Paramount China Financier Sold to Manufacturing Company, Renewing Doubts About Slate Deal

Paramount Pictures Exterior - H - 2016
Charley Gallay/Getty Images

After pledging to invest over $500 million in Paramount's slate over the next three years, Huahua was sold for just $41.2 million earlier this week.

Chinese film company Huahua Media, which had pledged to invest hundreds of millions via a slate financing deal with Viacom's Paramount Pictures, has sold a majority stake to another Chinese firm for just $41.2 million. 

The sale could renew doubts about whether Paramount will ever see the full $1 billion in Chinese financing it was promised in a splashy announcement earlier this year.

Oriental Times Media Company, based in the southern Chinese city of Guilin, reported in a regulatory filing on Tuesday that it has agreed to pay the $41.2 million in cash for a 51 percent stake in Huahua.

A source close to the situation told The Hollywood Reporter that the slate deal with Paramount will "remain on, until it isn't," adding that the acquirer could decide to step back from the agreement.

Under the terms of the original pact, which was unveiled in January, Shanghai Film Group and Huahua agreed to co-finance at least 25 percent of each film on Paramount's slate for three years with an option for a fourth year. Altogether, the commitment was valued at around $1 billion.

The agreement was later believed to be in jeopardy, however, because of increased scrutiny from Beijing regulators and a recent leadership shake-up at Paramount that brought in Jim Gianopulos as chairman and CEO to take over from Brad Grey. But Viacom CEO Bob Bakish and CFO Wade Davis emphasized on a recent earnings call that the deal was going ahead, saying that the Chinese partners had actually opted to upsize their commitment from 25 percent to 30 percent on each film.

It's understood that Huahua was instrumental in bringing Shanghai Film Group to the table in January, but it's not clear whether Shanghai Film Group should be expected to follow suit should Oriental Times decide to drop out. Calls to Shanghai Film Group on Friday were not returned.

"Whether [Oriental Times Media] goes forward with the Paramount deal will depend on whether it continues to make good business sense," said a second source. "They are a publicly listed company and will be under more investor and regulator scrutiny than Huahua was."

A Viacom spokesperson said that there is no option for either party to withdraw from the agreement early, however. 

Paramount's recent output would seem to cast a cloud over such considerations. The studio's three major releases since January — Ghost in the Shell, Baywatch and Transformers: The Last Knight — were all box-office underperformers.

Transformers 5 could be of particular concern. The movie has earned $220 million in China, nearly double its weaker North American haul. But that's still much less than the $330 million that Transformers 4 earned in China in 2014. Globally, the picture is even grimmer, with the tentpole on track to finish at around half of its predecessor's $1.1 billion tally.

An Oriental Times statement to the Shenzhen stock exchange also revealed some new financial details about Huahua. The company's net profit in 2016 was $5.9 million on revenue of $19.5 million (performance data for 2015 and prior years was not presented). How the relatively small company planned to finance more than half a billion of Paramount's slate over a period of three years was never publicly explained.

Oriental Times Media Company has itself followed a curious path to the international entertainment sector. The company is primarily engaged in the manufacturing and sale of precision instruments and machine tool products. It was previously known as Guilin Guanglu Measuring Instrument Co. until a name change in 2015. Around that time — a period when the Chinese box office was red-hot — it began embarking on a dramatic diversification into the film and TV sector.

Although China's box office has since cooled — along with investor enthusiasm for the sector (Oriental Times shares have plunged some 19 percent since it resumed trading on Wednesday, following the acquisition) — the company has continued deepening its holdings in the film sector. 

In tandem with the Huahua acquisition on Tuesday, Oriental Times announced that it would pay $38.9 million (264 million RMB) for a 40 percent stake in Beijing-based film and TV production company Yuanchu Media Co.

In mid-2016, Oriental Times acquired Shuimu Animation, a Shanghai-based animation company that is co-developing a large-scale virtual reality theme park in China's Guizhou Provence. The project is backed by the provincial government, with a total budget of 10 billion RMB ($1.5 billion). The park's launch was scheduled for last October, but has been delayed.