After graduating from Harvard College in 1974, McGee worked as a reporter for Newsweek magazine in its New York and Washington bureaus. He joined HBO after graduating from Harvard Business School in 1979. During the course of his 34-year career with the company, he held posts in a wide range of areas including family programming, film acquisition and international co-production. Named president of HBO Home Entertainment in 1995, McGee received numerous industry awards for his pioneering use of Internet-based marketing and early adoption of the high definition format for the company’s DVD releases. After retiring from that position he joined the HBS faculty. A member of the General Management Unit, he has taught courses in both the MBA and Executive Education programs.
Harvard Political Review: What is the current state of the Chinese movie industry and what is its future direction?
Henry McGee: The Chinese film business is growing quite rapidly. It is the fastest growing film business in the world and, in terms of box office, probably sometime within the next 24 months, will exceed the U.S. box office, which up until now has been the largest. The Chinese are pursuing a dual strategy. On one level they are using their money to purchase entertainment assets outside of China.
There is, for example, a company called Wanda, which is run by Wang Jianlin. He started a few years ago. He bought AMC, which was the second largest theater chain in the United States. Early this year, he announced that he is purchasing what was the fourth largest chain, Carmike. He will combine them, and so he will be the largest owner of motion picture theaters in the U.S. Combined with the theaters that he already owns in China, it will make him the largest owner of theaters on the globe. So he is somehow emblematic of an outside strategy that they are focused on. At the same time, they are quite focused on bringing production to China. He is building what will become the world’s largest motion picture studio in China. He has brought in as supervisors Pinewood Studios out of London, where the James Bond films are done. It is under construction with hundreds of acres of sets, and I had the chance to visit it last year. It is going to be part of a much larger development that he is doing that will include a movie museum, hotels, its own yacht club, and even its own hospital.
In that sense, the Chinese are trying to encourage people to make movies over there. Now, because of the size of the market, China restricts the number of foreign productions that come into the country. Virtually every major US motion picture studio now is in partnership with a Chinese company, because co-productions are not subject to the same restrictions. Also because the market is so tightly controlled by the Chinese, they can dictate when movies can play. Generally, the best holiday times are restricted to Chinese films. By doing co-productions, the U.S. companies are hoping to get around those restrictions. At the same time, because you have this dual flow of trade, the Chinese are also investing in U.S. films as well. So it is going both ways.
HPR: The Chinese government is prohibiting movies that are made or released in China with, for example, ghost or time travel content. Are those restrictions and censorship in general holding back co-productions?
HM: So far, no. A good example of a co-production is Furious 7, which was one of the biggest box office films of all time. Ten percent of the funding came from the Chinese. The big issue is that all the scripts will have to be reviewed by the Chinese government. We certainly know that post-production can be done there. What is unclear is how comfortable the Chinese will be and how comfortable Western filmmakers will be with Chinese censorship restrictions. We do not yet know what sort of pictures are going to be made, but certainly they will have to meet the restrictions that the Chinese government puts on.
HPR: Will Chinese films be exported in the long run?
HM: All the studios are pursuing a dual strategy. They know that their big productions such as Superman vs. Batman will travel internationally, and those action films will always play. They are, at the same time, quite clear that if they want to capture a big chunk of the fast growing Chinese market, they have to produce films in China for the Chinese market. They are going to be bringing over their technical expertise and their money, but the films will all be Chinese-themed and are targeted towards that market. Whether some of those will be exported, I think that is the hope. The U.S. was able to make films for many years just for the American market because it is big enough. The Chinese market is going to be bigger than the U.S. film market. So all you have to do in order to make quite a handsome profit is just to make films for the Chinese market, and you would become hugely rich.
HPR: What will be your next project, and how does it tie into the changing film studio landscape?
HM: Next year, I am launching a second-year MBA course called Hollywood: Marketing and Distribution Challenges in a Digital World. The course takes, as its premise, that the rise of digital technology is changing how films are distributed and that studios are trying every day to reinvent themselves. The forty students will be in eight teams of five, and each of the students will be paired with large movie picture studios or disruptors. They will be given a particular marketing or distribution challenge that the studio is confronting. They will meet on campus several times and we will take a deep dive into the motion picture industry and they will be working with their Hollywood partner on this problem throughout the fall. Then in the January term, we will go out to LA for two weeks where the students will work out of their offices of their partners and roll up their sleeves.
HPR: Where do you see the biggest challenges for the movie industry?
HM: It is clear that the biggest challenges to Hollywood, both on the movie side and on the television side, are that the rise of digital distribution makes it possible for the traditional windows in venue distribution, around which the whole Hollywood economic chain is built, to be disrupted. Earlier this week for example Hulu, which is a joint-venture between ABC, Fox and NBC, announced that they are now going to put together essentially a package of their programming from all of their networks. Rather than make that available through the traditional cable operators or over the air, it is going to be sold over the Internet. That would not have been possible just a few years ago… What does it mean for the cable industry, what does it mean for the broadcast industry now that there is digital made available as a third distribution stream? In the motion picture business, the idea was to use the fact that people now have very large screen TVs and very sophisticated audio systems in their home. Is there a need to go to theaters at all, and does it make more sense to go directly to the home?
…Another example are the two players reshaping the business, who are looking at this differently: Netflix and Amazon. Netflix used to make all of its money by putting 5-inch plastic disks in the mail, and now is one of the major sources of entertainment globally. What they have been pursuing is investing in motion pictures and then taking them directly to their subscribers. Their big competitor Amazon is also now involved in the motion picture business. In fact, they are going to be releasing this year’s Cannes film festival opener, the new Woody Allen film, and Amazon will be distributing it. You have two digital companies entering this field with two very different views on the windowing and the ecosystem. Then, you have the incumbent players. So it is an area that is very much in flux right now.
HPR: Could Netflix and Amazon be the step in between TV and an unbundling of content potentially through apps?
HM: This will all play out over the next couple of years. On one level you have Hulu. They are talking about a $40 package, but which I also believe is going to include ESPN. They believe that a bundle of programming will work. HBO is standalone; Netflix is standalone; Amazon Prime is standalone. People are going to test the consumer appetite. So the question is––and no one knows this yet—if a customer buys HBO for $15, ESPN is not launched but say they launch at one point. What is the consumer appetite? How many individual networks do they want, and do they want it bundled the way that Hulu is doing it? So you are going to see this great experimentation and price testing. For example, Netflix has over the last couple of years continued to bump up its price as it is trying to figure out how much consumers are prepared to pay.
HPR: You have been the President of HBO Home Entertainment and now came back to lecture at Harvard Business School. Where do you see the biggest similarities?
HM: Moving from executive to educator has been exciting, but there are very few similarities. When I was at HBO, I was very involved daily with meetings related to corporate strategy, domestic and international expansion, financial reports, program acquisitions––very much focused on bottom line results. Here as an educator, my focus really falls into three different areas: certainly teaching, research––I have had the opportunity to co-author a number of cases––and third, spending time with students and counseling them, both their academic work and career counseling.
HPR: Thinking back to your time at the Institute of Politics, what would be your fondest memory?
HM: To me, the fondest memory was to being able to engage in spirited debates with other students about public affairs. That is what I remember most.
Image credit: Russ Campbell/HBS