Will China Buy a Hollywood Studio? (Analysis)

China Hollywood Studio - P 2013

China Hollywood Studio - P 2013

With the cash-rich country on a spending spree (AMC Theatres, Grauman's naming rights, product placement in "Iron Man 3"), there could be a Tinseltown takeover in the works.

This story first appeared in the Feb. 1 issue of The Hollywood Reporter magazine.

Why is Chinese TV manufacturer TCL suddenly so interested in Hollywood? The Huizhou-based company has made headlines with two recent forays into the U.S. entertainment business. First came a $5 million naming rights pact with Grauman's Chinese Theatre on Jan. 11 that will transform the Hollywood landmark into the TCL Chinese Theatre for the next decade.

Less than a week later, the company -- the fourth-largest LCD television manufacturer in the world -- announced a product-placement deal with Disney/Marvel's Iron Man 3 that will see the company's devices prominently featured in the newest outing of the blockbuster franchise.

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TCL is the latest in a string of Chinese companies investing in U.S. film-related businesses during the past year. In September, billionaire Wang Jianlin's Dalian Wanda Group paid $2.6 billion for the AMC cinema chain. Later that month, Beijing's Galloping Horse launched a $30.2 million takeover (in a 70-30 deal with India's Reliance MediaWorks) of visual effects house Digital Domain.

All of this Hollywood investment raises the question: Is China positioning itself to buy a major studio? Here are three reasons why it will (and one why it won't):

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1. Thanks to Japan, They Know What Not to Do

Thomas Plate, an expert in Asian and Pacific Studies at Loyola Marymount University and founder of the Beverly Hills-based Pacific Perspectives Media Center, says Chinese suitors would be well served by noting precedents from the late '80s and early '90s, when Sony and Matsushita bought Columbia and MCA, respectively.

"The Chinese need to understand there are a lot of potential problems inside the corporations that we can't see. That's what happened with the Japanese," says Plate, referring to how lavish spending generated huge losses for Sony (the company famously hired producers Peter Guber and Jon Peters to run the studio after buying them out of Warner Bros. for a reported $500 million).

But China's expansion into Hollywood is, in many respects, the opposite of Japan's. Sony and Matsushita ran Columbia and MCA according to their own business ethos and, in the case of Sony, hoped to generate content for its own products. What China needs from Hollywood is more than a return on investment; it needs expertise. By partnering with Hollywood, the Chinese film sector -- which saw box office jump from $144.2 million in 2002 to $2.69 billion last year, with the number of screens going from 1,400 to about 12,000 in the same period -- can continue its rapid expansion while avoiding growing pains. "We want to be a global film exhibitor, and to develop this infrastructure on our own would take a long time," Wang told THR in June. "Through the [AMC deal], we can achieve this very quickly."

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2. Money Is Not an Issue

Kady Yang, an analyst at Beijing-based entertainment consultants EntGroup, says there are several suitors with enough capital to make such a purchase. After all, China has invested in everything from ailing Latin American petroleum companies to vast expanses of land in Iceland. A buyer could emerge from any of China's cash-rich industries -- and not just the film sector.

"The rapid growth of the film industry has attracted a lot of capital from beyond the industry itself," says Yang. "The non-film-and-television-producing corporations might be a force to be reckoned with where these overseas acquisitions are concerned."

3. Hollywood Offers Prestige

As Chinese conglomerates acknowledge their inexperience in running multinational corporations, the takeover of a Hollywood studio instantly would grant China enormous cachet -- and even more power -- on the global film scene. The purchase of Hollywood assets is "an enhancement of a company's brand," says Yang. "If Wanda can properly handle the adjustments in AMC's corporate management and ensure a smooth transition, it will improve Wanda's bargaining power abroad."

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So why won't China acquire a Hollywood studio anytime soon?

It doesn't have to.

According to Zhang Zhao, CEO of Chinese production-distribution company Le Vision Pictures, the rise of China's film market has put off the need to acquire such a major asset. After all, this is a time when Hollywood blockbusters generate more box-office revenue in China than in the U.S.

Additionally, Chinese investors seeking inroads into Hollywood now easily can do so through co-productions. Zhang himself was an investor on The Expendables 2, which made $53 million in China.

Says Zhang: "At the moment, the Chinese market is still huge. My thinking is that Chinese companies should focus on their own market, provide support to producers and serve the Chinese audience."

Alex Ben Block contributed to this report.


4 Chinese Investments in Hollywood


Orange Sky Golden Harvest takes stake in Legendary
Hong Kong production shingle Orange Sky paid $25 million for a 3.3 percent stake in Legendary Pictures. The deal later was restructured and is on hold as Legendary raises capital.


Galloping Horse and Reliance buy Digital Domain
Beijing's Galloping Horse partnered with India's Reliance MediaWorks to purchase Digital Domain, the effects studio co-founded by James Cameron in 1993, for $30.2 million.


Dalian Wanda buys AMC
Wanda chairman Wang Jianlin said the acquisition of the cinema chain is only a "first step" in his company's global ambitions and that he plans to invest $10 billion in U.S. companies in the next decade.


TCL buys Grauman's rights
TCL, the world's fourth-largest LCD television maker, announced that it will pay more than $5 million for a decade of naming rights to the historic Grauman's Chinese Theatre in Hollywood.