China's Internet Titan Tencent Invests $69 Million in Film Studio Huayi Brothers

The messaging and game giant brings China's film and Internet businesses closer than ever before.

BEIJING – China’s largest Internet company, the instant messaging and online gaming giant Tencent, made its first investment in the film business, paying $69 million for a 4.6 percent stake in Huayi Brothers Media to become the largest institutional shareholder in the country’s biggest non-state film company.

Shenzhen-based and Hong Kong-listed Tencent announced the purchase of the stake in Huayi late Tuesday at a time when the rush to serve China’s 457 million Internet users with fresh entertainment content is heating up.

Huayi’s film and TV titles regularly lead the industry in production and distribution and Tencent’s investment in the Beijing-based company could put it in direct competition with Youku, China’s leading online video sharing company, which listed on the Nasdaq in December.

"Investment in Huayi is a strategic partnership that will allow new attempts from both sides to combine the film industry with the new media sector," Tencent president Liu Chiping said in a statement.

Tencent joins Jack Ma, chairman of the Alibaba group, atop the list of investors in Huayi. Ma is the third-largest shareholder in Huayi with a 5.5 percent stake after selling 1.83 percent stake in the company to Tencent on May 6.

Although best known for its QQ instant messaging service, Tencent also serves online games and claims 640 million users and a 2010 net profit surge of 56 percent to 8.05 billion yuan.

The largest sharehlders are founder-brothers Wang Zhongjun and Wang Zhonglei, also known as Dennis and James Wang, who jointly own more than 50 percent of the Beijing-based company founded in 1999.

Huayi Brothers posted a 152 million yuan ($23.42 million) net profit for 2010, 80.5% more than in 2009, boosted in part by the success of director Feng Xiaogang’s earthquake disaster film Aftershock, briefly the highest-grossing Chinese film of all time.

"Huayi Brothers is shifting from the production of films and TV series and artist agent service to new sectors including content distribution and derivative products," Wang Zhongjun, Huayi’s chairman, said, according to the Shanghai Daily.