China's Huayi Brothers Reports $565 Million Loss for 2019, Removes CEO Jerry Ye

Courtesy of Huayi Brothers
Jerry Ye

The studio said it plans to raise up to $325 million in a private share placement to repay debt and boost working capital. James Wang, the younger of the founding brothers, is taking control of film output.

Chinese film studio Huayi Brothers Media reported a whopping loss of $565 million (RMB 4 billion) for 2019, down considerably from a $155 million loss recorded in 2018.

The company, founded in 1994 by brothers Wang Zhongjun and Wang Zhonglei, chairman and vice chairman, respectively, is one of China's oldest and most influential private film studios. It also boasts a range of ties to Hollywood, including a past slate financing deal at STX Entertainment, a major investment stake in the Russo brothers' startup studio AGBO and plans to co-finance Roland Emmerich's upcoming sci-fi film Moonfall

But Huayi also has been among the hardest hit by the Beijing movie industry's many upheavals of the past few years. 

Some of the studio's troubles began with the Fan Bingbing tax evasion scandal of 2018, which was publicly linked to Huayi's comedy tentpole Cell Phone 2, directed by veteran hitmaker Feng Xiaogang. Fan paid an enormous fine and eventually reemerged in the public eye, while Huayi took its own emergency efforts to shore up its financial and political position. But the movie, tainted by scandal, had to be shelved — along with its latent potential to earn tens, if not hundreds, of millions at China's box office. 

Huayi suffered yet another major setback last summer when its much-anticipated World War II action film The Eight Hundred was ordered pulled from release by regulators over obscure Communist Party political sensitivities. The film, made for more than $80 million and originally positioned as Huayi's 2019 summer tentpole, was forced to undertake recuts. It remains unreleased.  

And then came the coronavirus … Chinese cinemas and live entertainment venues have been closed since late January. Authorities have yet to release a roadmap for a resumption of regular business. Huayi also owns and operates four theme park projects in China. Pursuing a Dinsey-like model, the company's parks feature themed attractions designed around its film IP; but, Disney-like, the studio is now taking a sizable hit as its parks sit idle amid the coronavirus shutdowns. 

Huayi Brothers reported Wednesday that net losses had widened to $20 million (RMB 143.4 million) in the first quarter of 2020, up from $13.2 million (RMB 93.9 million) over the same period in 2019.

The company's year-end results also revealed a raft of measures intended to stem the bleeding and get the studio back on more stable footing.

Industry veteran Jerry Ye, CEO of Huayi's film division, has been pushed out of the company. Younger brother Wang Zhonglei, one of the Chinese industry's most connected producers, will retake control of Huayi's filmed entertainment output.

Ye began his career at Dalian Wanda Group as a right-hand man of the conglomerate's chairman Wang Jianlin. Ye was instrumental in the rollout and expansion of Wanda's vast movie theater circuit throughout the early 2000s. In 2016, he broke from Wanda and joined Huayi Brothers, a rival, causing a rift between the two film powers. At Huayi, Ye would become more involved in the business of film development and hands-on producing.

Over the past year, however, there have been persistent murmurings throughout the Beijing industry suggesting that the Wang brothers were losing patience with their film division chief, as newer studio entrants such as Huanxi Media and Beijing Culture pulled ahead at the annual box office — often by cementing relationships with the sorts of emerging and established filmmakers that Huayi traditionally would have corralled. 

On the financing front, Huayi said Wednesday that it plans to raise up to $325 million in a private share placement to repay debts and replenish working capital. The shares are being offered to a select list of corporate investors, with Huayi emphasizing the strategic benefits of the partnerships aside from just the capital injection. Among the parties expected to buy shares are internet giant Tencent, Jack Ma's Alibaba Pictures and retailing company Yuyuan Tourist Mart, a subsidiary of the conglomerate Fosun Group.

"Huayi Brothers will not only get the capital assistance that is essential for overcoming development obstacles," the firm said in a statement released Wednesday over social media, "but more importantly, such a lineup of shareholders will build an integrated [roster of partners among] the heads of various industries."