‘Gravity’ defies ‘Storm’ and Staves Off ‘Hunger’ in China For Second Straight Weekly Win


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By Robert Cain for China Film Biz

December 3, 2013

Strong word of mouth helped Gravity to float to a modest 36 percent decline in its second week, enabling it to fend off newcomer The White Storm and land its second straight win at the Chinese box office. Still going strong in its third week, Gravity should have no problem surpassing $70 million, even in the face of heavy competition from new Chinese openers.

This total would lock Gravity’s place as the 3rd biggest foreign release in China this year, behind Iron Man 3 and Pacific Rim. But it probably won’t be enough for the film to score a top 10 slot overall, as so many local films have performed well in 2013.

The Benny Chan directed action-crime thriller White Storm debuted to good but not great numbers, eking out a slim lead over Gravity during the past 3-day weekend, when they competed head-to-head. Blue Sky Studios’ animated adventure Epic fell far behind, mustering just $3.65 million in its 3-day weekend debut. The 7-month delay in Epic’s PRC release was undoubtedly a factor in its modest showing.

Box office for week ending Dec 1, 2013

Escape Plan will finish up its PRC run with an impressive $41.5 million, nearly double its U.S. total. Considering all the love China has shown in recent years for Sylvester Stallone and Arnold Schwarzenegger, the movie’s sexagenarian stars, it will be a good idea for Hollywood to dust off its old two-hander action scripts and re-set them in China for this dynamic action duo.

For the first time since early September the weekly box office tally fell short of last year’s comps. Cumulative box office for the week ending December 1st saw a 7 percent decline to $58.5 million from the 63 million total in week 48 of 2012, when Life of Pi reigned.

Today saw the long-awaited debut of director Ning Hao’s No Man’s Land, an adventure thriller that has survived two major revisions and six aborted theatrical release dates over the past four years as DMG, CFG, Galloping Horse and the filmmaking team struggled to conform to the SARFT censors’ restrictions. Originally slated to release in 2010, the film stars the hugely popular Huang Bo and Xu Zheng, who co-starred in last year’s megahit Lost in Thailand.

With its excellent $3.5 million opening day, No Man’s Land should easily top Ning Hao’s prior personal record gross of $24.7 million for last year’s Guns ‘n Roses, though the director claims he doesn’t care how much the new film earns.

“If I wanted to make big money, I could have stayed at home (in coal-rich Shanxi province) and mined coal with my classmates, who are now all billionaires,” Mr. Ning said in a recent Wall Street Journal interview. I just want to do something that I like.”

Of course, what China’s theater operators would like is a big December for local Chinese pictures. With nearly 18,000 movie theater screens now in operation (35 percent more than at this time last year) and an average of 12 or 13 new ones opening every day, they are increasingly reliant on local films to help them pay off their investments.

November’s box office totaled $250 million, a 36 percent increase over 2012, and cumulative year-to-date box office now stands at $3.22 billion. If December’s revenue merely matches last December’s total—a distinct possibility given the tough comps established in 2012 by Lost in Thailand—then China’s total for 2013 will wind up just shy of $3.6 billion.

If, on the other hand, expected hits No Man’s Land, Personal Tailor and Police Story can each draw $80 million to $100 million in ticket revenue, then the year-end total could, just possibly, reach $3.7 billion.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.

‘Gravity’ Thrills, ‘Catching Fire’ Chills as China’s Box Office Tops $3 Billion


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By Robert Cain for China Film Biz

November 26, 2013

Alfonso Cuaron’s Gravity scored the PRC’s fifth best opening of the year with a nearly $36 million liftoff, as U.S.-made films grabbed the top four box office spots and six of the top seven in the week ending November 24th.

Gravity, which is performing nearly as well as surprise hit Life of Pi did at this time a year ago, also set records for IMAX, grossing almost $7.5 million, or more than 20 percent of the film’s opening 6-day total, on 123 screens. Gravity‘s marketing campaign benefited nicely from its liberal use of James Cameron’s quote calling it “The best space film ever.”

The fourth quarter has been a good one so far for Hollywood, with American movies capturing a 55 percent share of the market during the period from October 1st through November 24th.  U.S. films are now at their peak market share for 2013 with over 47 percent of all China box office revenue, though that figure will ebb back to about 42 percent as local Chinese releases dominate the calendar throughout December.Top 5 Opening Weeks 2013

One exception to this trend is Hunger Games: Catching Fire. Despite its rare day-and-date release and its huge reception in the U.S., Lionsgate’s sci-fi/action picture failed to stir up much interest in China. Its four-day total of $12.95 million makes it only the 31st best opener of the year, behind even such modestly performing titles as A Good Day to Die Hard and After Earth.  Although Catching Fire’s debut improved by about 16 percent over the opening week of its 2011 predecessor The Hunger Games, it did so in a market that has grown by more than 80 percent in the interim, so the sequel’s performance in the PRC has to be considered a letdown.

Another disappointment was the suspense-thriller Control, a China-Hong Kong-Taiwan co-production starring Daniel Wu that eked out only $3.5 million for the week. The California-born Wu has consistently been one of China’s most bankable stars, so his latest film’s weak opening must have surprised the film’s backers, who include Huayi Brothers, Media Asia and Celestial Pictures.

Box office week ending 11-24-13

Nationwide gross was $69 million, a 49 percent increase over the same period in 2012, and the biggest weekly total since early October, when Young Detective Dee reigned over a $101 million weekly theatrical total. Year-to-date gross has now eclipsed $3 billion, and if last year’s trend holds, the last five weeks of 2013 will generate a $500+ million haul for PRC theater operators, resulting in a final yearly gross of around $3.6 billion to $3.7 billion.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.

Warner Bros’ Stellar Year in China


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By Robert Cain for China Film Biz

November 21, 2013

Having already clinched bragging rights as the top-grossing Hollywood studio in China this year, Warner Bros further cemented its lead with the excellent rollout of Gravity on Tuesday.  With nearly $10 million in ticket sales in its first two days of PRC release, and what I’m estimating will be at least a $70 million final tally, Gravity should push Warners’ 2013 total in China to around $325 million.

This will mark the first time I can remember when Warners will have won the China box office crown. It will also reflect an impressive 80 percent revenue boost over Warners’ respectable, albeit distant second-place finish to Fox in 2012. With such box office hits as Pacific Rim, Man of Steel, The Hobbit: An Unexpected Journey and now Gravity, Warners will average about $54 million in ticket sales per picture.

Second place in the studio derby this year will go to Disney, whose Marvel superhero offerings Iron Man 3 and Thor 2 will account for around $175 million of that studio’s $250 million annual take.

Sony and Fox will finish third and fourth, respectively, with Fox falling off precipitously from its record-holding $376 million China gross in 2012. Sony had only one strong release with Skyfall back in January, but it was able to get more films into China than any other studio and in aggregate managed to cobble together more than $200 million in gross revenue. Although Fox got solid results in 2013 from The Croods (a Dreamworks animated picture) and Wolverine, it couldn’t match the huge numbers of last year’s Titanic 3D, Life of Pi and Ice Age 3 and wound up with less than half of last year’s gross with around $176 million.

Universal and Paramount, the two studios with the least active presence in China, received the fewest import quota slots and grossed the least among the majors, with about $159 million and $129 million respectively.

At last week’s box office, U.S. films captured the top three slots, although two of these were buyout films. Thor: The Dark World and Escape Plan won the top two spots for their second week in a row with $24.9 million and $13.3 million, respectively. New entry Red 2 picked up $5.9 million in its first three days, enough to handily beat the $4.9 million that Red collected during its entire run in 2011. Total nationwide box office was $54 million for the week, a 57 percent increase over the same period last year.

Box Office week ending 11-17-13

U.S. films will see another week or two of relative prosperity before the year-end Chinese tent-poles move in and grab all the spoils in December and January. Look for big results from The White Storm, which releases on November 29th, followed by big December debuts from No Man’s Land, The Four 2, Firestorm, Personal Tailor and Police Story. By year’s end, Hollywood movies will land only 2 of the top 10 spots at China’s box office in 2013, down from 7 last year and 6 in 2011.

In aggregate, U.S. distributors will manage only a meager 5 to 6 percent increase in their China sales this year, a mere fraction of the 60 percent gain that Chinese language films have enjoyed. Hollywood has let yet another year go by doing little more than lobbing movies into China from across the Pacific, and it has paid the price with a precipitous drop in market share.

Meanwhile, aggressive non-Chinese players like Australia’s Village Roadshow and Korea’s CJ Entertainment have stepped into the breach with highly successful Mandarin language co-productions. And local Chinese players are rapidly growing in competitive strength, as exemplified by Huayi Brothers’ massive increase in its stock market capitalization to $5.2 billion from only $1 billion a year ago. Many of these companies have established beachheads in the U.S., and it won’t be long before their growing financial strength in China will enable them to compete effectively with the stodgy U.S. studios and further erode their diminishing dominance of the global film market.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.

Can China Save ‘Earth’?


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By Robert Cain for China Film Biz

July 12, 2013

The Will Smith-M. Night Shyamalan sci-fi /adventure After Earth arrives in Chinese theaters today with high hopes for a ‘do-over’ after its weak opening in the U.S., Europe, and the rest of the world. With its reported $135 million production budget and $100 million more in marketing costs, the Relativity Media/Overbrook Entertainment flop needs big China numbers if it is to recover from the financial crater it has dug for its investors.

A China box office recovery scenario has its precedents, as Chinese audiences often go against the global tide. Some stateside under-performers enjoy surprisingly big results in China; Battleship and John Carter, for example, ginned up China grosses of $50 million and $42 million respectively, accounting for 15 percent and more of their worldwide theatrical totals. The reverse is often true as well, as recent releases like Django Unchained, The Artist, and Les Miserables have left Chinese audiences cold and earned 2 percent or less of their worldwide revenues there.Image

Early reports have After Earth winning the PRC box office race on Friday, beating The Rooftop, the romantic musical starring, written and directed by, and featuring the music of Taiwanese multi-talent Jay Chou (The Viral Factor, The Green Hornet). Rooftop opened to an excellent $2.6 million total on Thursday, but suffered on Friday due to competition from After Earth, which took in a projected $4.1 million, including Thursday’s midnight grosses.

The week ending July 7th was a decent, if somewhat uneventful one at the theaters. Tiny Times continued to dominate the field, taking another $24.4 million out of the nationwide total of $65.3 million. As of today the youth-oriented romance has extended its gross to $75 million, which, believe it or not, is considered a disappointment by its producers and distributor Le Vision. The film has been blasted by some of the worst reviews and most scathing weibo criticism in recent memory. Le Vision has responded by moving up the sequel, Tiny Times 2, from December to August 9th, perhaps, in the words of my Chinese correspondent Firedeep, to “cook another meal while the pot is still hot.” The August date will be a competitive one, but December will be even more so, and Le Vision may have lost its nerve about facing the tough December field with such a critically panned franchise.

Last week also saw the opening of Andy Lau’s Blind Detective with a $13.7 million bow, and the winding down of Man of Steel, which has surpassed Skyfall to become the third highest-grossing American film in China this year. Man of Steel has collected just over $62 million to date and will end up around $63 million. And as we previously noted, the U.S.-China co-pro Man of Tai Chi fell flat with just $2.9 million in its opening weekend. That picture has cumed $4.1 million through its first 7 days and will probably fall short of $10 million over its PRC run.

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Looking ahead to next week, on Thursday July 18th Huayi Brothers will release the family comedy Mr. Go, a South Korea-China co-production about a Chinese teenaged girl who inherits a baseball playing gorilla and takes him to Korea where he becomes a star major league slugger. Silly? Perhaps. I expect it will do big business. Tune in here next week and let’s see what happens.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.

 

“Journey to the West” Smashes China Box Office Records


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JTTW poster

 

By Robert Cain for China Film Biz

February 13, 2013

With its $12.8 million Chinese New Year’s day debut, Stephen Chow’s Journey to the West: Conquering the Demons set a new record last week for the biggest opening day gross ever for a local Chinese film. The Huayi Brothers/Village Roadshow Pictures fantasy-action-comedy ranks second only to Transformers 3 for the all-time biggest opening day in Chinese box office history.

Journey blew past holdovers Cloud Atlas and Skyfall to take first place for the week of February 4-10 even though it had only one day, Sunday, to beat all its competitors for the weekly box office crown. I believe this is the first time such a feat has ever been accomplished in China.

Box office week ending February 10, 2013

Including its results through February 13th the film has now cumed a massive $50 million in its first four days. On Thursday Journey can look forward to a robust Valentine’s Day, a major date night holiday in China, when it could well set a record for the biggest single-day gross ever. If word of mouth doesn’t slow down attendance the picture will match or even surpass Titanic 3D’s $74 million single-week record. A $150 million total cume now looks increasingly likely, and there’s a reasonably good chance at this point that Journey will even surpass Lost in Thailand‘s all-time record gross of $201 million.

At $45 million, aggregate box office for all films last week was down about 8 percent from the same period last year, when Mission Impossible 4 and Journey: The Mysterious Island led the way to a $49 million weekly cume.

Cloud Atlas boosted its cume to a healthy $21.6 million after 11 days, which now puts it in the rare company of only a handful of non-Chinese films that have earned 20 percent or more of their global box office revenue in China. Skyfall notched another $6.4 million to extend its cume to $58 million.

The next Hollywood films to open in China will be Paramount’s Jack Reacher on February 16th and New Line/MGM’s The Hobbit: An Unexpected Journey, which will bow on February 22nd. It will be an interesting test to see how well both films stand up to the Journey in the West juggernaut. Although Hobbit has had an extraordinary global run and is nearing a $1 billion worldwide gross, it is by no means a certainty that it will enjoy equally robust business in the PRC.

Special mention must be made that an international production company, Village Roadshow Pictures Asia, played a key role in investing in and supporting Journey to the West‘s success. This kind of strategic engagement in Chinese language feature films is precisely what Hollywood and other foreign players must pursue if they hope to remain relevant in China.

For the past few years I’ve suggested that English language Hollywood films would soon be eclipsed in China by local language productions. That moment has arrived. With relatively few exceptions, Chinese movies will increasingly rule at China’s multiplexes. For those studios that haven’t made a commitment like Village Roadshow and Fox have to local language Chinese productions, the window is closing on their ability to participate meaningfully in China’s rise to its inevitable position of global primacy in the movie business. For those who still wish to enter the Middle Kingdom in a strategic and sustainably competitive manner, my colleagues and I at Pacific Bridge Pictures stand ready to assist.

[Correction: In a previous version of this story I mistakenly attributed the international co-financing and co-producing role in Journey to the West to the wrong company. I had misinterpreted a conversation I had with Fox International Pictures (FIP)–my mistake, not theirs–and cited that company as a financing and producing partner in the film when I should have properly cited Village Roadshow Pictures Asia instead. FIP’s role with the picture is as a distributor in Taiwan and Malaysia. Thanks to Village Roadshow for kindly pointing out my error. It was an honest mistake; rest assured that I have reprimanded my entire research and fact-checking staff, and I am flagellating myself as I write this. Humble apologies all around.]

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.

China’s Leading Movie Production Companies


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by Robert Cain for China Film Biz

July 29, 2012

With their import quotas, foreign film blackouts, and other methods of market management, SARFT and the PRC government have made it abundantly clear that protection of local films and producers is a major Chinese policy goal.

Since Chinese protectionism is unlikely to go away, U.S. and other foreign producers who seek to participate in China’s booming film business will need to start engaging more with local Chinese companies.

There are several thousand licensed production companies in China (more than 1,500 in Beijing alone), so outsiders need systematic ways to narrow their lists of potential collaborators down to manageable size. One such method is to measure companies by their respective market shares. That’s my purpose here.

I’ve listed below China’s top production companies by their market share during the first 7 months of 2012. In calculating market share I’ve attributed each Chinese language film to a single production company, even though in some cases there were as many as 15 production companies credited on a single film. In such cases I’ve attributed credit for the film only to the company that received the first position credit. Co-productions with foreign companies are attributed to the mainland Chinese partner.

ImageSource: Pacific Bridge Pictures research

Here’s more detail on the top five:

Ningxia Film Group

Ningxia Film Group is the official government owned production company of Ningxia Autonomous Region, a tiny northern Chinese province that borders Inner Mongolia. The company landed at the top of this list by virtue of a single film, Painted Skin: The Resurrection, the only film it has ever produced. Ningxia’s President, Hong Yangtao explained that he had only one chance at making a movie: “We shot this film to survive.” His strategy for producing and launching Painted Skin 2 has resulted in mainland China’s most successful film ever, so it’s very possible that Ningxia may avoid the fate of becoming a one-hit wonder.

China Film Group

With all of its financial strength, distribution clout, and government influence, it’s surprising that China Film Group’s production division has managed only a 3 percent share of its home market this year, far less than any one of the Hollywood studios have captured in China. The Beijing-based company is a government-owned behemoth that is far more influential in the distribution sphere, where it has played a role in releasing 19 of the top 20 grossing films of 2012. Under its Chairman Han Sanping, CFG is preparing for an upcoming IPO.

Huayi Brothers

China’s most powerful independent (i.e., non state-owned) entertainment conglomerate, Beijing-based Huayi Brothers is a diversified company engaged in film and TV production, distribution, theatrical exhibition, and talent management. Huayi Brothers trades on the Shenzhen stock exchange at a market capitalization of US $1.5 billion. The company’s Wang Brothers are skilled at attracting top directors, and they consistently rank among China’s market share leaders. If any Chinese company can challenge Hollywood’s studios for market dominance in China, Huayi Brothers is certainly a top contender.

Bona Film Group

Like Huayi Brothers, Beijing based Bona Film Group is also an independent, publicly traded company engaged in both production and distribution of films. Trading on the US NASDAQ exchange, Bona’s current market capitalization is US $345 million. Under President Yu Dong the company has been a reliable supplier of blockbuster hits in recent years, and usually captures at least a 10 percent share of the domestic market. Bona is one of the more internationally-oriented Chinese companies, with interests in Hong Kong and the United States, and is now 20 percent owned by News Corp. Look to Bona to be one of the next producers of a crossover hit that breaks out internationally.

Enlight Media

Under CEO Wang Changtian, Enlight Media rarely mis-fires in its production and distribution of feature films.  Squarely focused on the action and romance genres, Enlight usually places several films in China’s top 20 grossers, and currently has in release the country’s fourth highest-grossing Chinese language film, The Four. Enlight is also a major player in China’s TV series production and distribution businesses. Under the leadership of its CEO Wang Changtian, the publicly traded, Beijing-based company has achieved a market capitalization of nearly US $1 billion.

Companies that didn’t make the top 15 ranking above but that are worthy of mention include Shanghai Toonmax, Stellar Pictures, Xiaoxiang Film Group, Henan Film Studios, DMG Entertainment, and Dadi Films.

Too many production companies are competing in China for scarce resources—and for even scarcer quality scripts. If the PRC’s film regulators are serious about making their domestic industry more competitive, they should focus less on protectionist measures and more on encouraging consolidation and cooperation among the industry’s disparate players.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.

Chinese Revenue for U.S. Films Has Doubled in Five Months

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by Robert Cain for China Film Biz

May 4, 2012

After more than a decade of sizzling hot, 35 percent annualized growth, China’s theatrical film market is showing no sign of slowing down.

In fact, as incredible as it may seem, the pace of growth has actually picked up. So far this year China’s box office revenue is growing faster than the historical trend. While the average per-film revenue for all films has remained flat through April, many more films are being released this year relative to 2011, with the result that total box office is up by nearly 40 percent.

American film producers have been the biggest beneficiaries of China’s latest growth spurt, as Chinese audiences have increasingly turned away from homegrown product in favor of U.S. tent-pole movies.

Since we last looked at China’s contribution to the global box office of U.S.-made films five months ago, the numbers have positively exploded. In 2011, the average American film release in China earned $19.5 million in ticket sales, and the median U.S. film saw 5 percent of its total global theatrical revenue come from China. This year both those figures have doubled, with the average U.S. film earning $39.2 million in Chinese box office receipts, and the PRC now accounting for 11 percent of the median U.S. film’s global theatrical revenue.  (Note: international revenues are difficult to come by; for this article I am relying on public sources such as boxofficemojo.com and IMDB.com, which may in some cases provide information that is inaccurate).

Even if we take Titanic 3D, an outlier if there ever was one, out of the calculation, the average U.S. film has still grossed $30 million in China this year, 50 percent more than in 2011.

At this pace, by 2014 I expect Hollywood films will routinely earn more ticket revenue in China than they do in North America. This prediction would have been outlandish even six months ago, but now it’s looking inevitable that China will soon rival the United States in importance to Hollywood. The reality that Chinese tastes will swiftly become a major driver of the global movie business is one that Hollywood is not yet prepared to deal with, but it is the raison d’etre of my company, Pacific Bridge Pictures. At Pacific Bridge we’re dedicated to developing, financing and producing China/foreign film co-productions, and we’ve consulted to numerous studios and entertainment companies on cross-Pacific media initiatives.

While things are looking up for American films, for domestic Chinese films the trend has gone in the wrong direction. Revenues for the average Chinese-made release in China have fallen by 40 percent, from $5.6 million in 2011 to less than $4 million in 2012. Hong Kong-made films and China-Hong Kong co-productions are down by 18 percent on average, though Taiwanese films have been the exception to the rule, soaring this year to an average of $8.4 million per film, up from $1.9 million in 2011.

Wang Zhongjun, co-founder and CEO of the prominent film production and distribution conglomerate Huayi Brothers recently said, “2012 is a prosperous but difficult year for Chinese films. As Hollywood is getting a larger portion of the market, we are concerned about the competition. Huayi Brothers feels the pressure, but we are putting the responsibility on ourselves.”

Wang went on to express a commonly held view: “Through the years of cooperation, all the foreign companies came to us with their only interest being how much revenue the Chinese market could hold for them,” he complained. “When I asked how much revenue they can bring in for us from the overseas market, they just couldn’t answer.”

Foreign producers had better be prepared to answer that question if they expect to continue to prosper in China. What China’s film industry, and the Chinese government, want more than anything is to become major players on the global stage. It’s unlikely that the PRC’s leadership will tolerate foreign domination of such a strategically important sector as media for very long. The smart long-term players are crafting strategies for cooperation and mutual benefit with Chinese partners. More on that topic next week.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.

Legendary East’s Fortune Cookie Crumbles


By Robert Cain for China Film Biz

December 30, 2011

Legendary Pictures’ China ambitions ran into a great wall of investor resistance yesterday, as Hong Kong financing partner Paul Y Engineering (PYE) announced that it has been unable to raise sufficient investor interest to complete its $220 million investment in Legendary East, a planned three-way partnership with Legendary and Beijing-based Huayi Brothers.

Here’s the first part of the press release that was issued by PYE and its parent company, PYI:

The most revealing phrase in the press release is the statement that “some or all of the parties… may continue, in the near term, to discuss potential changes in the transaction structure…”

While PYE Chairman James Chiu blamed “the current difficult environment of the capital markets” for his failure to raise the necessary funds for the joint venture, I strongly suspect that other factors were the real reason for his quashing the deal. As I wrote in a previous post, the deal terms as originally announced were decidedly lopsided in Legendary’s favor, and in any event it made no sense for a construction firm like Paul Y to be putting shareholder money into movies, a business about which PYE’s senior executives openly admitted they know absolutely nothing.

PYE had originally explained its participation in the Legendary East joint venture as an effort to diversify its business into a more profitable industry sector with less cyclicality than its core construction operation. But as my former boss, Harvard Business School professor Michael Porter, would tell you, this is just the sort of misguided thinking that almost always leads to ruin.

In a study I conducted for Porter that led to a seminal article he wrote for the Harvard Business Review, we found that corporate diversifications like the one PYE proposed most often dissipated instead of created shareholder value. Investors are almost always better served by making their own diversification decisions within their personal stock portfolios instead of having corporate managers try to make these diversifications for them.

PYE’s and PYI’s investors no doubt took issue with their management team’s intentions and refused to go along.  PYI Chairman Tom Lau made himself an easy target for investor revolt in November when he said. “We do not understand the business of motion pictures nor do we pretend that we can contribute anything more than money.” It was one of the most candid statements I’ve ever seen from a major company Chairman, and also one of the least confidence inspiring.

I’m a big fan of Legendary, and I hope they find a way to realize their ambitions. My friends at the company tell me they’re pushing ahead with their China plans, and for their sake I hope that either PYE or other investors will provide the capital they need. But for Legendary to succeed in the long run in China they’ll have to do so on business terms that make sense for both sides. Even if the initial capital raise had succeeded, the PYE-Legendary East deal wasn’t a good one for PYE or for Huayi Brothers, and therefore looked to me like a partnership that would have been doomed from the start.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.

Legendary East Deal Terms Unwrapped


By Robert Cain                                                                                                      November 17, 2011

In an announcement that was remarkable for its candor and for the amount of detail disclosed, Hong Kong construction firm Paul Y. Engineering (PYE) revealed on Tuesday the terms of its $220.5 million investment in Legendary East, Ltd., the film co-production joint venture that will be co-owned and managed by Legendary Pictures and Beijing based Huayi Brothers.

The joint venture aims to produce two films per year through 2017, and three per year thereafter, to be shot in English and “based on Chinese culture, mythology and history, with a view on distributing globally,” according to PYE deputy chairman Tom Lau. By qualifying these films as locally made ‘national productions’ the company will be able to avoid China’s stringent import quotas so that it can freely distribute in China.

Outside of China the films will presumably be released by Legendary’s studio partner Warner Brothers, though there has been no official announcement about that yet.

PYE, which has no prior experience in entertainment, will retain a 50 percent stake in Legendary East, with Legendary Entertainment taking 40.1 percent and Huayi Brothers 9.9 percent.

PYE explained its investment as an effort to diversify its business into a more profitable industry sector with less cyclicality than its core construction operation. Although PYE has been a major player in shaping the skyline and infrastructure of Hong Kong over the past six decades, it presumably sees China’s booming film industry as a more promising area of growth and profitability than its traditional business of building skyscrapers, airports and tunnels.

The terms of the deal appear to be very favorable for Burbank based Legendary, which maintains a great deal of control while shouldering little risk. In assuming the chairmanship of the new venture, Legendary Entertainment’s chairman Thomas Tull will control the company’s board of directors and he will exercise full greenlight authority, but will take on little to no financial exposure.

Minority partner Huayi Brothers, on the other hand, appears to be hungry to participate because it will make substantial sacrifices for its relatively small stake in the deal. In exchange for its right to distribute Legendary East films throughout the mainland and greater China, Huayi Brothers’ will be required to:

  • Give Legendary East films ‘first priority’ over its own titles by carving out a two week blackout period ahead of each Legendary East film during which time Huayi will be prohibited from releasing any other films.
  • Put up a minimum of 5 percent of the negative cost of each joint venture film, with budgets set at a floor of $50 million and a cap of $150 million.
  • Invest 100 percent of each film’s P&A, while limiting its distribution fees to 11 percent.
  • Shoulder the responsibility of taking each script through the government’s censorship hurdles, production approval process and distribution license authorization, in return for which it will earn producing fees of $500,000 per picture.

For its part, U.S. based Legendary Entertainment will take a $3 million producing fee from the budget of each film.

The partners had previously announced that their first joint production would be The Great Wall, to be directed by Edward Zwick (The Last Samurai; Blood Diamond) and based on a screenplay by Zwick and Marshall Herskovitz. Other early Legendary East investments will include co-financing two existing Legendary projects: Paradise Lost, to be directed by Alex Proyas (Dark City; I, Robot) and star Bradley Cooper; and Seventh Son, which will be directed by Sergei Bodrov (Mongol) and star Jeff Bridges.

In a curious display of candor, PYE Chairman James Chiu seemed to go out of his way to explain how little he knows or even cares about movies.

“I have no patience to sit in the cinema for two hours,” he is quoted as saying.

With $220 million at stake, perhaps he can be persuaded to show up and sit through a premiere or two for the company’s benefit.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com.