Chinese private equity firms find lucrative returns in film production studios
There are prevailing changes in China's fast-growing film industry
Wrapping up our phone interview just a little past 5.30am Los Angeles time, Robert Simonds couldn't wait for the rest of the day to start. "I'm off to have more fun," enthuses the chairman and CEO of American film and television studio STX Entertainment. A fun ride would be an understatement to describe the past 12 months for Simonds.
The veteran film producer, most famous for his star-driven, highly profitable comedies such as This Means War and The Pink Panther, started his own studio last year. Although the first feature it produced and distributed, entitled The Gift - a thriller starring Jason Bateman and Rebecca Hall - won't open until next month, STX Entertainment has already scored financial backing from venture capital firm TPG and Chinese private equity Hony Capital, and a three-year agreement with Huayi Brothers Media Corp - one of China's major players in the film scene. "When we decided to form a new studio, we knew from early on that China is not an add-on or a gimmick," Simonds says. "We need China to be in the fabric of the company. That's where our Chinese partner Hony comes in."
The deal marks an unprecedented collaboration between Chinese investors and Hollywood production and distribution studios, reflecting on the prevailing changes of China's fast-growing film industry.
According to EntGroup, the number of cinemas in China increased from 1,687 in 2009 to 5,300 last year, yet the growth rate of cinema numbers dropped 4.1 per cent over 2012. Multiplex cinemas, leveraging the thriving commercial real estate, has been an investor favourite - for example, Dalian Wanda Group's 2012 acquisition of the AMC cinema chain.
In light of the slowdown of the property market in recent years, however, investors are looking for other alternatives to expand their portfolio in not only cinema chains but also content providers - film production houses both homegrown and from overseas. The Chinese film industry also sees a new strain of professional investors who look beyond their traditional assets such as real estate, insurance, construction and mining.
"For the past 30 years, China has been the world's factory and is now becoming the world's market," says John Zhao, founder and CEO of Hony Capital - the firm manages a portfolio of 46 billion yuan (HK$58.2 billion) in assets. "We've identified opportunities in the fast-growing culture and media sector - the Chinese film market is expanding its influence on Hollywood [productions], and today's Chinese consumers are more focused on cultural consumptions. This is why we are investing in content production companies such as STX Entertainment. I'm sure more investors will start to pick up this trend."
Chinese investment in Hollywood studios such as Hony and STX's deal might be the first of a few to come - homegrown production houses funded by Chinese private equities are not scarce. Chinese private equities with the hope of carving a share of the world's second-largest cinema market boasting box-office sales of a total of 29.6 billion yuan last year include Gopher Asset Management, Fosun International and Chinese Media Capital.
Gopher's collaboration with Bona Film Group, for example, resulted in a 1 billion yuan fund started in 2013 which finances the development and production of Bona's film and TV projects. The production slate includes The Taking of Tiger Mountain - a 3D epic action film directed by Hong Kong veteran Tsui Hark - and Moscow Mission, the first project under Bona's co-production agreement with Fox International Productions.