A successful Avatar 2 China release is everything James Cameron and China’s government could hope for

Avatar: The Way of Water will hit theaters on Dec. 16, 13 years after the release of the original that went on to become the highest-grossing film of all time. To say the latest movie faces high expectations would be an understatement. The film’s huge budget means it will likely have to be one of the highest-grossing movies ever to recoup its costs, director James Cameron said in a recent interview with GQ.

The likelihood of Avatar: The Way of Water, from Disney, becoming a box office smash was boosted last month after the film received a coveted release in China, the world’s second-largest film market behind the U.S. It was a huge victory for the film’s studio, Disney, that could help its chances of becoming a financial success. 

The overseas release of the original Avatar in 2009 and rereleased versions accounted for $2.13 billion of its $2.9 billion in total gross. Around $265 million of that came from China, where the film industry has grown quickly in the more than a decade since. 

On Wednesday, Cameron got more good news when China’s government said it would ease up COVID restrictions. Though many of the details are still unknown, such as the timing, it’s likely welcome news to fans of the original and, possibly, to protesters, too. 

Amid waves of COVID-induced lockdowns in China, film fans have increasingly clamored for greater “cinema freedom.” Protesters have shared the rallying cry, “I wanna see a movie!,” across Chinese social media, as part of their effort to return to normal life.

Cameron’s big gamble

The sequel has a lot riding on its shoulders, and a lot of it comes down to its cost to make. 

Avatar: The Way of Water’s production budget alone reportedly stands at $250 million. But with marketing and other expenses, the film’s price tag may be more than $350 million, according to the Hollywood Reporter, which would place it among the most expensive films ever. 

Even Cameron, who has ample experience helming expensive big-budget flicks from Terminator 2 to Titanic, is nervous about how much the film must make to avoid a loss, calling the film the “worst business case in movie history” during his recent GQ interview. For Avatar: The Way of Water to turn a profit, it would have to be “the third or fourth highest-grossing film in history,” he said. “That’s your threshold. That’s your breakeven.”

Cameron refused to discuss reports of how much the movie had cost, saying only that it had been expensive. But to become the third or fourth highest-grossing film of all time, the Avatar sequel would need to make more than 2015’s Star Wars: The Force Awakens, which raked in $2.07 billion worldwide. 

If it doesn’t, two of the film’s three planned sequels will likely be canned, and the movie industry’s uneven rebound from the pandemic in 2022 will end on a low note.

“Theater owners have been waiting for their lobbies to be packed with people and bustling with activity, and that’s what a movie like Avatar: The Way of Water can do,” Paul Dergarabedian, senior media analyst at Comscore, told Fortune. “The stakes are really high.”

He described cinema’s 2022 as a “breakneck roller-coaster ride” that was atypical for the industry. After high-profile films including The Batman and Top Gun: Maverick dominated the box office with big sales earlier in the year, interest in more recent films has been relatively subdued, according to Dergarabedian.

So the release of the latest Avatar, which took over three years to shoot and has been subject to repeated delays since Cameron originally envisioned a 2014 release, comes with very high hopes attached to it as 2022 closes out.

“Since [August], other than Black Panther: Wakanda Forever, we’ve really had a hard time getting a footing with a big blockbuster to build a huge box office,” Dergarabedian said, adding that the weekend of Dec. 3 brought in only $53 million in North American box office receipts for all films. 

“It looks like Avatar: The Way of Water will bring in hopefully more than that in a single day, which is good news for theaters both domestically and internationally,” he said.

The China question

China’s film market raced ahead of most other countries for large parts of the pandemic, as its theaters stayed open while other countries went into lockdown. China even briefly overtook the U.S. as the world’s biggest box office in 2020. 

As its domestic film industry has grown, China has limited the number of U.S.-made films or U.S. coproductions allowed in the country. Only 29 received a Chinese release this calendar year compared with 73 in 2018, according to Comscore. 

In recent years, China’s government has become bolder in justifying why it bans foreign-made films. For example, China has blocked the last seven movies in the superhero Marvel series for reasons ranging from portraying LGBTQ relationships onscreen to depicting an international newspaper known for opposing the Chinese Communist Party. 

Many foreign-made blockbusters have even been denied a release for political reasons. Top Gun: Maverick, Tom Cruise’s high-flying 2022 blockbuster that smashed Memorial Day records in May, has yet to get a China release and lost a Chinese investor ostensibly because of the film’s pro–U.S. military messaging and for showing a Taiwanese flag (it had been removed from the film’s earlier trailers).

Lately, Western filmmakers have largely given up on China and are less willing to bow to China’s content censorship rules. But for Avatar: The Way of Water, ignoring China is not an option considering how much is riding on the film’s success.

“If Avatar: The Way of Water had not gotten a release in China, that would really not be a good thing for the movie,” Dergarabedian said, adding that the country’s huge number of IMAX theaters and 3D cinemas is another important reason the Avatar sequel could succeed in China.

“For Avatar, China is a key, key market, and it’s really because of the profile of the film,” he said.

China’s uncertain market

From a commercial perspective, an Avatar China release is a no-brainer. The original film was well-received, and a rerelease in China last year brought in $44 million in 10 days, outperforming its main competitor: Disney’s Mulan, a live-action remake of a Chinese folk legend starring a famous Chinese actress.

But success in China is far from guaranteed because of increasing unpredictability in the country’s movie market. 

China fell to second place in global box office rankings earlier this year owing to the pandemic lockdowns. Last month, China’s box office receipts were down 35% compared with 2021, and even on China’s National Day—a major public holiday celebrated on Oct. 1 that tends to see patriotic films hit theaters—turnout was underwhelming this year with receipts down 67% from last year. 

The decline in China’s domestic film industry this year might spark more interest in foreign movies such as the new Avatar, Wendy Su, a media and cultural studies professor at the University of California, Riverside and author of the 2016 book: China’s Encounter With Global Hollywood, told Fortune.  

“Hollywood blockbusters like Avatar are still very appealing, especially now the Chinese film industry and box office have plummeted to the lowest level given the harsh COVID lockdowns,” she said.

China’s cinematic slowdown in 2022 comes as most other countries have lifted COVID restrictions and reopened public venues including movie theaters. Meanwhile, in China, widespread lockdowns sparked protests against China’s zero-COVID policy and a number of demands, including for press freedom, accountability for officials over the lockdowns, and an end to online censorship. 

Critics have also complained about China’s censorship rules on its own movie industry leading to more formulaic films, as well as a smaller slate of movies overall, which may be boosting domestic demand for more foreign fare.

“Chinese audiences desperately need good entertainment and upbeat movies,” Su said. “China’s latest crackdowns on show business may lead to more Chinese audiences demanding more high-quality movies because of insufficient supply of domestic movies.” 

The long-awaited release of Avatar’s sequel in the country next week may help the government meet some of the film-loving protesters’ demands. But getting into a theater may not be as simple as officials, or Cameron, hope.

As of last week, the government began easing its zero-COVID rules. However, any loosening will likely take place over months, and the government has said that public venues like cinemas will only be reopened gradually and with capacity limits.

“It’s very hard to predict the box office right now,” Jimmy Wu, CEO of Lumiere Pavilions, one of China’s largest cinema chains, told the Hollywood Reporter this week. “It all depends on the lockdowns—and we have no idea exactly what the lockdown situation is going to look like across the whole of China next week.”