DreamWorks will collect a larger share of revenue than a normal foreign movie, which would typically take just 25 per cent of box-office receipts.

Nonetheless, Katzenberg downplayed expectations for the film, noting that January is an unusual time to release an animated movie in the US.

“The filmmakers and the teams here and in Shanghai are very proud of this film and what they’ve done – it’s a first-rate movie, but we’re launching into some unknown territory,” Katzenberg says. “For me, this is really the halfway point of our rebuilding to get the studio back to the consistency of success that we had for a very long period of time. It’s going to take us a couple of years.”

For China, Kung Fu Panda 3 is more than just another movie. If it succeeds, it would be a point of pride for a country that has placed a strategic priority on exporting movies that can do well around the world. Most Chinese movies haven’t cracked the global market.

For DreamWorks, Kung Fu Panda could give a welcome boost to a studio that once led the animation business with such hit franchises as Shrek and Madagascar.

Last year, DreamWorks shed 20 per cent of its workforce, closed its studio in Northern California and sold (then leased back) its Tuscan-style corporate headquarters. After a string of box-office misses, including Turbo and Mr. Peabody & Sherman, Katzenberg also installed new management and scaled back the number of movies DreamWorks releases annually. “It’s not lost on me that we went from the best track record in the business to the worst track record,” he says.

More recently, DreamWorks had success with Home, the only picture it put out last year, which grossed US$386 million worldwide. Still, analyst Eric Wold from B. Riley investment bank says it will be a couple of years before Katzenberg can prove his reorganisation is working.

“If this film does well, that’s two successes in a row,” Wold says. “But people will still have concerns that a studio that makes two films a year is at risk of having one or both flop.”

To reduce its reliance on movies, DreamWorks Animation has tried to diversify by beefing up its television and digital media efforts. The company recently expanded a programming deal with the global streaming giant Netflix.

DreamWorks also is turning to China for new growth. Katzenberg was among the earliest champions of the country, where his efforts culminated in the formation of Oriental DreamWorks, a Shanghai entity that is 45 per cent owned by Katzenberg’s company. The joint venture operates an animation studio in Shanghai. Partners include the state-backed investment firm China Media Capital and broadcaster Shanghai Media Group.

“It was something that we saw early on, that the Chinese market was on a path to become the largest movie market in the world,” Katzenberg says. “Well, it’s about to happen and to have a business up and running and have a creative leadership there … it’s a very valuable asset for DreamWorks.”

Kung Fu Panda 3 is the first of several films from Oriental DreamWorks targeting Chinese and global audiences. The studio has begun work already on two other projects. It remains to be seen, however, whether the venture will be able to produce hits that aren’t just sequels, says Stanley Rosen, a political science professor at the University of Southern California and an expert on China.

Kung Fu Panda is an established franchise,” Rosen says. “The real test will come with the next couple [of films] they are doing, and given DreamWorks’ recent track record, there are no guarantees.”

Los Angeles Times