Universal Poised To Close $500 Million Slate Deal With China’s Perfect World (EXCLUSIVE)

Universal Set For $500 Million Slate
Rex Features (Photo by Karl Schoendorfer)

China’s Perfect World Pictures will unveil a five-year, $500 million movie slate funding deal with Universal Pictures in the coming days, sources familiar with the pending transaction said. The move would make the Shenzhen stock exchange-listed games and TV production group the latest Chinese company to invest significant funds in a Hollywood entertainment giant.

The new collaboration follows barely a week after the announcement that Dalian Wanda would pay $3.5 billion for leading Hollywood producer Legendary Entertainment. The Universal/Perfect World partnership could be revealed as early as next week, sources said.

The $500 million investment is said to be split evenly between debt and equity contributions to the Universal movie slate. Sources familiar with the deal said Perfect World’s investment would get it a 25% share of most, but not all, of the films released by Universal, which led all U.S. studios in box office returns in 2015, with films like “Jurassic World,” “Fifty Shades of Gray,” “Furious 7,” “Pitch Perfect 2,” and “Minions.”

The investment will be labeled a “strategic partnership,” though it appears essentially to be a conventional co-financing agreement. And, like previous such arrangements in Hollywood, it is believed that Universal has excluded several sure-fire hit franchises. Perfect World will not be able to invest in the “Fast & Furious” action pictures or the future “Minions” slate, the sources said. Also excluded are other titles from “Minions” producer Chris Meledandri’s Illumination Entertainment, which has “The Secret Life of Pets” coming up.

Perfect World will share risk and reward on less-established titles. The deal does not give Perfect World rights in China to the studio’s revenue sharing imports, and will not have great impact on Universal’s marketing and distribution team, set up in China in 2014. (Universal is also the studio releasing partner on Legendary’s output.)

Perfect World officials did not speak publicly about its move into the American film industry. A Universal spokesperson declined to comment.

Perfect World Pictures is best known as a television production company, though it also has a track record in film investment and distribution. It was producer-distributor on 2009 romantic comedy “Spohie’s Revenge,” starring Zhang Ziyi, 2011 Chinese hit “Love Is Not Blind” and art-house favorite “The Piano In A Factory.” It was also the Chinese co-distributor on “Divergent,” “Insurgent” and “Ender’s Game.” This month it is a co-distributor on 2013 motor racing drama “Rush,” imported for a flat fee release.

Perfect World Pictures’ shares climbed 9.8% on Friday, though there was no indication the jump was connected to the Universal pact, which remained under wraps. The deal was believed to have been offered to other Chinese entertainment and finance groups, before the talks with Perfect World came to fruition.

The Universal deal is a big step up for Perfect World Pictures, but it may help the company’s other ongoing corporate operations. Earlier this month (Jan. 6, 2016) Perfect World Pictures announced that it would pay $1.82 billion (RMB 12 billion) to buy up its larger and better-known online gaming affiliate Shanghai Perfect World Technology, a company which until last year was listed on the NASDAQ stock market in North America. Like several other Chinese companies, it chose to delist from the U.S. stock markets, with the ambition of relisting in China where ratings for entertainment firms are still sky high.

Perfect World Pictures also said that it would raise $760 million (RMB 5 billion) through an issue of new shares to four investors, including group chairman Michael Chi Yunfeng. At the time it described the new funds as being earmarked for “film and TV program investment and game development, operation and distribution.”

Perfect World Pictures currently has a market capitalization of $1.9 billion (RMB 12.5 billion) and stands on a multiple of 54 times historical 2014 profits.

For the 2015 financial year, Perfect World Pictures has advised that it will achieve net profits of $39.5-$44 million (RMB 260-289 million.) Perfect World Technology has warranted that its net profits in 2016 will be $115 million (RMB 755 million), rising to $182 million (RMB 1.2 billion) in 2018.

The deal is in line with an ongoing trend of investment by major Chinese firms into Hollywood entities and Hollywood film slates. Corporate investments in the past 18 months have included diversified conglomerate Fosun’s investment in Jeff Robinov’s start-up Studio 8, the Warner-China Media Capital joint venture Flagship Entertainment as well as Wanda’s acquisition of Legendary.

Film finance deals include Huayi Brothers Media’s backing of an 18-picture slate from new studio STX Entertainment, Hunan Television’s co-investment in a slate of Lionsgate pictures and Bona Film Group’s November deal to invest in a package of Twentieth Century Fox titles, through a venture with the Seelig Group. Other recent single picture investments have included China Film Group’s investment in “Fast & Furious 7” and Alibaba Pictures’ investment in “Terminator: Genisys.”