China’s booming movie industry is attracting interest from Hollywood studios as they chase bigger box-office returns to offset tighter margins at home. Films with Asian and especially Chinese themes are becoming more prominent after Hollywood hit a 16-year low in movie ticket sales last year. Some of its biggest studios are setting up shop in China. DreamWorks Animation is setting up a base there, and Legendary Studios, which was behind the Batman series as well as “ Clash of the Titans”, is also developing a venture. Keanu Reeves is making his directorial debut with “Man of Tai Chi”, now filming on the mainland and in Hong Kong. “The United States is still the biggest market. Within the next 10 years, we are not going to be the biggest marketplace; everything is going to change,” Executive Producer Tracey Trench told a forum at the Hong Kong International Film and Television Market (Filmart) last month. Filmart is Asia’s major entertainment industry market and one of the world’s top three events of its kind. This year, it attracted a record 648 exhibitors and more than 5,700 buyers, up 14% from last year. The U.S. pavilion had more than 40 exhibitors, or about 25% more than in 2011. China’s film industry collected an estimated CNY13.1 billion last year – a jump of about 30% from 2010. Roughly 2,500 more cinema screens are expected to be unveiled in China this year. Its market is now the third-largest behind Japan and the U.S. By contrast, the Motion Picture Association says box office takings in the U.S. and Canada grew only 6.3% from 2007 to USD10.2 billion last year, while Asia-Pacific takings grew 38% to USD9 billion. Analysts say Chinese audiences are particularly drawn to movies that include Chinese references or elements of Chinese culture, so Hollywood is incorporating more and more Chinese content. The number of China’s cinema screens has increased from 4,753 in 2006 to 10,700 in 2011. Last year, China added on average eight screens every day. Still, China’s film industry is  largely untapped as the average Chinese person only goes to cinema 0.3 times per year. The U.S. Securities and Exchange Commission is meanwhile investigating Hollywood studios. It has sent letters of inquiry to at least five studios in the past two months, including News Corp’s 20th Century Fox, Disney, and DreamWorks Animation, asking for information about potential inappropriate payments and how the companies dealt with certain government officials in China.

Hong Kong’s TVB plans to form a joint venture with the state-owned Shanghai Media Group (SMG) to help it expand in the Chinese market. SMG’s former Chairman Li Ruigang is expected to run the venture out of Shanghai. Li’s only job title now is Chairman of Shanghai-based China Media Capital (CMC), a semi-official investment fund backed by SMG and China Development Bank (CDB). At CMC, Li impressed the industry by setting up a joint venture with U.S. filmmaker DreamWorks Animation to produce Chinese films using U.S. technology.

Six Chinese animation and computer game companies have been targeted by a private equity fund looking to back the creation of China’s own computer animation studio. The six companies in line to receive capital from the China ACG Industry Equity Investment Management Fund are Mingnuo Culture Communication, Beijing Fly Stone Technology, Shanxi Bough Animation, Jiangyin Yidao Game Technology, Hunan Haofeng Culture Communication and Liaoning Zhitu Culture Development. The ACG fund (the acronym stands for “animation, comics, games”), plans to buy a 5% to 20% stake in each of the six firms. Financing deals are expected to be reached in the middle of this year, according to two managers of Mingnuo Culture. The fund was launched in January by state-owned China ACG. China has about 10,000 cartoon and animation companies, most of which are small or mid-sized and hungry for capital. The size of the animation market was valued at CNY20.8 billion in 2010 by Ent Group, an entertainment research service provider. The market would grow 54% from 2010 to top CNY32 billion by this year, Ent predicted. The ACG Fund is the first that focuses on animation. The Ministry of Culture is responsible for the daily operations of the China ACG Group.

China Xinhua News Network (CNC) aims to generate substantial income from advertising in five years, even though CNC, launched two years ago, has yet to profit from advertising. In December, the television arm of Xinhua injected the assets of its Asia-Pacific channels into Hong Kong-listed Tsun Yip, a waterworks engineering firm. Last month, Tsun Yip changed its name to CNC. “We hope the revenue [from the media business] will exceed that of Tsun Yip’s water utilities,” said Wu Jincai, Deputy Editor-in-Chief of Xinhua and President of CNC. “Tsun Yip’s profits amount to about HKD12 million a year. I am confident we will do better than that,” he said. “Now that our TV programs have entered 57 countries and regions, the time is ripe,” to enter the advertising business. CNC would also seek revenues through conferences and related activities, Wu said. CNC would be the priority platform for Chinese firms and the government to build their international image, SWS Research, a Shanghai-based securities research institute, said in a report. Xinhua has 162 overseas bureaus, compared with 37 for the BBC and 42 for CNN. Wu said Xinhua’s vast global network would enable CNC to produce enough content for its 24-hour news service, and unlike other rival news channels, CNC would not broadcast too many talk-show programs.

DreamWorks Animation (DWA) agreed to set up a joint venture with China Media Capital, Shanghai Media Group and Shanghai Alliance Investment to produce films, TV series and other content aimed at the Chinese market. Jeffrey Katzenberg, DWA Chief Executive, told the Financial Times the deal was personally approved by Chinese Vice President Xi Jinping when it was announced during Xi’s state visit to the U.S.  “It’s hard to overestimate how big a deal this is for DreamWorks Animation,” Katzenberg said. “When you look at this in the context of what the world will look like in five to seven years from now, China will be the world’s number one media market. It will be the largest live entertainment market, the number one consumer products market … so to create a family-branded entertainment company [in China] is an honor for us and a huge opportunity.” The Chinese groups involved in the venture will hold approximately 55% of the shares in Oriental DreamWorks, with DWA controlling the rest. It is to become the most significant tie up yet between a Hollywood studio and a Chinese partner, the Financial Times reports. Hollywood studios have been keen to partner with Chinese groups to give them a foothold in China, which is adding cinema screens at a rate of about three screens a day, faster than any other country. China is forecast to be the world’s biggest cinema market within the next decade and touched USD2 billion in box-office receipts in 2011, a near USD400 million increase on 2010. “We believe this significant development will help us further our network expansion efforts and enable Imax to continue providing Chinese consumers with great films from both Hollywood and China,” Richard Gelfond, Chief Executive of Ontario-based Imax, said.