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Viacom, Inc. (VIAB), News Corp (NWSA): Film Studios Look to China for Growth

China just surpassed Japan to become the second-largest box office market in the world. This has film studios salivating over China’s potential one billion movie viewers. As China rises, so does its demand for quality entertainment. Film studios are rushing to capitalize on this by making movies friendly to China’s censors. Last year China agreed to raise the limit from 20 imported blockbusters per year to 34. The additional 34 films will be in either Imax or 3D formats.

Viacom, Inc. (NASDAQ:VIAB)

Transforming China

Viacom, Inc. (NASDAQ:VIAB)’s Paramount Pictures Transformers 4 will not only be filmed in China, it will also have a China-based theme. China Movie Channel, which is controlled by the Chinese government, will help select filming sites in China, along with theatrical production and possibly post-production work as well. The movie will also star Chinese actress Li Bingbing and is lookingto cast other big Chinese names.

The biggest development from Viacom, Inc. (NASDAQ:VIAB)’s deal here is that the movie will now qualify as a Chinese and American co-production. This will allow the movie to bypass the Chinese import quota and receive a bigger share of box office receipts. This is great news for Viacom considering that Transformers: Dark of the Moon brought in $177.3 million in ticket sales in China in 2010. When Transformers 4 is released next year, look for the movie to have strong sales in China and boost Viacom, Inc. (NASDAQ:VIAB)’s bottom line.

Tough to keep up with the fox

20th Century Fox has been involved in China with its parent News Corp (NASDAQ:NWSA) since 1992. The Hollywood film studio controlled by billionaire Rupert Murdoch will now become a subsidiary of 21stCentury Fox once News Corp completes its break up later this summer.

20th Century Fox has been instrumental in delivering content in China with its landmark deal with Youku Tudou to stream over 250 films to China’s online viewers in 2010. The film studio was the first studio to do such a deal with China’s version of YouTube.

Last year News Corp (NASDAQ:NWSA) acquired a 19.9% stake in Beijing’s Bona Film Group Ltd (ADR) (NASDAQ:BONA). Bona Film Group is China’s second-largest independent movie production and distribution firm. Bona Film Group is not only looking to go after the Chinese market, but also a global audience. Bona’s tie-up with News Corp is designed to help the company distribute its Chinese-produced films worldwide. What News Corp (NASDAQ:NWSA) liked when it did the deal with Bona is that Bona has a vertically-integrated business model. This is rather rare in the Chinese film community. Again, another smart move by Rupert Murdoch partnering with Bona Film Group.

The Chinese love Kung Fu Panda

Dreamworks Animation Skg Inc (NASDAQ:DWA) owns 45% of Oriental DreamWorks, a Chinese-American film production company. Its Chinese partners are China Media Capital, Shanghai Media Group and Shanghai Alliance Investment. Oriental DreamWorks will produce original Chinese animated and live-action films for distribution in China and worldwide as well. It also plans theme parks, games, and consumer products. The joint venture purchased Chinese animation studio 37 Entertainment which has already worked on productions for DreamWorks television.

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