published Oct 16th 2016, 4:00 pm, by Anousha Sakoui and David McLaughlin

(Bloomberg) —
The billboard towers over Sunset Boulevard, a marionettist’s hand, a la “The Godfather” posters of decades ago, pulling the strings in Hollywood. It poses an unsettling question: “China’s Red Puppet?”

The sign is the work of Rick Berman, a lobbyist on a mission against — as he has framed it — “the communist takeover of our movies.” The target, in this instance, is Dalian Wanda Group Co., owner of the second-biggest U.S. cinema chain and Legendary Entertainment, co-producer of “The Hangover.” And whose founder, billionaire Wang Jianlin, will be in Los Angeles Monday to host an event in a city whose best-known industry has embraced him.

The entertainment business may welcome the invasion of money from Wanda and other Chinese companies, but Berman sees danger. These investors are gaining power that, in his view, will be wielded to influence public opinion and tailor films to the liking of the rulers of the world’s most populous nation.

“If everything continues on the current trajectory, you will never see a Chinese villain in the movies,” he said by phone from his public affairs firm Berman & Co. in Washington. He’s known there for his hardball tactics on behalf of the food, alcohol, tobacco and energy industries, and earned the nickname Dr. Evil for his lobbying work against labor unions.

Berman’s campaign to heighten government scrutiny of the security risks of Chinese stakes in the entertainment business has captured the attention of some in Congress. It’s creating buzz and a bit of alarm in an industry that is keen for access to China’s massive box-office market and increasingly reliant on backing from its companies.

‘Very Naive’

“China is the biggest external investor, probably with the exception of Wall Street, that Hollywood has ever seen,” said Robert Cain, a consultant and partner at Pacific Bridge Pictures.

A rarity in the business, Cain said there is something to worry about in China’s grab for the so-called soft power of cultural and economic influence. “I’ve been a beneficiary of Chinese investment myself and have been very happy with the investors I’ve worked with,” but as for those who believe the Chinese are just interested in making money, “that is a very naive and even a dangerous attitude.”

Others dismiss Berman as a fear-mongerer. Janet Yang, a producer whose credits include “The People vs. Larry Flynt,” said it seemed less than coincidental that the issue was being raised in an election year in which Donald Trump has attacked China in particular and globalization in general.

Big Money

“We are not making widgets,” said Yang, whose parents were born in China. “We are making things that require incredibly deft and nuanced storytelling, and audiences are not going to put up with anything that reeks of propaganda.”

Studio executives either declined to comment or didn’t respond to calls and e-mails. The Motion Picture Association of America declined to comment, as did a spokesperson for Wanda in Beijing.

The Chinese have been spreading big money around the industry since 2012, when Wanda bought cinema operator AMC Entertainment Holdings Inc. Several recent blockbusters — including “Mission Impossible — Rogue Nation” and “Terminator Genisys” — were partly financed by Chinese companies.

One of the newest studios, 2-year-old STX Entertainment, got its start with help from the Chinese private-equity firm Hony Capital and has raised millions in deals with Huayi Brothers Media Corp. and Tencent Holdings Ltd. Last week, Alibaba Pictures Group Ltd. said it was buying a stake in Amblin Partners, the production outfit backed by Steven Spielberg.

‘Different Agenda’

Wanda has been the busiest. Founded by Wang — a former officer in the People’s Liberation Army — the conglomerate bought Legendary in January and has a deal to make movies with Sony Corp.’s film unit. AMC plans to purchase Carmike Cinemas Inc. Wanda’s in talks to acquire a controlling stake in Dick Clark Productions. And Wang has said he’d like to control one of Hollywood’s six major studios.

He’ll be promoting his company’s Qingdao Movie Metropolis, a complex under construction on China’s eastern coast, at the Los Angeles County Museum of Art Monday. The invitation-only event is billed as a U.S.-Sino Business Evening.

“I don’t think that Wanda is buying all these movie interests because they are trying to corner the buttered popcorn market,” Berman said. “These guys have a different agenda.”

Needing Access

Berman runs his save-Hollywood mission out of a nonprofit called the Center for American Security with a budget of $400,000, some of it his own money and some from donors he declined to identify, describing them as “national security hawks.” He set up a website — chinaownsus.com — to showcase his arguments. “My goal is to expose to the general public a point of view that they are not getting,” he said.

One video on the site shows the scene from “A Clockwork Orange” where Malcolm McDowell is forced to watch films with his eyes painfully propped open, to suggest Beijing could decide what movies U.S. audiences see. Another intimates that the script for “The Martian” was altered to include a pro-Chinese storyline. The Matt Damon film, it turns out, was true to the novel, in which the Chinese space program helped rescue a stranded American astronaut.

U.S. studios frankly need Chinese access as much as they do Chinese money, and rely on partnerships to distribute in that country, where regulations put sharp restrictions on foreign films. Because the market in China has such potential, Hollywood self-censors, no prodding needed, said Stanley Rosen, a University of Southern California professor who studies the relationship between China and the U.S. industry.

Dalai Lama?

“When they make a film, they will make sure it has friendly China elements, and certainly no unfriendly elements,” he said. “It doesn’t matter who owns the company.”

Studios sometimes make different versions of movies for theaters in China, where anything for public consumption has to pass the tough muster of the Film Bureau, an arm of the State Administration of Press, Publication, Radio, Film and Television. “Cloud Atlas” from Warner Bros. went to cinemas there without sex scenes in 2013. Walt Disney Co. put out a special “Iron Man 3” that year with Chinese actors and bonus footage.

Pacific Bridge’s Cain, who consults for U.S. studios on how to do business in China, said it will be the absence of certain kinds of films that will be evidence of the detrimental effect of Chinese investments in Hollywood. “Who wants to be the person who got themselves blacklisted in China because they made a film about the Dalai Lama?” he said, referring to the spiritual leader of the Tibetan people who has lived in exile since China annexed Tibet.

Entertainment is hardly the only U.S. industry attracting Chinese capital. There was more than $18 billion in direct investment from that country in the first half of 2016, according to Rhodium Group, more than the total for all of 2015.

U.S. companies with China-based parents run the gamut, from Smithfield Foods Inc. to New York’s landmark Waldorf Astoria Hotel. Those were both examined by the Committee on Foreign Investment in the United States, a panel known as CFIUS that reviews foreign acquisitions of U.S. companies.

Now, thanks to Berman, the Government Accountability Office is looking into whether the scope of CFIUS should be formally expanded, in light of what 18 members of Congress called the “serious security questions” raised by Wanda’s shopping spree. The lawmakers in a Sept. 15 letter asked the GAO to study whether CFIUS’s examinations should include a focus on propaganda and control of media and other soft-power institutions.

Wang told CNN on Sept. 28 that the two Democrats and 16 Republicans who signed the letter were “over-worried.”

Lawyers at Akin Gump Strauss Hauer & Feld cautioned clients in a note last month that the GAO review indicated the panel may increase its study of entertainment deals. “You can’t ignore it as a potential problem,” said John Burke, head of the firm’s entertainment practice.

It may be just a matter of time, and money, said Nova Daly, a senior policy adviser at Wiley Rein in Washington. “There could in theory be a point where enough investment by companies from only one country like China in the industry starts to raise eyebrows.”

–With assistance from Jeanne Yang. To contact the reporters on this story: Anousha Sakoui in Los Angeles at asakoui@bloomberg.net ;David McLaughlin in Washington at dmclaughlin9@bloomberg.net To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net ;Sara Forden at sforden@bloomberg.net Anne Reifenberg

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