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This story first appeared in the May 6 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
When China’s Perfect World Pictures announced in February that it is raising $500 million to co-finance as many as 50 features from Universal Pictures, the collective response from many in Hollywood was: Who? Not much was known about the company, other than it is a unit of Perfect World Co. Ltd., one of China’s largest video game makers. Nonetheless, the U.S. entertainment industry now is paying attention to Perfect World’s president, Rong Chen, as he builds the company’s Chinese television and film business and, more interestingly, diversifies into the English-language film sector.
Perfect World Pictures was founded in 2007, and Chen came on board two years later. Already listed on the Shenzhen Stock Exchange, the company is in the process of merging with its corporate parent, which was pulled off the Nasdaq in 2015. The consolidated company is expected to have a market cap of about $10 billion thanks in part to its move in 2008 to make film and TV, specializing in local romantic comedies like the 2011 Bai Baihe starrer Love Is Not Blind ($56 million on a budget of $1.4 million), as well as high-end Chinese TV dramas. The studio also just wrapped production on its first action-thriller, an as yet untitled project directed by Alan Mak and Felix Chong, the in-demand Hong Kong filmmakers behind Infernal Affairs, which was remade by Martin Scorsese as The Departed. “It’s going to be a franchise, like China’s Bourne movies,” Chen says. Until now, Perfect World’s main connection to Hollywood has been as the Chinese co-distributor of Lionsgate’s Divergent movies and Universal’s Rush.
Born and raised in Nanjing, Chen, 46, earned a bachelor’s degree in engineering from USC and an MBA from UC Berkeley, with a master’s in engineering at the University of Minnesota in between. After stints in consulting and the tech world, where he launched a successful online travel service, Chen quickly earned a reputation at Perfect World as a formidable strategist. On the international front, he says an even larger phase of investment into Hollywood will follow the Universal deal this year, including financing multiple films and establishing an office in Los Angeles. Chen invited THR to his Beijing office for his first extended interview with the Western media.
How did the Universal deal come about? Was there a prior relationship? Did you talk to other studios?
Around May 2015, I got a phone call asking if I would be interested in flying to Shanghai in a couple of days to discuss this opportunity. Universal was looking for a partner. They had hired Raine, which is a [U.S.] investment bank. Raine has teams here, and they are one of the companies that actually knows China pretty well. I said, yes, absolutely. Then I flew to Shanghai and met with Jeff [Shell, chairman of Universal Filmed Entertainment Group] and Jimmy [Horowitz, president of Universal Pictures], and we went from there.
Perfect World Pictures’ 2011 romantic comedy Love is Not Blind grossed $56 million at the Chinese box office.
The Chinese box office grew nearly 50 percent in 2015. Why put your resources abroad when there is so much growth potential at home?
We’re a public company, so there are a couple of things we have to consider. First, we need to put capital to use. If you give me $300 million and tell me to invest in Chinese movies, I don’t have enough product to pick from. In fact, if you add up all of the investment dollars behind the most commercially successful Chinese movies from last year, it’s probably not $300 million. But $300 million only gets you 25 percent of a Universal slate. So, if I can put my CFO hat on, when Universal gives you 50 movies or five years — whichever is longer across the entire slate, minus animation and anything less than $15 million, which obviously is just too small — that’s a good deployment of my capital.
Second, the China box office is booming, but it’s bifurcated with foreign films and domestic films. There’s a quota system, there’s regulation, and the market is typically managed to maintain a certain split, with Chinese films guaranteed at least 55 percent. So, we’ll make our domestic films and participate in that growth, but by investing in Universal films, I come back and participate in the foreign piece of the Chinese box-office boom, which also is growing. So I play it both ways.
Perfect World has made a point of producing its Chinese pictures in-house. But with Universal, you’re putting money into another studio’s films. What else are you looking to get out of it?
Just by participating, we learn a lot. We will have monthly consultations with them. I’m setting up an office in Los Angeles and hiring a team there — and not just finance people to service this deal. I’m hiring people who will have regular conversations with Universal from development to greenlighting to marketing and distribution to how you do things like audience testing. All of this we can apply back here in China.
Besides cash, what value do you bring to Universal?
First of all, none of the U.S. studios is very good at monetizing gaming from their IP. We are. We’re probably better than anyone else in China because we can develop for the China market and the international market. Second, they could have pictures that could do reasonably well in China but that fall outside the three or four revenue-sharing quota slots that Universal gets each year. We’re very happy with Universal distributing those big three or four movies in China. In fact, those movies more or less sell themselves. But what happens if they have a fifth or sixth picture that has strong potential in the China market but their quota is already used up? We can help through the secondary distribution system, the same way we brought in Ender’s Game and Divergent. Say they have a promising film from [specialty division] Focus Features — we can bring that in. The Revenant did quite well here, right? Who’s to say Focus isn’t going to have a similar picture? They don’t have to come to China looking for a partner; we’ll be right there for them.
Beyond Universal, what are your ambitions in Hollywood?
The Universal deal is a passive investment, where we don’t pick the projects. I just came back from the U.S. a few weeks ago where I talked with various entities about our next step. The 2.0 strategy is the following: We’re going to make active investments — working with Hollywood studios, producers and filmmakers — in commercial films for the global market.
Can you give us a sense of the timeline and scale of this plan?
Beginning in the middle of this year. And we will bring more capital to bear than was involved in the Universal agreement.
That’s news. What kind of projects will you be looking to invest in?
First, we will look closely at whether the project has big potential in China. If we think it can do well in China, we believe our involvement and expertise can increase the overall commercial batting average of that project. And the second factor — which is an “or,” not an “and” — is gaming potential. Back in 2007 we tried to have these conversations in Hollywood, and it wasn’t easy — now people are reaching out to us. If you think about it, for the right IP, the global gaming revenue can easily be bigger than the entire theatrical stream. The lifetime of a game is also long. It’s not one month of box office; it’s one year, two years or longer. We have games that are 7 or 8 years old that are still generating significant revenue and profits.
What’s the biggest challenge the Chinese film industry faces, either at home or abroad?
The biggest difficulty comes down to the basic rules of creative work. Creativity takes time. If you look at our industry, the people at the creative foundation — those creating stories — there just aren’t that many of them. In the U.S., each studio has 500 projects under development. But actually even for them, almost 70 percent of the projects that get done by a Sony or a Universal originally came from the outside, whether it’s from someone like Bad Robot Productions, Plan B, Will Smith’s company or a producer like Joe Roth or someone. And then you’ve got agencies that package product. So there is a sufficient creative base in the U.S. All of this comes down to people, and it takes a generation to develop a base of people who are experienced to a level that you can truly call them craftsmen.
In what areas can the knowledge transfer go from the Chinese industry to Hollywood?
We can obviously tell them more about how this market works and how it is evolving — and they’re very interested. One thing I would suggest is that they remain open and have more faith in business models that are unique to here. We have something called an internet novel. It’s a business model that doesn’t even exist in the U.S., and it’s a very big, very successful business. In China, we have many people who have 15 minutes here, 20 minutes there — people on the subway or waiting for the bus. So we have authors who write a short, easy-to-consume chapter of a story each day, which you can read for free on the internet or on your mobile phone. But then on the fifth, sixth or ninth day — once you are hooked — you have to pay 15 cents to get the next chapter. It’s a healthy business on its own, and it also generates a lot of IP that can be adapted and evolved for film, television and gaming.
When you studied engineering, did you envision you would have anything to do with the film business?
I was born in 1970. In China at that time, they wanted us to study science and technology. [But] I adored Chinese literature in school. Going back further: My mom has four sisters, and when I was small, every winter I would go with her to Shanghai for a family visit. The whole extended family would gather around a tiny TV to watch a movie together, and very often I felt I could predict what was going to happen. Pretty soon everyone was telling me to stop spoiling the story, and I think I was quite proud. (Laughs.)
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