Hollywood shingle sees boffo B.O. ahead

HONG KONG — No one could ever accuse Kelvin Wu of lacking ingenuity.

His latest venture, Legendary East, has secured $220 million from a Hong Kong engineering company to fund a Chinese shingle in tandem with one of Hollywood’s key players, Legendary Pictures.

Moreover, the project will yield movies that will circumvent China’s quota on foreign pics, enabling them to tap the world’s fastest-growing box office.

It’s an ambitious deal, combining the production expertise and distribution skills of a top Hollywood shingle, which produced blockbusters “Inception,” “Dark Knight” and “The Hangover,” among others, with a player well-versed in China’s knotty regulatory environment and its growing distribution network.

“(Legendary topper) Thomas Tull was inspired by how well ‘Clash of the Titans’ and ‘Inception’ did in China, and the way they made films was well-received here, so he thought why not do something in a more systematic way?” Wu says.

The announcement, which came last month, stated that Legendary East would raise $220.5 million through the Hong Kong-listed Paul Y Engineering Group by issuing shares on the Hong Kong stock exchange.

And as co-productions, the films will not be kept out by China’s quota system, which limits foreign movies to 20 per year on a revenue-sharing basis.

The movies would still require approval by the State Administration of Radio Film and TV (SARFT), but given their focus on commercial subjects, they are unlikely to hit political hurdles with censors.

Industry watchers say that if Legendary East succeeds, it will be a game-changer for the biz in Asia.

Amid the recent wave of announcements about tie-ups between mainland Chinese and Hollywood shingles, the mood signals an industry in transformation. Relativity Media announced a deal in recent weeks with Beijing-based Huaxia Film Distribution and SkyLand Film-Television Culture Development to make films for the Chinese market.

Mainland-born Wu studied in Hong Kong and in Osaka, Japan, and worked in the finance business for 14 years before getting into the entertainment industry.

He insists Legendary East is not about trying to get around the quota system but about making popular movies that work in both China and in overseas markets.

If this is the Holy Grail that many filmmakers have sought in vain to find, Wu is thinking more “Kung Fu Panda” than “Crouching Tiger, Hidden Dragon” when it comes to finding models.

“We’re not going to try to make pure Chinese movies. We’ll try to bring some universal values,” he says.

The first couple of films will be essentially English-language movies with international appeal. “This global audience will be fanboys,” Wu says, “young kids, whether they’re in London or New York or Tokyo or Hong Kong.”

The first project on the slate, “The Great Wall,” is about the history behind the Great Wall of China. It will be helmed by “The Last Samurai’s” Edward Zwick and produced by Marshall Herskovitz.

Wu says the goal is to replicate what Legendary did with “300″ and “Clash of the Titans.” “There is so much history and culture in China that we can explore, (and) we want to do something based on Chinese stories,” he says. Still, Legendary East wants to be able to export those stories, so the focus will be on making tentpoles, in English. The plan is to make two or three movies a year, he says, beginning in 2013.

Wu says he welcomes other film funds and co-production projects.

“The market is so huge and we can all work together and make it even bigger and create more choice for consumers,” he says.

One of the things Wu has done for investors and filmmakers is to draw their attention to the kind of film financing mechanisms that are available in the U.S.

“The banking industry in China, in terms of maturity of products and innovation, especially in film financing, is still fairly primitive,” Wu says, noting that Legendary East will show its Chinese colleagues that to make quality big-budget projects, you need strong financial backing. “Banks need to be more understanding. And protection of intellectual property needs to be enforced so a film can live longer, not just rely on box office,” he adds.

Wu oversaw a tie-in between his former employer, Orange Sky Golden Harvest Entertainment (OSGH), which he joined in 2009, and Tull’s Legendary Pictures, which saw OSGH take a 3.33% stake in Legendary.

He was CEO of OSGH and old friends with chairman Wu Kebo (no relation) but his interest was more in production, while OSGH is focused more on exhibition. It currently operates 33 cinemas in China, Hong Kong, Taiwan and Singapore.

As such, the two companies did not gel and “the opportunities discussed between the company and Legendary for co-operation and collaboration have not resulted in any concluded deals or projects,” OSGH said at the time the partnership was dissolved.

Legendary paid OSGH $30 million to undo the partnership, which includes $25 million reimbursment and $5 million by way of settlement.

As the Legendary East venture moves forward, technology provides both challenges and opportunities within the China market.

“Internet distribution is going to grow very fast in the next couple of years,” says Wu, adding that many Hong Kong libraries are being sold to online distributors for tidy sums. “We couldn’t have imagined that three or four years ago,” he says.

But that market needs some help from the government. “The Netflix business model could work in China if the government puts real effort into protecting intellectual property rights and if the technology companies invest more in the bandwidth and the quality of the distribution,” he adds.

Looking ahead at China’s film business growth, Wu says that in five to 10 years China’s box office grosses will equal those in the U.S.

“By that time, we’ll already be here, not like some latecomers,” he says. “We’ll be a familiar face to SARFT and the creative community. And, more importantly, to the audience.”

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