China Box Office Soars, SMG Swallows Galloping Horse
Two headlines are casting a spotlight on a love affair between China and Hollywood being fueled by a soaring Chinese box office that could one day surpass the US as the world’s largest. One of the news bits shows just how big the Chinese box office is becoming, with word that domestic ticket sales soared 25 percent in the first half of the year. The other headline highlights the growing number of partnerships that are springing up, with industry giant Shanghai Media Group (SMG) reportedly in a deal to buy Galloping Horse, a Beijing production house whose assets include the Hollywood Digital Domain special effects house.
Let’s start this post by pointing out that the latest “Transformers” movie has also soared in the Chinese box office over the last 2 weeks. The fourth installment in the blockbuster series grossed a whopping $215 million in Chinese ticket sales during its first 11 days in theaters, putting it on track to become the best performing movie of all time in the market. (English article) It’s probably no accident that the movie was a co-production between US studio Paramount and several Chinese partners, ensuring the film would get strong support in China.
All that said, let’s zoom in on the latest China-Hollywood news bits starting with the new data that show Chinese box office sales reached 13.7 billion yuan ($2.2 billion) in the first half of 2014. (English article) The figure was up 24.7 percent from a year earlier, and included 33 films that earned more than 100 million yuan in ticket sales. To put that in perspective, the US box office was worth about $11 billion last year, meaning China’s ticket sales in 2014 will still probably be less than half the US total for all of last year.
A Chinese report pointed out that nearly half of this year’s top films in China were domestic productions, as China tries to develop its local industry. But the domestic vs international distinction will probably become increasingly blurred in the years ahead, as Hollywood and Chinese producers work more closely together. I’m not an expert on the subject, but the newest “Transformers” film almost certainly qualified as a domestic production, even though it was clearly a Hollywood film. The big studios are increasingly turning to such co-productions not only to get better promotion in China, but also to skirt the country’s quota for the import of foreign films.
From the broader box office picture, let’s zoom in quickly on reports that SMG, China’s second largest traditional media company, has purchased Galloping Horse for an undisclosed sum. (Chinese article) Sourcing on the reports is quite sketchy, and some say that talks are still in progress while others say that SMG’s investment arm has purchased a stake in Galloping Horse.
My main reason for even writing about this particular deal is because Galloping Horse made headlines in 2012 when it partnered with an Indian company to buy Digital Domain, the bankrupt digital effects house whose co-founders included director James Cameron (previous post). Since that time Galloping Horse has had a bit of its own difficulties, and last year was acquired by a Hong Kong-listed real estate company called Sun Innovation (HKEx: 547).
That earlier deal looked a bit strange, and I suspect that Sun probably acquired Galloping Horse due to an insider debt situation. Accordingly, the sale of the company a year later to SMG seems quite logical, and the Shanghai-based media group will undoubtedly be a far better owner. That said, SMG is having a lot of its own troubles these days as it rapidly loses business to a rising field of new media companies. I’m a bit doubtful about whether it can revive Galloping Horse and Digital Domain, but the deal does certainly seem to reflect the growing volume of media deals we’re likely to see in the next few years.
Bottom line: China’s box office will continue to grow strongly in the next few years, spawning an increasing number of cross-border M&A deals like SMG’s new purchase of Galloping Horse.
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