China’s Bona Film Group Hits Milestone Year With Expansion Plans on Tap

Operation Red Sea Bona Film Group
Bona Film Group/Kobal/REX/Shutte

Popular industry blog Yuemuchina recently named the “new big four” companies that it believes have edged out the old guard studios and now dominate the Middle Kingdom movie scene. Along with obvious choices of tech giant Tencent and Beijing Culture, a producer on a hot streak, the list also included Bona Film Group.

Given that Bona is celebrating its 20th anniversary, something that makes it one of the oldest players in the Chinese film industry, labeling it as new and influential is testament to the company’s enduring significance.

That success is in large measure attributable to founder and present-day chairman Yu Dong, who dominates through intellect, instinct and a willingness to make huge decisions that others would shy away from. His analyses of the trends in the Chinese industry are always listened to and his box office forecasts are mostly right. (For the record: Yu is forecasting that 2019 will overcome its slow start to deliver another year of box-office growth, and that will be achieved with greater market share for imported films.)

Yu began his career as an intern at state-controlled behemoth China Film Group, several years before the government orchestrated a huge turn-of-the-century overhaul that forced the consolidation of several state studios, encouraged the private sector to play a larger role in film, and started building the country’s first multiplexes to replace a sclerotic and chronically indebted system of local exhibition.

“1999 was still a time of the planned economy. China imported just 10 U.S. films per year on a revenue-share basis,” Yu says. “And it was a time when you sold copies. One copy was 10,500 yuan [$1,500 at present-day exchange rates]. If you sold one, then you could only have a fixed income of 500 yuan [$75] from that. The film’s market performance had almost no impact on you. It just meant you’d sell a few more copies. Every city had one cinema company, above them were county-level ones and provincial-level ones. Every level was indebted to the other, so getting paid was very difficult.”

The company was founded in 1999 as Polybona, and merged in November 2003 with China Poly Group, a business wing of the Chinese military, to form PolyBona Film Distribution.

Armed with the first distribution license issued to a private company, Bona was soon instrumental in overhauling the way that the Chinese industry operated.

Bona’s first film, “Something About Secret,” by Huang Jianxin, cost Bona $173,000 to buy and a total investment of $730,000. When others were still selling copies, Bona distributed it by offering a profit- sharing arrangement. The film took in $1.4 million at the B.O. and gave Bona its first profits — $73,000 — which Yu treasured.

The early years of Bona saw Yu as a frequent visitor to Hong Kong. There he bought films and built up the trust of those Hong Kong studios and filmmakers who had, in essence, operated as the Chinese film industry in exile since the 1970s and were vastly more experienced in making commercial movies than mainlanders.

Other early successes included the release of Hong Kong-produced “Roots and Branches,” which required an investment of $289,000 and grossed $2.9 million at the box office, and Feng Xiaogang-directed comedy “Sorry Baby.”

“Nowadays these numbers look very low, but at that time, they were extremely impressive. But production was not so expensive, and it was cheaper to promote films,” says Yu almost wistfully.

The big-budget Michelle Yeoh-starring Hong Kong action film “The Touch” in 2002 brought other innovations, including a license deal with a minimum guarantee for the box office, a midnight premiere and a day-and-date release coordinated with distributors Hong Kong, Malaysia and Singapore.

Hong Kong and China helped each other with the government-to-government pact called the Closer Economic Partnership Agreement, which paved the way for Hong Kong firms to invest in and develop the mainland exhibition sector, and for the growing number of co-productions between China and its satellite.

To further help, Yu created a daily box-office reporting system, which — based on faxed information and spot checks — improved transparency within the Chinese industry. That gave investors more reliable data and brought Bona further Hong Kong titles including Jackie Chan starrer “New Police Story” and hit “Infernal Affairs.”

By 2009, the year before the firm’s NASDAQ IPO, Bona’s relationship with Hong Kong was changing from simple overseas buyer to one of producer-investor. It invested in Peter Chan’s hit “Bodyguards and Assassins” and the Derek Yee-produced “Overheard,” with “Infernal Affairs” writers Alan Mak and Felix Chong in the directing roles. (In her 2011 film “A Simple Life,” Hong Kong indie director Ann Hui employs Yu in an unironic cameo role as a big-shot mainland producer.) There was also a short-lived joint venture Cinema Popular with Chan’s We Pictures.

And Bona bought majority control of Distribution Workshop, a Hong Kong-based sales and distribution unit headed by veteran producer Nansun Shi and Jeffrey Chan, who doubled up as Bona’s COO.

Shi joined the board of the company, giving it heft at the time of the share sale, though she continued to produce some films outside the company.

Bona has played a major role as a financial pioneer in the Chinese industry. Prior to flotation, Bona had attracted private-equity backers including the Asian arms of U.S. fund groups Sequoia and Matrix Capital. And at a time when Chinese banks mostly lent to state-owned enterprises, Bona had also received a loan from the Industrial and Commercial Bank of China.

It also attracted a major investment from News Corp. in mid-2012. The deal, apparently initiated by Wendi Murdoch, gave the U.S. conglomerate a 19.9% stake, and brought Jack Gao, at the time the senior VP of China exhibition giant Wanda, onto Bona’s board of directors.

The relationship lasted only for a few years, as News Corp., frustrated by China’s lack of regulatory easing, turned its back on the market and sold off its TV and film stakes in the Middle Kingdom. The stake was divided between Yu and Fosun Intl., the conglomerate that also owns a major piece of Jeff Robinov’s Studio 8.

Yu was one of the first Chinese firms to set up an off-balance sheet film fund. It raised $23.5 million from investment firms including Sequoia and Gopher Capital.

The deal allowed Bona to defray some production risk, deliver titles for Distribution Workshop to sell and redirect some of Bona’s own capital to a significant diversification into cinema exhibition.

It opened its first cinema in Beijing’ Chaoyang district in 2008 and operated three cinemas by late 2009. Now it has a nationwide operating license, and controls 70 multiplexes with close to 600 screens — having overtaken those chains started by Hong Kong producer Bill Kong (Broadway Cinema), and UME, recently sold to China Media Capital.

Yu continues to be able to pick winning films. Within China, recent big-budget hits have included “Pegasus,” “Project Gutenberg,” “Operation Red Sea” and a co-production stake in Zhang Yimou’s “Shadow.”

And in Hollywood, he has allied himself more closely with the output of the major studios and the U.S.’ leading film packaging companies AGC, FilmNation and Regency.

Putting those strands together with the lonely experience of the company’s U.S. share listing, Yu argues that he has finally got a world-class company.

“Those five years gave Bona a very important experience,” Yu says. “We learned about being held to higher international standards, to build our financial and auditing systems, and improve our management structures.

“We’ve been through so much to become one of the leading Chinese companies. But it’s still not enough. I hope that in 10 years, by our 30th anniversary, we can become China’s Fox or Columbia, China’s Paramount.

“In 10 years from now, if you’re one of the top three firms in China, you’re definitely also going to be one of the top 10 in the world.”