Warner Bros. in talks to produce local language movies in China through joint venture

In a bid to expand its presence in the world’s second largest film market, Warner Bros. is in talks to produce local language movies in China through a joint venture with a state-backed investment fund.

Warner Bros., the studio behind the Harry Potter and Batman movies, is in discussions to form a joint venture China Media Capital to produce films for the Chinese market, said a person familiar with the talks who asked not to be identified because the discussions were confidential.

Although other studios including Fox and Disney have signed deals to produce local language movies and TV shows in China, the proposed Warner Bros. joint venture is among the most ambitious to date for a Hollywood studio. Warner Bros. has invested $50 million into the partnership, according to the person with knowledge of the matter.

A spokesman for Warner Bros. decline to comment.

Major studios have been eager to expand their businesses in China to capitalize on the rapid growth of the country’s box office, which is up more than 40% this year and is expected to surpass that of the U.S. in a few years.

Much of the growth has been driven by Hollywood blockbusters such as “Jurassic World” and “Furious 7,” which set box office records in China earlier this year. Locally produced movies such as the animated film “Monster Hunt” also have generated big returns in China.

But studios also have been frustrated by a quota system, set to expire in 2017, that limits their box office returns in China. The Chinese government currently allows only 34 foreign films into the country each year under a revenue-sharing agreement. Studios collect only about 25% of ticket sales.

Domestically produced films made with Chinese partners, however, are not subject to such quotas, and give studios like Warner Bros., which is owned by New York-based Time Warner Inc., an opportunity to grab a larger share of box office revenue in China.

China Media Capital also is a partner in a joint venture with DreamWorks Animation SKG., which operates a studio in Shanghai that is producing “Kung Fu Panda 3” and other movies through a joint venture called Oriental DreamWorks.

The talks represent the latest in a flurry of deals between Hollywood and Chinese media companies. While studios are eager to capitalize on China’s vast film market, Chinese media companies want to tap Hollywood know-how to produce their own movies that can compete globally.

China’s Hunan TV earlier this year closed an agreement to invest $375 million in Lionsgate’s movie slate over three years. Chinese real estate firm Fosun Group pledged $200 million to Jeff Robinov’s new Studio 8 production company. And Beijing-based Huayi Bros. announced in March that it was investing in a slate of at least 18 films with Robert Simond’s Burbank company STX Entertainment.

Alibaba Pictures, the film and TV production arm of the Chinese e-commerce giant, in June said it was investing in its first Hollywood film, Paramount Pictures’ summer release “Mission: Impossible — Rogue Nation.”

Some experts believe the pace of deal making, however, will cool in the wake of the sharp decline in China’s market.

The talks between Warner Bros. and China Media Capital were first reported by the Wall Street Journal.