Huayi Bros, BOE Invest In US Film, Technology
Two of China’s larger tech and media names are in the headlines today for new US investments, highlighting a recent trend that is seeing Chinese firms step up such investing as they search for western expertise and technology. The larger of the deals will see Huayi Bros (Shenzhen: 300027), one of China’s most successful independent film producers, invest $130 million in a US-based subsidiary as part of its international expansion. The other will see LCD maker BOE Technology (Shenzhen: 000725) invest a more modest $5 million in a US start-up that develops technology for wearable products.
Each of these moves is quite different, but they are united by a common purpose that has a growing number of Chinese firms tapping western technology as they seek to move up the value chain. In Huayi’s case, the company wants to get closer to Hollywood to tap into its vast talent pool and film-making expertise to produce movies and TV shows that can appeal to audiences beyond China. For BOE, the company is looking to move beyond the aging LCD market and sees wearable products as a hot new area for potential growth.
Let’s start with Huayi, not only because it’s the larger of the 2 deals but also because Huayi itself is a far more entrepreneurial and dynamic company than BOE, which is an older state-run business. According to the new reports, Huayi says its new US unit will engage in TV and film production, as well as sales and distribution. (Chinese article) Huayi says the new venture is aimed at helping it develop the international market.
This particular story actually began earlier this year, when media reported that Huayi was in talks to invest $120-$150 million in Studio 8, a new production house being set up by a former top executive from US studio heavyweight Warner Bros (NYSE: TWX). (previous post) But Huayi failed to close that deal, and instead Chinese private equity firm Fosun International (HKEx: 656) ended up taking a stake in Studio 8. (previous post)
Thus it looks like Huayi had already earmarked money for the US move, and this decision to set up its own unit is probably a backup plan after the Studio 8 investment failed. The company joins a wide range of Chinese firms that have recently invested in Hollywood, running the range from Robin Li, founder of online search leader Baidu (Nasdaq: BIDU), to commercial property giant Wanda Group.
Obviously it probably would have been better if Huayi could have joined the Studio 8 group, as it’s always better to have a capable partner when entering an unfamiliar and very cut-throat place like Hollywood. But that said, Huayi has certainly shown itself to be a very capable production house, and I expect its China connections will attract many potential other Hollywood-based partners.
Meantime, let’s look quickly at BOE, which is paying the $5 million to buy an undisclosed stake in US-based technology start-up Meta. (Chinese article; English article) There’s not much more major detail in the reports, though the size of the investment shows that BOE is making the move to gain access to Meta’s technology and expertise.
As a longtime China tech watcher, I used to follow BOE more closely about a decade ago when TFT-LCD technologies were in a high-growth era and the company was one of China’s leaders in the sector. But BOE failed to become an innovator in the space, and today has become just one of many producers in this costly and very low-margin sector. All that said, I’m not extremely optimistic that this new investment will change the company’s ho-hum outlook anytime soon. But at least it’s exploring some interesting new directions, since wearable devices is clearly a trend of the future.
Bottom line: Huayi’s new US production arm looks like a smart backup plan for overseas expansion after a failed previous effort, while BOE’s investment in a wearable technology company has more limited potential.
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