Paramount forges US$1 billion deal with Chinese film companies

Viacom’s Paramount Pictures will receive a US$1 billion cash investment from two Chinese film companies, Shanghai Film Group and Huahua Media, giving the US studio needed cash and stability as it attempts to grow.

As part of the agreement, Shanghai Film Group and Huahua Media will finance a combined 25 per cent of all Paramount’s films for the next three years, with the option to extend it to a fourth year, according to a source familiar with the situation.

The deal comes as parent company, Viacom, focuses on a turnaround plan under new chief executive Bob Bakish.

Paramount also could use the partnership as an entry point into China, said Brad Grey, chief executive and chairman of Paramount, noting that the studio would someday be interested in producing films in the country.

“Certainly Paramount would love to produce films [in China] and we think that should be a win for us,” Grey said in an interview.

The agreement marks the first major move by Grey since Viacom’s former chief executive, Philippe Dauman, tried to sell a 49 per cent stake in the movie studio to Chinese real estate conglomerate Dalian Wanda Group.

“This will give Paramount the wherewithal to build the slate and produce as a major studio should 15-17 movies a year,” Grey told Reuters. Over the past few years, under Dauman, Paramount’s production fell as low as eight films in a given year.

“You really can’t operate a major studio with that,” Grey said, referring to the lower figure.

Dauman left Viacom in August after losing a battle for the company to controlling shareholders Shari and Sumner Redstone. He has been replaced by Bakish, who previously ran Viacom’s international business.

“Shanghai Film Group is stepping up efforts to create a film giant in China with a complete chain of businesses all the way from film production and distribution to other derivative businesses,” said a middle-level official with the state-owned company controlled by the Communist Party’s propaganda department in Shanghai.

“We will be distinctive from players like Wanda because we focus on every link of the businesses in the film industry.”

China’s film market recorded scant growth of 3.7 per cent in 2016, with box-office takings valued at 45.7 billion yuan.

The anaemic growth followed a robust 48 per cent rise in 2015 when tickets worth more than 44 billion yuan were sold.

“It is also an apparent effort to boost quality and novelty of home-made movies,” the official said.

The Shanghai group, previously viewed as part of the local propaganda machine, has capabilities in film, animation and documentary production.

Chief executive Ren Zhonglun wants to turn the company into a commercial success amid fierce competition from domestic rivals such as Wanda and Huayi Brothers Media.

In the third quarter, Viacom said its third-quarter earnings were hurt by the underperformance of Paramount’s Teenage Mutant Ninja Turtles: Out of the Shadows.

The studio’s cash infusion emerges as Chinese firms have shown increasing interest in investing in Hollywood.

Last year, Dalian Wanda spent US$3.5 billion to buy a controlling stake in US film studio Legendary Entertainment. Other Chinese firms that have put money into Hollywood include Fosun International, which invested in Studio 8 – a production company started by former Warner Brothers executive Jeff Robinov.

Huahua has partnered with Paramount on several films, including Transformers: the Age of Extinction and Star Trek Beyond. Shanghai Film Group, which is one of the largest cinema chains in China, was an investor in Jack Reacher: Never Go Back.

Additional reporting by Daniel Ren