Mixed Results for Chinese Entertainment Firms Following IPOs

Video site Youku.com shines while Bona Film Group stumbles.

BEIJING – As China’s media sector booms -- striving to keep confident consumers entertained and to satisfy the one-party government’s desire to project a positive image -- investors in Western stock markets have put their money into approved Chinese online video sharing web sites and film and television production companies.

Thus far, the results have been mixed. Following, with the help of a few analysts, The Hollywood Reporter takes a quick look at the performance of the shares of two of the newly New York-listed Chinese media industry leaders,Youku.com and the Bona Film Group.

Leading Chinese video sharing web site Youku reported a narrower loss for the fourth quarter of 2010, less than three months since its initial public offering on the New York Stock Exchange in December was the strongest share debut in the United States in five years.

Shares of China’s online video sharing firms over all advanced an average of 12.9% in February, as the sites, such as Youku and competitors LeTV spent more on licensing hit movies and TV dramas.

Youku and LeTV outperformed the market in the month, rising 40.4% and 23.5%, respectively, but analyst Zhang Xiaofan remains cautious about Youku because of increased competition from the likes of Shanghai-based Tudou.com, which is planning an IPO in coming months, and PPTV, which took aboard $250 million in investment from Japan’s Softbank.

“Youku is the front-runner for now, but none of these major companies has established a dominant advantage in content offerings,” said Zhang, a highly-rated contributor to the stock picker’s website Seeking Alpha. “Users' loyalty is low at the current stage, and Youku could easily lose its traffic leadership if it falls behind competitors in content acquisition.”

Bona Film Group
In its first earnings report since a lackluster Nasdaq listing, China’s largest non-state film distributor posted a 22.2% loss in net revenues in the quarter ended December 31, and despite higher full-year revenues, a loss for all of 2010, too.

The Beijing-based company partly blamed the quarterly loss on the disappointing performance of the What Women Want remake starring Gong Li and Andy Lau. It blamed a full-year loss partly on investments it is making in growth in its multiplex cinema business.

China’s total box office take, including from Hollywood imports, rose 64% in 2010 to $1.5 billion, boosted by a steady rise in ticket prices. Bona commanded a healthy 15% share of that market.

Looking ahead, Bona CEO Yu Dong said in an earnings statement that Bona sees “exciting opportunities in 2011,” including more films to produce and distribute, including -- if it isn’t delayed much further -- Wong Kar Wai’s The Grandmasters, starring Zhang Ziyi (Memoirs of a Geisha), which has already been pushed back to Q4.

Also up in the air for Bona is another Zhang project, the planned English-language international co-production of Mulan, the story of China’s most famous woman warrior, which appears to have been temporarily disbanded despite signing Hollywood director Jan de Bont.

Since its Dec. 9 Nasdaq IPO at $8.50 each, Bona’s shares have traded in thin volume between $5.18 and $7.44.

Piper Jaffray analyst James Marsh, visiting Beijing from New York, said that while investors are always unhappy when a stock “breaks” its listing price, “what matters is where it’s trading today.”

“We see an upside for Bona from today’s price and the IPO price based on the company’s position in the growing filmed entertainment market in China. It’s just going to take some time to rebuild investor confidence.”

Piper Jaffray was a secondary underwriter of Bona’s listing and Marsh said that the two lead investors in Bona’s stock today are T. Rowe Price investment management firm and New York-based hedge fund Tremblant Capital.