Warner, Wanda In New China Film Finance Acts
I’ve stopped using the term “love affair” to describe the romance between Hollywood and China over the last 2 years, as it no longer seems sufficient to describe the flood of tie-ups that have emerged since China became the world’s second largest box office. The Long March of new deals has now gained 2 more members, with word that US film giant Warner Bros (NYSE: TWX) is in a major new movie financing deal with Shanghai Media Group (SMG), China’s leading regional maker of filmed entertainment. In a separate headline, other reports are saying that real estate giant Wanda Group is also deepening its own involvement in movie industry finance, by filing to make a domestic IPO for its movie theater business.
Let’s start with the SMG news, which is just the latest pairing for the leading TV operator in a city that was China’s film capital in the pre-1949 era. SMG’s string of Hollywood deals dates back to 2012, when the company signed a landmark agreement to set up an animation joint venture with US giant DreamWorks Animation (NYSE: DWA), marking the first major deal in the current love affair.
Since then, the company has signed several other deals, including ones with big-screen technology company Imax (NYSE: IMAX) (previous post) and also one to buy the Chinese owner of Digital Domain, the struggling Hollywood digital effects studio co-founded by director James Cameron. (previous post) SMG has also recently formed a joint venture with Microsoft (Nasdaq: MSFT) to sell the software giant’s Xbox that recently went on sale in China after the government lifted a decade-old ban on foreign gaming consoles.
Now the latest media reports say that SMG and its affiliated media investment fund CMC Capital Partners are teaming up with Warner and filmmaker Brett Ratner to create a fund to make films in China. (English article) The talks are still preliminary, but one source said the fund will be capitalized at more than $100 million — not a small figure but also not huge in an era when individual films commonly cost $20 million or sometimes much more to make.
Others big names that have shown an interest in China film finance with similar-sized initiatives recently include executives associated with Internet giants Alibaba (NYSE: BABA) and Baidu (Nasdaq: BIDU). In June, Chinese private equity giant Fosun (HKEx: also invested in a major new film financing company with a former top Warner Bros executive (previous post), and leading Chinese independent film house Huayi Bros (Shenzhen: 300027) also took a similar step last month. (previous post)
Next let’s look at the latest news from Wanda, which made its own Hollywood headlines 2 years ago with its purchase of AMC Entertainment, the second largest US movie theater operator. Wanda later made an IPO for AMC, and now it’s reportedly getting set to make another IPO for its own China-based theater operations, one of the country’s largest chains. (English article)
The reports say Wanda Cinema Line is aiming to raise up to $330 million through the offering, which would come on the domestic stock exchange in the southern boomtown of Shenzhen. The company previously tried to make the listing in July but was denied at the time due to a backlog following the recent lifting of a one-year freeze on new IPOs in China. Its relaunch of the plan indicates it may finally succeed this time, even as Wanda’s real estate arm pursues its own separate IPO in Hong Kong.
The choice of Shenzhen for the IPO is an interesting one, and indicates the smaller of China’s 2 main stock exchanges could become a future center for more entrepreneurial, entertainment-style listings. New IPOs in China have been getting a strong reception in general following the end of the yearlong freeze, and I expect this Wanda Cinema offering will get strong demand due to the big potential of China’s movie market.
Bottom line: SMG’s new theater financing tie-up with Warner Bros is the latest in a growing string of such ventures, while Wanda’s new cinema IPO is likely to get a strong reception if it moves forward.
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