A STU­DIO’S BIG BET ON CHINA

Dream­Works An­i­ma­tion teams up on ‘Panda’ se­quel

Los Angeles Times - - BUSINESS - By Julie Maki­nen and Richard Ver­rier

SHANG­HAI — On the 16th f loor of a Shang­hai of­fice build­ing, dozens of fresh-faced young an­i­ma­tors are study­ing paint­ing, sculpt­ing and act­ing.

They’re par­tic­i­pat­ing in film-ap­pre­ci­a­tion work­shops — Woody Allen’s “Match Point” was a re­cent pick — and learn­ing the lat­est soft­ware tools. Teach­ing them via video con­nec­tions were some of the most ex­pe­ri­enced artists in Los An­ge­les, vet­er­ans who brought to life hits such as “Shrek” and “Mada­gas­car.”

But it won’t take years for th­ese new­bies, many of them re­cent art-school grads, to get their big break work­ing on a Hol­ly­wood block­buster. As em­ploy­ees of Ori­en­tal Dream­Works, they’re al­ready staff artists on “Kung Fu Panda 3,” set for re­lease in Jan­uary.

The run­away suc­cess of the “Kung Fu Panda” fran­chise in­spired both awe and envy for Chi­nese who won- dered how Amer­i­cans came up with a bil­lion-dollar global phe­nom­e­non that com­bines two quin­tes­sen­tial el­e­ments of Chi­nese cul­ture — a bum­bling black-and-white bear and mar­tial arts.

That sense of ad­mi­ra­tion and frus­tra­tion helped smooth the way for Dream­Works An­i­ma­tion Chief Ex­ec­u­tive Jef­frey Katzen­berg to cre­ate Ori­en­tal Dream­Works in 2012, a $330-mil­lion joint ven­ture with­out prece­dent in the en­ter­tain­ment in­dus­try.

Mod­eled on agree­ments that have given Amer­i­can com­pa­nies like Gen­eral Mo­tors ex­panded ac­cess to the re­stric­tive Chi­nese mar­ket — in ex­change for shar­ing their tech­nol­ogy and knowhow — the Shang­hai-based en­tity is 45% owned by Dream­Works An­i­ma­tion.

Other part­ners in­clude a gov­ern­ment in­vest­ment fund; pri­vate eq­uity firm China Me­dia Cap­i­tal, which has in­vested in Imax’s China busi­ness; and Shang­hai Me­dia Group, a mul­ti­me­dia tele­vi­sion and ra­dio broad-

cast­ing com­pany.

“Be­ing able to be a bit of a pi­o­neer in that mar­ket, I think could be in­cred­i­bly and uniquely valu­able for us,” Katzen­berg said in an in­ter­view. “If we suc­ceed, it could be a game changer for us.”

Hol­ly­wood stu­dios have been scram­bling to ex­pand their busi­ness in China to cap­i­tal­ize on a boom­ing box of­fice, which is ex­pected to over­take U.S. box-of­fice re­ceipts within a few years. Dream­Works is in an en­vi­able po­si­tion: The $96.3-mil­lion haul for the sec­ond in­stall­ment of “Kung Fu Panda” in 2011 still stands as the high­est gross ever for an an­i­mated film in China.

It also re­in­forced Katzen­berg’s be­lief that the Mid­dle King­dom could be a mega­mar­ket for his Glen­dale stu­dio.

“I would say sad­dle up, this is where it’s headed,” Katzen­berg said.

Dream­Works sorely needs an un­bri­dled hit to bol­ster its bot­tom line. The com­pany this year shed about 20% of its work­force, closed its stu­dio in North­ern Cal­i­for­nia, and sold (and leased back) its Tus­canstyle cor­po­rate head­quar­ters lined with olive trees and koi-filled pond. The lay­offs and re­struc­tur­ing charges forced Dream­Works to take a loss of $54.8 mil­lion in the first quar­ter ended March 31.

Af­ter a string of box-of­fice mis­fires, Katzen­berg has in­stalled a new man­age­ment team, scaled back the num­ber of movies the stu­dio pro­duces, and vowed to fo­cus on re­viv­ing the stu­dio’s core fea­ture an­i­ma­tion busi­ness that once pro­duced hits in­clud­ing the “Shrek” and “Mada­gas­car” films.

The cre­ation of Ori­en­tal Dream­Works has al­ready re­sulted in pref­er­en­tial treat­ment for “Kung Fu Panda 3” in China. The movie’s re­cent des­ig­na­tion as co-pro­duc­tion will en­able the com­pany to re­ceive a larger share of rev­enue than for­eign stu­dios typ­i­cally re­ceive when their films are al­lowed into China un­der its quota sys­tem.

And the movie has se­cured a choice re­lease date over the Chi­nese New Year hol­i­day, a pe­riod typ­i­cally re­served for do­mes­tic pro­duc­tions.

Third in­stall­ments in even the most suc­cess­ful fran­chises are far from sure bets, but the stu­dio is mak­ing ev­ery ef­fort to boost the film’s odds of be­ing a hit with Chi­nese au­di­ences.

The movie is break­ing new ground by hav­ing two ver­sions, in which char­ac­ters are an­i­mated so that their speech is in sync with both English and Man­darin. Cre­at­ing the Man­darin-lan­guage ver­sion will take about 25% more time and ef­fort, adding to the bud­get of the film that’s es­ti­mated near $140 mil­lion.

“The first few projects that we do are go­ing to take longer and they’re go­ing to be po­ten­tially more ex­pen­sive than what we would nor­mally be plan­ning to do,” said Prashant Buyyala, head of Ori­en­tal Dream­Works’ an­i­ma­tion stu­dio. “But that’s all part of the process of build­ing a world­class an­i­ma­tion stu­dio.”

Though the Glen­dale-based team led by direc­tor Jen­nifer Yuh Nel­son re­mains the driv­ing cre­ative force be­hind “Kung Fu Panda 3,” more than 200 Ori­en­tal Dream­Works em­ploy­ees have been as­signed to the film in Shang­hai. They have been pro­vid­ing feed­back on the au­then­tic­ity of cer­tain Chi­nese el­e­ments, work­ing on de­tails like the an­i­ma­tion of snow, and help­ing craft the sec­ond ver­sion of the film that will be pre­cisely co­or­di­nated to a Man­darin-lan­guage script (and be seen only in main­land China).

Nel­son says the in­volve­ment of Chi­nese artists has im­proved the au­then­tic­ity of the film. For in­stance, a brain­storm­ing ses­sion with both Chi­nese and Amer­i­can staff led to some cul­tural dis­cov­er­ies.

“We were try­ing to come up with fun things the char­ac­ters do — what they eat, how they play,” she said. “As West­ern story artists, one of the things we put in was cook­ies. And the Chi­nese story artists ba­si­cally said, ‘Um­mmm. You can’t put in cook­ies, you have to put in tra­di­tional food.’ ”

That led to chang­ing the script to in­clude food and games more tra­di­tional for the Chi­nese char­ac­ters.

Teng Hu­atao, the direc­tor for the Man­darin-lan­guage ver­sion of the film who had no prior ex­pe­ri­ence di­rect­ing an an­i­mated film, spent two months in Glen­dale last year dis­cussing story and vis­ual el­e­ments. He also had a chance to meet with some of the English­language cast, in­clud­ing Jack Black, who voices Po, the panda.

Teng also chimed in on some cul­tur­ally sig­nif­i­cant scenes.

“Some stuff they wanted to put in looked Korean or even Ja­panese — cloth­ing, hair­styles, even fans were wrong,” he said. Al­lud­ing to his­tor­i­cal an­i­mosi­ties be­tween China and Ja­pan, he noted: “That can be very danger­ous in China.”

Chief Ex­ec­u­tive James Fong said Ori­en­tal Dream- Works is al­ready in pre­pro­duc­tion on its next film project, an an­i­mated movie code-named “ODW1.” Ex­ec­u­tives are also de­lib­er­at­ing over what to se­lect for a sec­ond project, an­other an­i­mated film, but Fong said both should be in pro­duc­tion si­mul­ta­ne­ously by next year.

The two movies, he said, would fol­low the “Kung Fu Panda 3” model — with ver­sions in English and Man­darin — and are en­vi­sioned as co-pro­duc­tions with the Glen­dale cam­pus. The con­tent would be fully owned by Ori­en­tal Dream­Works.

There have been some grow­ing pains.

Fong, a for­mer ex­ec­u­tive at Ama­zon, joined the stu­dio six months ago to be­come the com­pany’s sec­ond CEO in three years. He re­placed for­mer Dis­ney ex­ec­u­tive Guen­ther Hake — a vet­eran of Dis­ney’s con­sumer prod­ucts di­vi­sion in China, who left af­ter just a year on the job. The Shang­hai stu­dio also lost its head of cre­ative devel­op­ment af­ter only about a year.

“Joint ven­tures are tough.… It’s like get­ting mar­ried,” Fong said. “In­stead of two peo­ple, you have two cor­po­ra­tions get­ting mar­ried; we’re the love child.”

The com­pany has qui­etly dropped a film called “Ti­bet Code,” which Katzen­berg un­veiled at a Bei­jing news con­fer­ence in April 2013 along­side Han San­ping, then-chair­man of the pow­er­ful state-run dis­trib­u­tor China Film Group.

The adventure story, based on a se­ries of Chi­nese nov­els set in 9th cen­tury Ti- bet, has “all the mak­ings of a world-class, qual­ity, block­buster fran­chise,” Katzen­berg told re­porters then. He said the com­pany could not come to terms with the pro­ducer who owned the rights to the book.

The $330 mil­lion that Dream­Works and its Chi­nese in­vest­ment part­ners in­vested in Ori­en­tal Dream­Works in­cludes money to build and staff the Shang­hai stu­dio.

Katzen­berg de­clined to say how much money Dream­Works con­trib­uted to the deal, or how Dream­Works and its Chi­nese part­ners will divvy up rev­enue and profit.

But he said Dream­Works’ 45% own­er­ship stake in the joint ven­ture lim­its its fi­nan­cial ex­po­sure.

“If it fails it will be a loss of our time and ef­fort as op­posed to dam­ag­ing the un­der­pin­nings of the com­pany,” he said. “Not a huge down­side, gi­gan­tic up­side.”

Also bod­ing well for the part­ner­ship, Katzen­berg said, is a strong part­ner­ship with me­dia mogul Li Ruigang, chair­man of China Me­dia Cap­i­tal.

“I feel like he has as much skin in this game and is determined that we win and suc­ceed,” Katzen­berg said. “I just find him an ex­cel­lent part­ner, even when we dis­agree.”

How Dream­Works fares in China will be im­por­tant to its fu­ture, an­a­lysts say.

“If China is go­ing to sur­pass the U.S. box of­fice in the next four or five years, hav­ing a strong foothold there is key,” said Eric Wold, a me­dia an­a­lyst with B. Ri­ley & Co. “It could not only help turn [Dream­Works] around, it could be a ma­jor leg of the com­pany.”

Nick May For The Times

MORE THAN 200 em­ploy­ees of Ori­en­tal Dream­Works — a China-based en­tity that’s 45% owned by Dream­Works An­i­ma­tion — are work­ing on “Kung Fu Panda 3.” Above, an­i­ma­tion staff in Shang­hai.

Los An­ge­les Times

Nick May For The Times

ORI­EN­TAL DREAM­WORKS chief James Fong joined the stu­dio, a part­ner­ship with Dream­Works An­i­ma­tion, six months ago, be­com­ing the com­pany’s sec­ond CEO in three years. “Joint ven­tures are tough,” he says.

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