DMG Entertainment’s Chinese Affiliate Crashes on Shenzhen Stock Exchange

DMG Entertainment, once known as a gatekeeper between Beijing and Hollywood, is facing mounting financial woes at its publicly listed sister company in China.

Over the past six weeks, Chinese investors have fled from Yinji Entertainment & Media, DMG’s Beijing-based affiliate which trades on the Shenzhen stock exchange. The rapid downturn at the Chinese firm follows a series of troubling revelations about the state of its finances.

On July 27, a Chinese court froze nearly $617 million in Yinji shares held by chairman and co-founder Peter Xiao after the company failed to repay a $14.5 million loan to a financial firm based in China’s Dalian province. The court said it was locking up Xiao’s stake, which represents 44 percent of Yinji, for a period of three years, or until the company clears the overdue debt.

Yinji said in a filing to the Shenzhen stock exchange that the legal action could result in a change of control at the company.

The cloud over Yinji darkened on Aug. 1, with the release of financial results for the first half of 2018, which showed its revenue down 49.4 percent from the same period a year ago. Net profit plummeted even further, falling from $39 million in the first half of 2017 to $3.2 million in the first half of 2018 — a slide of 91.9 percent.

Yinji’s shares had been suspended from trading for most of the year, after the company proposed in February a major restructuring coupled with the acquisition of Chinese marketing company Json Media. That plan was scrapped early in the summer, however, and trading resumed on July 9 — at which point Yinji’s shares went into free fall.

Many media and entertainment stocks have lost value on the Chinese markets this year. Shares in China’s 11 publicly listed movie studios have fallen by an average of 17.9 percent since June, according to a recent estimate from the South China Morning Post. Yinji’s shares have lost far more value, however.

The company resumed trading in Shenzhen on July 9 at a price of RMB 12.09 (about $1.76 a current exchange rates); as of Monday in Beijing, Yinji’s shares were trading at RMB 3.34 (47 cents) — a plunge of 72 percent.

It’s unclear how the financial troubles at Yinji in China will affect DMG Entertainment’s activities in the U.S. film business. DMG founder and CEO Dan Mintz says that there is enough separation between the two companies to ensure that the troubles at Yinji will have no effect on DMG.

“This is irrelevant,” Mintz said in a statement to The Hollywood Reporter. “DMG Entertainment is not Yinji, therefore has no bearing on DMG.”

Representatives for Yinji did not immediately respond to a request for comment.

The original DMG was founded in Beijing in the late 1990s by Mintz, Xiao and Wu Bing, a former Chinese gymnastics champion, as a Chinese marketing and advertising company. Around the time of the 2008 Beijing Olympics, the firm diversified aggressively into film distribution and production, handling the Chinese release of U.S. titles like Twilight (2008) and later taking a major step up as co-producer and China marketer of Marvel and Disney’s Iron Man 3 (2013).

In 2014, DMG was split into two parts. The then-larger Beijing-based entity retained the original DMG’s core marketing business, as well as its Chinese film distribution business and other local entertainment activities. This Chinese unit was then brought public on the Shenzhen exchange via a backdoor listing, raising more than $1 billion, with co-founder Xiao assuming the helm as chairman.

As a non-Chinese citizen, Mintz was no longer allowed to hold an executive position at the company after it went public, due to Chinese regulations (the U.S. does not impose such restrictions on the leaders of Chinese companies that list in U.S. markets — an unequal trade arrangement that remains a point of contention for many U.S. business leaders with interests in China).

Instead, Mintz took the helm of the firm’s privately held U.S. entertainment unit, retaining the DMG Entertainment brand and basing in Los Angeles. Although technically separate — which allows both sides latitude in negotiating U.S. and Chinese regulations, and the unique opportunities and optics of each market — the two companies have operated under a contractual partnership agreement, with the Beijing arm importing DMG’s U.S.-backed films into China under favorable terms. Alcon Entertainment’s Johnny Depp-starrer Transcendence (2014) and Point Break reboot (2015) — both co-produced and co-financed by DMG and Yinji — were brought into China in this way.

How much startup capital Mintz began with at the new Los Angeles incarnation of DMG was never made public, but the loss of a publicly listed Chinese entity would seem a sizable blow to the brand’s global fundraising potential. DMG would presumably also require strong backing from China if it is ever to repeat a big swing like its reported takeover bid for Paramount in 2016 (at the time, Yinji had a market cap of $4 billion, now down to around $860 million).

Mintz’s recent activities and the ongoing deterioration of Yinji suggest that the executive is looking to turn a page and focus his China-made fortune in Hollywood.

In January, DMG fully acquired Valiant Entertainment, the comic book publisher known as the home of the third-largest universe of superhero characters behind DC and Marvel. DMG inherited several film and TV adaptation projects Valiant had already initiated, including film projects set up at Sony featuring the publisher’s popular Harbinger and Bloodshot characters. The Bloodshot project, with Vin Diesel set to star and newcomer Dave Wilson directing, began shooting this month.

A TV series based on Valiant’s Quantum and Woody comic books, meanwhile, is in development with the Russo brothers’ Getaway Productions, while CBS Studios and The CW Network have boarded a Dr. Mirage television project.

The Valiant projects have been described as targeting the worldwide marketplace. DMG is now making a push to further develop Valiant’s trove of IP across film, television and other media platforms.

This uptick in ambitious activity in Los Angeles has been accompanied by a steady decline in both DMG and Yinji’s output in China — despite the Chinese box office’s ongoing growth.

DMG’s film releases in the past year include the comedies Blockers ($93 million) and Father Figures ($25.6 million) — a hit and a miss, respectively — and the Ted Kennedy drama Chappaquiddick ($17.9 million). None of these efforts appeared tailored for China, and none are known to have pursued a release there.

Back in 2016, DMG partnered with Studio Canal and James Cameron on a 3D conversion and rerelease of Terminator 2. At the time, DMG’s involvement in the effort was promoted on the basis of the company’s connections to the China market (Cameron’s Titanic 3D rerelease earned a huge $145 million in China in 2012). But for reasons that went unexplained, T2 3D never made it to release in the Middle Kingdom (it opened to a somewhat disappointing $552,773 in North America).