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Wanda’s Legendary Buy Is Just the Beginning of China’s Investment in Hollywood

The arrival of Chinese investment in Hollywood has been like a blockbuster film — full of economic force, exceeded only by its hype.

With Wanda Group’s deal last week to acquire Thomas Tull’s Legendary Pictures, though, the long-anticipated, loudly heralded arrival of China as a central entertainment player on American soil may finally be coming to full flower.

The transaction, for about $3.5 billion, gives the Chinese conglomerate control of the production and financing operation behind Hollywood blockbusters such as “300,” “The Dark Knight” and “The Hangover” films. More importantly, it is the most obvious bow by a U.S. content generator to the power of Chinese capital and the tractor-beam allure of the fast-expanding Chinese market.

And more such hookups may be on the way. One well-placed financier said that one or more significant Chinese investments in entertainment outfits could close before Feb. 8, the Chinese New Year. The money man, who requested anonymity, said: “They are at least as big as Legendary.”

Many media executives are certain it’s not long before a powerhouse Chinese company takes a large stake in one of Hollywood’s major studios, if not outright ownership of one. “Maybe in the future we will acquire a bigger group,” said Wanda chairman Wang Jianlin, after the deal was announced. “It is possible, because we want to have a bigger position in the global movie industry.”

Jeffrey Katzenberg, whose DreamWorks Animation is preparing to launch “Kung Fu Panda 3” on Jan. 29 in advance of the Chinese New Year, called the Legendary-Wanda union “huge.” “Wanda is one of the biggest, most aggressive, most successful movie and media enterprises in China today,” he said. “For them to make this kind of investment in a Western company is a game-changer.”

Many Chinese-American partnerships have fizzled after their announcement — either the overseas capital never materialized or the parties were unsure of how to work to their mutual benefit. Wanda chairman Wang has shown his willingness to do more than talk: In 2012, Wanda purchased AMC, North America’s second largest theater chain, for $2.6 billion. And on Jan. 12 in Beijing, Wang boasted in a joint announcement with Tull that the acquisition had made his company “the highest revenue-generating film company in the world.”

Some analysts initially described the AMC deal as a vanity acquisition, but it turned out to be just plain old good business: The market value of Wang’s stake quickly doubled. Now, some experts believe the latest Wanda investment might spur other Chinese companies. Stanley Rosen, a USC political science professor and expert on the Chinese entertainment industry, predicted the Legendary deal will move Jack Ma, executive chairman of digital merchandising juggernaut Alibaba, to try to complete a Hollywood deal, which he has been very publicly coveting for more than a year.

Billions at Stake
Wanda’s major U.S. acquisitions will help it tap into the potential of the Chinese and worldwide movie business.
$3.5b Approximate price Wanda paid to acquire Legendary
$2.6b Price of Wanda’s AMC acquisition
$6.8b China’s box office total for 2015

“You will see a major competition between these two — Wang and Ma — and then a battle over marketing and distributing the content in China,” said Rosen, who believes that even if Ma does not find a suitable American company to buy, he will continue to compete by financing single projects. Last year, Alibaba backed Paramount’s “Mission Impossible — Rogue Nation.”

One Hollywood studio chief, who declined to be named, described the ongoing Chinese hunt for a U.S. studio investment more derisively. “There tends to be a lemming aspect to this. When one Chinese company buys something here, others feel they must too, so they are not left behind.”

But an American film executive consulting with Chinese companies now eyeing investment in Hollywood said it is too simplistic to depict the newcomers as motivated by hubris or peer pressure. “How Jack Ma and Wang Jianlin operate and execute is entirely different, and their motivations are different. There is no dumb money here,” said the consultant, who declined to be named.

While the consultant also believes other big China-Hollywood deals could be at hand, he said the price Legendary commanded could create a strong counter-current: American corporate leaders pushing up their asking price and their Chinese counterparts retreating, at least for a time.

What changes will be unleashed by this level of Chinese investment? The push to include Chinese elements in Hollywood films has been a factor for years. With the 2015 box office exploding by nearly 50% in China — and expected to overtake the U.S. by as early as next year — satisfying the most populous nation’s tastes will become paramount.

President Xi Jinping and other Chinese leaders have given no indication they will ease the quota, now at 34, on the number of foreign films permitted for release each year in the Middle Kingdom, said Aynne Kokas, a China expert and media studies professor at the U. of Virginia.

The mere takeover of U.S. entertainment companies by Chinese investors is not likely to give U.S. firms a free pass around the quota system. To become a full co-production, not subject to the quota, films must not only be backed by Chinese investment but shoot one-third of the production there and employ Chinese actors in at least one-third of the principal roles.

The Chinese corporate imperative, enforced by the government, is to use foreign partnerships to build the industry back home.

“Obviously they have a business plan, and I’m sure it’s ambitious, because Mr. Wang is nothing if not ambitious,” Katz-enberg said. “He loves the entertainment business, and this is another very big move by him. And I’m sure it is not the last move.”

Patrick Frater contributed to this report.

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