HONG KONG — Asian film financing is in a fog. For all its recent marching around, it is difficult to tell whether it is moving forwards, backwards or simply around in circles.

While this year has witnessed the box office success of “Red Cliff,” the region’s biggest movie to date and a genuinely multinational effort, and it currently sees an Indian conglomerate, Reliance, poised to become a Hollywood major, 2008 shows an equal number of signs of distress for film financiers in Asia.

For a start, macro-economically, Asia has not proved itself completely immune to the global credit crunch. Rising oil, commodity and food prices have fuelled inflation across the Asia, while the European and U.S. export markets have flirted with recession.

That has put consumers on edge and asset valuations in a spin. Asia’s stock markets have taken tumbles many times worse than Wall Street’s.

Few of Asia’s financial institutions have been directly affected by problems in the U.S. housing market, but lenders and investors alike have become very much more cautious.

The best example of this has been the months of waiting for the preferred bidder for a controlling stake in Hong Kong’s Television Broadcasts to get his money together. It seems Yeung Kwok-keung, who heads a major Chinese property company, cannot raise a bank loan to buy 26% of a company that has the best brand in the sector, a huge library of Chinese content and a balance sheet that could comfortably withstand some more leverage.

No wonder other deals, such as two attempts to refinance ambitious Hong Kong animator Imagi fell flat before the company finally managed to raise a much smaller than intended $30 million and keep its superheroes slate ticking over.

South Korean film seems the hardest hit by financiers’ caution. Producers and distributors regularly talk of crisis. Speculative money from local asset managers has, as has happened before five years ago, fled a sector that is no longer seen as growing and where costs are rising to a point where very few movies can make money. At least one major Korean movie company is expected to pull out of the business in the coming months and the number of productions is expected to fall — though so far volume has largely held up.

A string of Korean movie companies also quit the stock market in a cycle reminiscent of the short-lived love affair German companies had with share markets in the late 1990s. A combination of unwanted quarterly scrutiny, regulatory costs and share values that were so battered as to make raising cash impossible spelled the end of their equity market adventure. Taewon Entertainment, a top-ranking producer and distributor that also had overseas institutional backing, was simply the most recent to turn itself private again.

But Korea has also seen sector newcomer Vantage Holdings rewarded with a hit in “The Chaser” and the arrival of several new funds — nearly all backed by the country’s telecoms rivals .

Japan’s film industry and its box office are becoming increasingly polarized. Only Toho, a giant combining theaters, distribution and production, is thriving. Revenues at the country’s established TV nets are being punished by a shrinking economy, and the costs of conversion to digital are adding pain. But the TV groups, notably Fuji TV and Tokyo Broadcasting Systems, have become top movie producers and will continue to pour coin into their own properties and stars.

It is difficult to tell how badly Chinese filmmaking has been hit by the credit crunch, as greenlighting has been largely on hold since a regulatory crackdown began in March. The Film Bureau is expected to loosen up, following the completion of the Olympics and Paralympics in September, but tight money may prove a new hurdle now.

Although Chinese film coin has mostly not come from banks or finance sector sources, many angel financiers — the wealthy industrialists who have bankrolled countless small- and medium-budget movies — must be feeling a lot poorer. China’s stock markets are down 60% from their peak. The market massacre is surely going to make it harder for China Film Group, Bona Group and Huayi Brothers to launch their IPOs. Although all three have recently reaffirmed plans, dozens of other flotations have been ditched.

On the other hand, China’s box office is powering ahead and has the potential to fund productions from established studio sources and newer independent labels. Driven by multiplex building and a growing urban middle class, turnstile revenues have grown by some 30% for the past several years and are widely expected to continue at that pace.

That juicy prospect is changing the filmmaking finance game in much of Asia. Co-productions with China have already become a way of life for every film of scale currently being made in Hong Kong, and leading film-makers Tsui Hark and Peter Chan Ho-sun are in the process of decamping and opening offices in Beijing.

Increasingly, Hong Kong films are being shot in Mandarin, where previously they were shot in Cantonese. And they are increasingly tailored to meet Chinese content strictures and perceived mainland audience tastes.

Now, producers across the region are looking to make films that will work in China or to board mainland Chinese pictures. Recent examples include Donnie Yen-starrer “Painted Skin,” set up as a four-nation venture, and “Forbidden Kingdom,” involving China’s Huayi as well as the U.S.’s Relativity Media, Lionsgate and the Weinstein Co.

Although cross-Straits tension remains at a political level, Taiwanese filmmakers and producers are joining in. Linguistically this is easy, and Taiwan has regional stars that China still lacks. Pop sensation Jay Chou this year directed romancer “Secret” for Hong Kong’s Edko and starred in “Kung Fu Dunk.” Although critics called a foul, pic was a slam dunk with teen auds — given the combination of heartthrob Chou and basketball — and a sequel is supposedly in the pipeline. Taiwanese financier CMC, which backed “Red Cliff,” has boarded (?) John Woo’s next, “1949.”

Setting up films as co-productions is precisely what China Film Group is actively encouraging overseas producers to do. Official co-prods, as opposed to the “assisted” kind, give a movie Chinese nationality and allow it the right to be distributed in China.

That means a trade-off. Official co-prods are subject to Chinese regulation on scripts and festival appearances and may be subject to minute scrutiny on subject matter, casting, language and even poster images. Filmmakers have to choose to work around these obstacles or work outside — that means their film will be subject to import quotas and poorer distribution terms.

Numerous producers have tilted their hat in the direction of financing or co-producing films allowed to play in this big market, but it remains to be seen how long the enthusiasm lasts.

In many cases the contract terms are stacked against the non-mainland companies while the films are made as culturally Chinese products — and as Chinese companies rarely put in coin proportionate to the size of their home market, they get them at a fraction of what it would have cost to make themselves. Also, as Chinese firms only occasionally share revenues and profits with overseas equity investors, cynics suggest that the quotas and bureaucracy remain in place to encourage this kind of one-sidedness.

Hong Kong’s Media Asia is widely understood to have seen little benefit from co-financing “Assembly” and “The Warlords,” though both were runaway hits on the mainland. Some two-thirds of B.O. earned by “Red Cliff” to date has been in China, though Japan’s Avex is by far the largest financier of the $80 million two-part pic. It opens in Japan next month.

Avex, which bases its non-Japanese movie operations in Hong Kong, is also spreading its bets. This year it has set up co-funding agreements with Media Asia ($50 million) and Edko ($25 million), one backing mainstream pics, the other focused on young talent. It sought out its partners on the basis that these two companies were involved with 60% of the top 15 Chinese films of the past four years between 2004 and 2006.

Since the launch of the Weinstein’s Asia fund last summer, the past year has seen failure of several structured funds to get far off the ground, including Magnet MB and A3 Intl. But others continue to try their chances. These include Access Asia, a Hollywood-Asia fund that aims to raise $300 million, and a $400 million pool that Singapore-based producer and talent management company RGM announced in August.

With Hyde Park Asia and Japan’s Entertainment Farm, respectively seeking upwards of $50 million and $30 million from Singapore-based offerings that would finance their own slates, Singapore could become a new hub for Asian film coin.

In contrast to the nuanced picture in North and East Asia, the India story continues to spin a so far largely positive tale. The country has seen huge financial commitments to moviemaking from local companies and from foreign congloms alike.

Highlights include the ever beefier slates being backed by distributor/producer Eros, TV/film studio UTV, TV-backed Indian Film Co. and the commitment in September by Zee to put together a 100-movie slate. The same month saw News Corp units 20th Century Fox and Star TV also ink deals to create their first film slate and studio in India: Fox Star Studios, which will buildon Star’s dominance of the Indian TV market and Fox’s production and distribution strengths in a sector –Indian theatrical movies — that has so far alluded it.

As all are vertically integrated, to some extent funding for each of the slates is largely sourced from the companies’ own revenues, albeit given a kick start by stock market issues in the case of Eros, IFC and UTV Motion Pictures.

Smaller Indian groups have also found new coin. Finance giant Religare this year backed the launch of what is claimed to be India’s first film fund , while completion bonder Infinity and exhibitor Pyramid Saimira have become movie financiers. Another exhibitor, PVR, expanded its slate with a $28 million injection from ICICI Venture Funds and a JP Morgan fund.

Two reasons for caution remain. The lake of money and the scramble by the Indian studios to lock up on and offscreen talent is leading to serious inflation issues. Secondly, theatrical box office so far this year has been patchy at best. But the India growth story is not based on traditional channels alone; it is predicated on new TV nets, satellite platforms and even old-fashioned DVDs putting cash back into the system. And Indian film producers are becoming extremely adept at recouping large chunks of film budgets from non-traditional sources such as music rights, product placement and commercial sponsorship.

What may ultimately make the Indian story more sustainable than the Chinese one is the way that Indian companies have not only been on the receiving end of finance, they have been actively building infrastructure beyond their region.

Reliance ADA Group’s bid to co-finance “new DreamWorks” is only the most visible overseas expansion. Reliance has also bought a 225-strong chain of cinemas in the U.S., bought the imaging unit of DTS and acquired cricket portal Willow. Eros has unveiled production and distribution deals with Sony and Lionsgate. In addition to buying games companies in the U.S. and U.K., UTV is financing international movies including “The Happening” and “The Pursuit of Happyness.” Meanwhile, Pyramid Saimira this year has bought cinemas in the U.S. and Malaysia and acquired European satcaster Spize.

While the film investment picture remains hazy in almost all of Asia, the forecasts for film in China and India vary considerably.


What: Pusan Intl. Fim Festival

When: Oct. 2-10

Where: Busan, South Korea

Web: piff.org

* * *

What: Asian Film Market

When: Oct. 3-6

Where: Seacloud Hotel, Busan, South Korea

Web: asianfilmmarket.org


Korean funds dial up new cash:

  • Korea Telecom and Japanese investment company Softbank teamed up to create a $40 million film and TV content investment fund in April.

  • Conglom Hanwha teamed with film trading company Daisy Entertainment to launch the leisure-to-chemicals giant’s second content fund, a $10.2 million pool.

  • Busan-based venture capital company Asia Culture Technology Investment (ACTI) raised $15 million to launch its first content fund.

  • SKT and its recently acquired Hanarotelecom unit are each putting $5 million into the Benex Digital Culture Content Investment Association.

  • Gyeonggi Digital Contents Agency (GDCA) launched a $100 million global content fund as a Korean-U.S. venture.

  • GDCA is also part of the $18.7 million Boston Visual Content Special Investment Assn., backing the $16 million 3-D toon “Dino Mom.”