Collapsed acquisitions and halted payments have gripped the imagination in Hollywood, just as the U.S. film industry had come to regard China as its biggest source of external capital. But if the deal talk has been scaled back, there are still numerous reasons why Hollywood and the Chinese film industry are going to be working ever closer.
That is the view of Dominic Ng, chairman of EastWest Bank, the company which has been involved in most of the major China-Hollywood transactions of the past five years. Writing in the bank’s Reach Further in-house magazine, Ng explains “How Hollywood Can Still Capitalize on the Chinese Market.”
Deal flow has fallen from some $5 billion in 2016, to less than $500 million in 2017. And there have been no major acquisitions since February.
However, he argues that “the fundamentals continue to support greater cooperation between Chinese and U.S. entertainment companies.” PwC projects that China’s Entertainment and Media sector will grow from $186 billion in 2016 to $258 billion by 2020, with cinema being the fastest-growing segment. And that if U.S. companies recalibrate their expectations and approach, the new normal offers plenty of room for growth.
“Looking at the supply side, the U.S. remains the unrivaled global champion in producing high-quality entertainment content. Ninety-nine of the top 100 worldwide grossing films of all time are American,” Ng writes. “Serving the growth in Chinese entertainment demand with a supply of high-quality U.S. content and experience is a no-brainer for any Chinese investor.”
Ng suggests that away from the mega-deals, there is plenty of room for maneuver. “If you seek Chinese equity investors, smaller strategic deals are better. While larger acquisitions floundered (as Chinese regulators stepped in) smaller deals—Puju Capital’s Mandalay Endurance Media joint venture and Fosun’s purchase of Blue Man Group—have successfully closed this year,” Ng writes.
“Licensing, slate financing and other channels are good alternatives to equity investments. Passive slate financing deals continue to produce American films with economic upside for Chinese studios, like Bona’s investment in Fox’s live-action movie slate, which resulted in the international hit “The Martian,” and Huayi Bros.’ deal with STX entertainment. Another option is the co-production model, which offers Chinese and American parties an opportunity to collaborate without a prolonged commitment,” says Ng.
He offers STX’s “The Foreigner,” starring Jackie Chan and Pierce Brosnan, as an example of how U.S. involvement in Chinese lower-budget action drama can succeed. It cost only $35 million to make, and so far has grossed more than $111 million in ticket sales worldwide. The only no-U.S. film in the all-time global 100 is China’s “Wolf Warriors II.” It involved American investor-producer, The H Collective.
Ng concludes with the recommendation that Hollywood businesses get themselves up to speed with where Chinese consumers and the Chinese entertainment is headed.
“U.S. executives also need to be up to speed with Chinese distribution platforms, particularly mobile… Streaming will only increase in importance, and, reality shows are also an area of growth and highly popular in China,” he says.