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Lionsgate to Get $375 Million in Production Financing From China’s Hunan TV (EXCLUSIVE)

China’s powerhouse broadcaster Hunan TV plans to give Lionsgate $375 million in production funding, in a deal that would represent the largest Chinese investment in Hollywood filmmaking to date.

Sources close to the transaction said the agreement will be formalized next week and announced Wednesday in a press conference in Changsha.

Hunan TV and Broadcast Intermediary, one of China’s largest and most forward-looking broadcasters, first signaled talks between the two companies in January in a regulatory filing with the Shenzhen Stock Exchange.

The deal is expected to see Hunan TV provide a quarter of the $1.5 billion film production costs incurred by Lionsgate Films over the next three years. The Santa Monica-based studio’s major franchises, including “Hunger Games” and “Divergent,” are likely to be excluded from the pact.

The biggest Chinese investment to date in U.S. entertainment was in the exhibition business with Dalian Wanda’s 2012 acquisition of AMC Entertainment for $2.6 billion.

Hunan TV is China’s top provincial broadcaster, and has a nearly nationwide footprint thanks to satellite distribution. It grew to become the second most watched station in the country, after CCTV1, due to the success of its “Pop Idol” adaptation, “Super Girl” and a Chinese version of “Ugly Betty.”

Its shares stood at 21 yuan ($3.19) on March 12 giving a market capitalization of $4.9 billion.

The Hunan TV-Lionsgate deal includes cooperation between the two firms for Chinese co-productions and distribution of Hunan’s Chinese-language films outside the U.S.

Urged on by president Xi Jinping, the spread of Chinese-language films and culture is an important goal for Chinese companies in their dealings with foreign firms. Above and beyond simple co-investment and profit sharing, Chinese companies are keen to learn Hollywood techniques that they can adopt for Chinese productions. And they want to spread Chinese culture by arranging the kind of worldwide distribution for their films and TV productions that for the moment only large Hollywood operations can achieve.

In common with other Western companies exploring China, Lionsgate may be hoping that another longer term byproduct of its deal with Hunan TV would be the production of English-language movies in China made with significantly lower costs than if they were produced in the West. If these films are produced with sufficient amounts of Chinese talent, they could be classified as full co-productions by the Chinese regulators, and then be exempted from import quotas and other restrictions.

Lionsgate recently saw its “Hunger Games: Mockingjay – Part 1” break the franchise’s records in China with a gross of $36.1 million in its first 15 days in theaters.

Lionsgate has growing range of interests in Greater China and sees itself as more nimble at negotiating the China market than the major Hollywood studios. In partnership with e-commerce giant Alibaba, Lionsgate is in the process of launching the Lionsgate Entertainment World streaming service in China. It is also an investor in Celestial Tiger Entertainment, a cluster of Asian-focused thematic TV stations managed from Hong Kong.

News of Lionsgate Entertainment World project fueled rumors last fall that either Alibaba or Wanda would acquire the 37% stake in Lionsgate held by hedge fund manager and Lionsgate co-chairman Mark Rachesky.

Speaking in Hong Kong in October, Lionsgate chairman Jon Feltheimer, who will be at Wednesday’s press event in China along with co-COO Brian Goldsmith, Summit’s Patrick Wachsberger and Wendy Reeds, Lionsgate’s London-based international sales chief, announced that the company was looking at multiple options in China.

“We’re going to be cautious, find the right partner,” Feltheimer said at the Cable & Satellite Broadcasting Assn. of Asia annual convention. “China and the Asian territory is an incredible opportunity. We spend a lot of time looking at it, looking for the right partners. … There are things perhaps that speak to our strengths, not the other studios’ strengths. And we are going to think as much locally as we can.”

Hunan TV recently found one of its biggest budget shows “The Empress of China,” starring superstar Fan Bingbing (“Iron Man 3”) ordered off air by China’s censors for showing too much cleavage. When “Empress” reappeared on Jan. 1 many full-length and mid-length shots had been closely cropped to become headshots, eliminating the revealing dresses that were the fashion of Wu’s era.

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