A perfect storm of capital flight and an urge to merge is brewing over mainland China and Hollywood.
Wealthy Chinese investors are increasingly looking to park their money outside the country, amid evidence of a big slowdown on the horizon for China’s economy. They are finding a receptive audience in Hollywood at a time when disruption across the entertainment landscape has even the largest players looking at outside investment opportunities to bolster their businesses.
Viacom’s decision last week to sell off a minority stake in Paramount Pictures immediately triggered speculation that a Chinese company may soon own a piece of a major U.S. studio.
Alibaba, Dalian Wanda Group and Fosun Intl. Group are among the deep-pocketed Chinese investors kicking the tires on a deal. Their interest is understandable. Major studios don’t often go on the auction block, and Paramount, despite years of declining market share, remains a storied entertainment brand.
Paramount would not be the first studio courted by deep-pocketed Chinese players. In recent months, Wanda plunked down $3.5 billion for Legendary Entertainment, the producer of “Jurassic World” and “Godzilla.” Last month, Beijing-based Perfect World Pictures and Universal Pictures announced a five-year $500 million slate financing deal. At the same time, Chinese investors have provided the fuel for content startups including STX Entertainment and Studio 8.
The latest round of deal-making traces its origins back to Wanda’s $2.6 billion purchase of exhibitor AMC Entertainment in 2012, an ice-breaking moment that helped spur the current thaw.
|“China and Hollywood finally have become comfortable working together.”|
|Attorney Lindsay Conner|
“China and Hollywood finally have become comfortable working together,” said attorney Lindsay Conner, a partner at Manatt, Phelps & Phillips who arranged the Perfect World-Universal deal. “People on both sides of the Pacific needed to develop an understanding of each other’s cultures, and that finally has happened.”
The quaking in China’s economy over the past few months is expected to accelerate the matchmaking process.
After years of rapid economic growth, in 2015, the mainland saw its GDP rise at the slowest rate in 25 years, its stock market battered, and its export levels pinched. The nation is widely believed to be facing a looming debt crisis. The uncertainty over how the state will respond to a prolonged economic downturn is another concern for the new breed of Chinese moguls at a time when China is home to more billionaires than the U.S., according to Forbes.
“They recognize that China’s economy is slowing down, and they’re trying to look for ways to diversify their investments,” said Ann Lee, an adjunct professor at NYU and author of “What the U.S. Can Learn From China.”
Insiders say that Alibaba has teams of execs in place in Los Angeles, New York and Hong Kong, scouting for potential deals for the conglom, which boasts a market cap of $168 billion. Other big movers could include Shanghai Media Group, Hony Capital, Tencent Capital
and Huayi Brothers Media Corp.
“We are going to see more deals going forward,” predicted IM Global CEO Stuart Ford. “Despite the turbulence in the Chinese economy, there is still a lot of capital available there — and one thing the Chinese investment community understands is the power of content.”
|Wanda and other companies are swiftly moving into the Western entertainment biz.|
|$3.5b||Price Wanda paid for Legendary|
|$500m||Perfect World investment in Universal|
|$168b||Alibaba’s market cap|
Investments in media are particularly attractive because they represent the kind of “soft” goods that don’t draw as much scrutiny from regulators in the U.S. The movie business is eagerly courting Chinese coin because partnering with a China-based company has the potential to bolster profit margins on film exports. Having a significant Chinese partner can help guide movies through a byzantine approval process and sidestep the nation’s strict quota on film imports. Working with local film companies also can improve the B.O. split at multiplexes.
Viacom CEO Philippe Dauman’s emphasis on finding an equity partner that offers “strategic” benefits to Paramount has fueled the speculation about a Chinese investor coming through the studio’s iron gates. Paramount teamed with Alibaba Pictures on last summer’s “Mission: Impossible — Rogue Nation,” with the Chinese company also serving as the film’s official promotional partner in China. Moreover, Paramount powered “Transformers: Age of Extinction” to record-breaking results in China by filming parts of the movie on the mainland, and bringing on local promo partners.
The rush of activity, exemplified by the Legendary acquisition and Universal Pictures slate pact, has investors and executives abuzz about what’s been dubbed a “yuan gold rush” in Hollywood. But industry veterans with experience in China say it would be foolish to underestimate the business acumen of Chinese investors.
Tony Vinciquerra, senior adviser to TPG, has worked with Chinese investors through the private equity giant’s association with STX Entertainment and during his previous tenure as chairman-CEO of Fox Networks Group. “These are very savvy and very smart business people,” he said. “They look deep into the businesses they’re exploring, and have a very good understanding of the media landscape in the United States.”