US entertainment industry hits wall in China

American entertainment and leisure industries are facing an unsettling reality: China’s wallet is getting harder to access. The movie, concert and casino businesses, which have resumed activity in much of the world after Covid-19 shutdowns, are among the hardest-hit by the continued limited access to China’s middle class. Companies that once saw China as a vital growth market stand to lose out on billions of dollars in $100 concert tickets, $12 matinee stubs and $5 bets.

The factors in China putting pressure on America’s pastime industries range from repetitive Covid lockdowns to censorship and political headwinds, all slowing the chance to capture leisure time of China’s 1.4 billion citizens. For the past several months, Beijing’s “zero Covid" policy, which its government says is necessary to save lives, has kept millions of Chinese residents inside their homes for weeks at a time.

“The Chinese consumer is nervous, and so discretionary spending is down," said Craig Allen, president of the U.S.-China Business Council. “A lot of it has to do with sentiment, and sentiment is not good."

For Hollywood studios, hundreds of millions of dollars in box-office receipts have dried up. In 2019, seven Hollywood imports had collected more than $100 million at the Chinese box office by mid-August. So far this year, only one has. Foot traffic to the casino hub of Macau plummeted more than 80% in the same period. And in music, the market is too unpredictable to book live performances.

“We’re not booking anything in China because we don’t want to book things that will get canceled," said one music executive.

The U.S. entertainment industry has been in China for a relatively brief time, with movies starting to flow into the country in the 1990s. Concerts and gambling in Macau followed in the 2000s. The expansion of all three exemplified the globalized market envisioned by American and Chinese leaders when China joined the World Trade Organization, a development that introduced its growing middle class to Western businesses eager to grow.

The Chinese government has rejected several Hollywood blockbusters this year, including the last six releases from Walt Disney Co.’s hugely successful Marvel Studios, according to people familiar with the matter. The only movie to see sizable success in the market this year is “Jurassic World Dominion," at $158 million, according to box-office data.

For Comcast Corp.’s NBCUniversal, which released “Jurassic World Dominion," the news has been mixed. The company’s animated film “Minions: The Rise of Gru," was approved for release in China, and its Universal Beijing Resort opened last fall but then closed for several weeks in May, as the Covid-19 outbreak worsened in the capital.

Studios such as Comcast’s Universal Pictures and Warner Bros. Discovery have stopped accounting for any box-office revenue out of China when approving certain movies for production, according to people familiar with the matter. Instead, executives say, they wait to see if a movie will be accepted for release and treat the ticket sales as found money.

Lin Ziyi, a 24-year-old consultant in Beijing, said her movie attendance has fallen since Covid-19 to a handful of outings a year. Only two recent Hollywood releases—“The Batman" and “Fantastic Beasts: The Secrets of Dumbledore"—were among those she watched recently.

Within China, youth unemployment is rising and citizens overall are saving more than before, said Mr. Allen, whose U.S.-China Business Council is a nonpartisan organization of more than 270 American companies that do business in China.

“We had been used to a Chinese economy that was growing at 6% or 8% for the last decade," he said. “Those days are over."

Following a period of rubber-stamping concert tour requests from Western acts, for the past decade Chinese leaders have increasingly cracked down on lyrics, demanding they be submitted for approval before any show is held, music industry executives said.

Business executives say Beijing also appears to be tightening the spigot of Western influence ahead of the Communist Party’s 20th National Congress later this year, a gathering of the political elite at which paramount leader Xi Jinping is expected to be named to a third term as party chief.

Covid-related challenges may not last forever, but they are affecting touring plans for some of the world’s most popular artists today. In 2019, global superstars such as the Backstreet Boys, Shawn Mendes, Kacey Musgraves, Ed Sheeran and Maroon 5 made stops in China during their world tours before the Covid-19 pandemic started there.

This year, even as big acts start to return to the road, China isn’t part of the Asian legs of any tours due to ongoing Covid restrictions, executives say.

In the gambling enclave of Macau, the Covid-19 policies have caused a reversal from prepandemic times, when the territory’s casinos were a cash cow for U.S. gambling companies as millions of people visited from mainland China, where gambling is illegal.

U.S.-based casino giants Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Resorts International opened towering gambling resorts there starting in the 2000s. Wynn derived about 70% of revenue from the region in 2019, while Las Vegas Sands reported about 64% of its revenue from Macau.

In 2019, Macau recorded more than 39 million visitor arrivals—a record high—and about $36 billion in gambling revenue. Last year, Macau had only 7.7 million arrivals and generated about $10.8 billion in revenue.

Still, some executives appear to have faith for the future. This week, the Chinese unit of MGM Resorts said it plans to invest $600 million in its Macau casino operator.