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Thomas Tull’s Departure Puts Pressure on Wanda to Prove Legendary’s Value

Almost from the moment it was announced a year ago, Wanda’s $3.5-billion acquisition of Legendary Entertainment drew criticism that the deal was too expensive, the company was still loss-making, and the best assets walked out of the building each night.

The exit with immediate effect of Legendary founder Thomas Tull now serves to emphasize the “risk” side of the high-risk, high-reward company responsible for “Inception” and “Pacific Rim” as Jack Gao, the senior Wanda executive who was instrumental in acquiring Legendary, takes over as interim CEO.

Gao’s twin challenges will be to prove that his acquisition strategy is still intact and to find a replacement for Tull who combines Tull’s fanboy instincts with the sensitivities needed to stay tuned in to the fast-evolving Chinese audience. It may be a narrow field.

Tull, who shuns Hollywood socializing, has had an eye on China since Legendary was founded. He sought finance from Chinese sources in the company’s early days. And his gamer, high-concept instincts may have given the company an edge in connecting with Chinese tastes.

But that did not necessarily make Legendary profitable. Although Wanda does not break out Legendary’s revenues or profits and losses, it emerged in a regulatory filing last year that the company lost hundreds of millions of dollars in 2015. Its 2016 performance is likely to be better, given the substantial box office scores from “Warcraft” and “The Great Wall.”

A $150-million experiment in U.S.-Chinese co-production, “The Great Wall” has grossed $160 million to date in China and $39 million in other territories, such as Turkey, Thailand and Romania, where it topped the box office. Its overall success remains to be seen, however, with the crucial Universal-handled North American release set for Feb. 17.

Still, Tull and Wanda can take some pride in their performance in China. Legendary/Universal is the only Hollywood player aside from Disney to have two movies that crossed the $100-million mark at the Chinese box office last year. (DreamWorks Animation had one, with Chinese co-production “Kung Fu Panda 3.” Fox, Warner Bros., Paramount, and Sony had none.)

Tull’s China-friendly attitude also did not necessarily make him want to remain a long-term employee at a company known for its top-down, almost military-like operations. Tull has recently expressed growing interest in Legendary’s analytics business and in managing his Tull Investment Fund, which has stakes in gadgets and enterprises including Oculus Rift, Magic Leap, and Pinterest. Looking after Legendary can be somebody else’s problem.

Gao, the interim CEO, is a polished executive with lengthy stints at both Microsoft and News Corp. and with plenty of time in the boardroom. But he has relatively little hands-on experience of production. Whether that poses a problem will depend on how long it takes to find a successor to Tull.

Mary Parent, Legendary’s celebrated head of production, has 11 feature movies in various stages of development and a further seven TV series which all have network, cable channel or streaming video partners attached.

The movie slate includes: “Kong: Skull Island” (releasing in March); now in production “Pacific Rim Uprising”; “Dune”; “Bad Blood,” starring Jennifer Lawrence; and “Skyscraper,” starring Dwayne Johnson. Wanda sources suggest that these are all greenlit and fully supported by the parent group. There is no urgent need to greenlight further titles until the arrival of a new CEO.

Gao currently sees his role as situated at the intersection of all Wanda’s international business and all its efforts to expand beyond its old core business of property development. That has kept Legendary firmly within his bailiwick, and it will see him champion the unit within the giant conglomerate.

Last year, Wanda sought to refinance Legendary and merge it into a Wanda Cultural division that included over a dozen outside shareholders and would likely head for an IPO. (Wanda Cinema Line and AMC already have their own separate share quotes.)

The process was halted by Chinese financial regulators who were unsettled by the uncertainty of the new unit’s finances and the steep 2015 losses at Legendary. The setback did little to dent Wanda’s finances – last week it revealed an asset value of $115 billion – or Wanda chairman Wang Jianlin’s enthusiasm for the entertainment-sports-tourism sector.

Revenue from Wanda’s movie group last year grew by 31% to $5.68 billion (RMB39.2 billion,) boosted by contributions from Legendary and by the addition of 677 cinemas globally. In China alone, it opened 154 new cinemas with 1,391 screens. At the end of 2016, Wanda owned 1,352 cinemas in the world, totaling 14,347 screens, or about 12% of the global total.

Wang recently reiterated his plan to reach a cinema ownership target of 20% of global screens and sees that exhibition base as giving Wanda the power to rival the six Hollywood studios, with their worldwide global distribution networks. “Only when Chinese film companies establish [a] strong overseas distribution pipeline, there is a chance that Chinese films will be able to go global,” Wang wrote on the company’s website this week.

For the current year – with Legendary, Carmike, Dick Clark Productions and Odeon-UCI included for full 12-month periods – Wanda is forecasting its overall film revenue to rise a further 50%, hitting $8.53 billion (RMB 58.9 billion.)



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