Cash-Rich Asian Companies Are Looking To Pour Money Into Hollywood

The trend began in 2012 with Wanda Group's purchase of theater chain AMC and has heated up in recent months as Softbank and Alibaba look to put their billions of dollars in IPO money to work.

"We worry about people with deep pockets but shallow minds, so movies are the best way to change Chinese young people's behavior," said Jack Ma, the chief executive of China's e-commerce powerhouse Alibaba Group, which in September raised $25 billion in the largest initial public offering ever.

"I want to come here looking for partners," Ma added in an interview yesterday at the Wall Street Journal's WSJDLive conference, referring to Hollywood, where sources said his team is taking meetings with the major film studios with the aim of striking some deals.

Separately, about 2,000 miles away in Knoxville, Tennessee, the largest movie theater chain in the U.S., Regal Entertainment Group, surprised investors by announcing that it would pursue "strategic alternatives." In the parlance of Wall Street, that means it is for sale.

The last major U.S. cinema chain put up for sale, AMC Entertainment, was sold to China's Dalian Wanda Group for $2.6 billion in 2012.

Taken together, Ma's comments and the Regal move underscore a trend that began with the Wanda deal in 2012: Cash-rich Asian companies are looking to invest in Hollywood. Their interest is born from a confluence of factors — ranging from the growth of both the middle class and the movie industry in Asia, specifically China; the continued decline of box office attendance in the U.S.; and the collapsing of release windows and the shift to mobile and on-demand viewing, among others.

China currently ranks as the world's second-largest movie market behind the U.S. But while American box office attendance is declining, China is experiencing rapid growth, with screens and revenue expected to approach if not surpass the U.S. in the next decade.

In September, Guo Guangchang, the billionaire chairman of China's Fosun Group, agreed to invest what reports claim is in excess of $100 million in former Warner Bros executive Jeff Robinov's new production house Studio 8. A month later, Japan's Softbank, which owns about one-third of Alibaba and raised about $4.6 billion in that company's IPO, struck a deal to invest $250 million in Legendary Pictures, which has helped finance or produce such films as Godzilla, 300, and the Dark Knight franchise. Prior to its Legendary deal, Softbank was rumored to be close to buying Dreamworks Animation for $3.4 billion. Other, earlier deals have also been struck between Asian companies and studios like Disney, Fox, and The Weinstein Company, among others.

"We expect these companies to be selectively active, with more interest on the content side," said James March, an entertainment analyst with Piper Jaffray & Co. who covers Regal, of the potential for more Asian companies to invest in Hollywood. Marsh said he expects to see more joint ventures, co-financing and co-distribution deals rather than outright acquisitions.

Another Hollywood executive who requested anonymity put it more bluntly, saying, "They all will eventually be in Hollywood. The pendulum is swinging hard back to content and there's only one place in the world to get the best of it."

For Asian tech companies like Softbank and Alibaba, the interest in Hollywood is about access to content for their platforms — Softbank owns 70% of Sprint and wants to stream video as well as music to its smartphone customers; Ma called Alibaba the "biggest entertainment company in the world" because people spend so much time on his e-commerce site even when they aren't shopping. As a result, the company is focused on getting as much product as possible onto its sites and improving the customer experience, with movies and video seen as a key to those efforts.

Ma in June established Alibaba Pictures by acquiring majority control of ChinaVision Media Group for $804 million. Last week, the New York Post reported that he was interested in buying the 37% stake in Lionsgate held by its chairman for $1.6 billion. If those two deals sound like a lot of money, consider that Alibaba's stock price is a shade under $100 per share and it is now worth roughly $243.3 billion.

"We invest a lot in the states, we are going to invest more," Ma said during his WSJDLive keynote interview Monday.

As for Regal, consensus opinion among sources BuzzFeed News spoke to for this piece is that the cinema chain, whose 574 theaters and more than 7,000 screens rank it as the world's largest exhibitor, is looking to leverage both the high interest among cash-rich foreign companies and the strong box office projections for the next two years to sell at the top of the market.

While cinemas operators are part of the Hollywood ecosystem, they aren't core members of the club like the big studios. They operate as an important link in the chain that runs from filmmaking talent to popcorn-munching viewers, but not the central one. For China's Wanda, getting into the cinema business has more appeal, as it's already a major film distributor at home.

"We are not sure any other U.S. publicly traded exhibitor is willing or able to do a deal, at least without having to sell-off some of the overlapping theaters," wrote MoffettNathanson analyst Robert Fishman in a report Tuesday. "Our next choice would be either an international theater chain or international fund looking to increase its U.S. investment exposure."

As the second-largest movie theater chain in the U.S., AMC likely would face regulatory issues in acquiring Regal on its own, particularly because they compete head-to-head in many markets. But Fishman and other analysts speculated that AMC and Carmike Cinemas, another publicly-traded chain, could team up and split Regal's theaters between the two of them, thus giving China's Wanda more screens in the U.S.

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