China Gallops Off With US Digital Effects Star 小马奔腾收购数字领域

The growing China-Hollywood love affair has taken an interesting and new twist with the purchase of a major bankrupt US digital effects studio by a partnership between a Chinese production house and one of India’s leading communications groups. Adding further intrigue to the picture are the bankrupt US venture’s links to blockbuster director James Cameron, who seems to have taken his own a sudden interest in the China market. If all of this sounds like something from a Hollywood movie, then perhaps it’s because so many US entertainment executives are getting overly excited about the huge potential of the Chinese movie and TV markets, which appear to finally be opening after years of being largely closed to foreign investment. My main advice to all the excited parties, both in China and the US, would be to temper their big expectations with some realism, as it’s quite possible that either Beijing or Washington could quickly become worried about this rapidly evolving love affair and take steps to cool things off.

But before I pour too much cold water on this fast-developing Sino-Hollywood relationship, let’s take a look at the new tie-up, the latest in a string of trans-Pacific pairings which have been announced on steady basis since the beginning of this year. The latest deal has seen Beijing-based production house Galloping Horse Film pair with a unit of India’s massive Reliance Group to successfully bid for most of the assets of Digital Domain, the Los Angeles-based digital effects house co-founded by James Cameron. (company announcement)

Founded in 1993, Digital Domain’s resume is indeed impressive, with its work featured in Cameron’s own “Titanic”, as well as movies from the hugely successful “Transformers” and “Pirates of the Caribbean” franchises. But the company also took on massive debt to maintain its high-tech capabilities, forcing it to declare bankruptcy earlier this month. (English article)

This sale will see Galloping Horse and Reliance MediaWorks purchase Digital Domain’s visual effects and its Mothership Media units for just over $30 million, as the assets were auctioned off in bankruptcy court. The deal mirrors a previous tendency by Chinese firms to buy struggling global assets in their global M&A, a strategy that often ends in disappointment due to problems at the acquired assets. But at least this time, Galloping Horse should have better chances of success since it won’t have to inherit most of Digital Domain’s big debt burden.

Galloping Horse’s relationship with Digital Domain actually dates back to April this year, when the 2 sides announced a tie-up to co-develop a 3D visual effects facility in Beijing. (previous post) Digital Domain co-founder Cameron then made China headlines just last month when he announced the formation of a joint venture in the nearby city of Tianjin. Unlike the growing number of Hollywood companies that have flocked to China this year, however, Cameron’s venture said it wouldn’t make movies but instead would focus on supplying technology to Chinese filmmakers to help them make more 3D moves. (previous post) Digital Domain then declared bankruptcy early this month, and now we have this deal with Galloping Horse.

Perhaps my imagination is being a bit active, but this series of events seems a bit too related to be coincidental, and I wouldn’t be surprised if we see some more announcements coming from this growing tie-up between Cameron and China before the end of the year. Cameron’s interest is clearly being driven by the huge potential of the Chinese film market, which is now the world’s second largest behind only the US. But that brings me to my bigger observation that this growing Hollywood fascination with China could soon alarm some in Washington and Beijing who would worry that things are moving too quickly.

The list of companies announcing new China tie-ups this year includes nearly all of the major Hollywood studios and record labels, who have signed a non-stop series of licensing and joint venture agreements. China has also taken some steps into the US market, most notably with the purchase earlier this year of of AMC Entertainment, the second largest US movie theater operator, by Wanda Group, a top Chinese real estate company.

Obviously this new trans-Pacific romance is still very much a developing story, and it’s quite possible the final ending could be a happy one as Hollywood and China discover they can live in marital bliss. But if I were betting, I would say this relationship is set to see quite a few growing pains over the next 2-3 years, as the 2 sides get to know each other and possibly have to deal with interference from overbearing parental forces in Beijing and Washington.

Bottom line: A new Sino-Hollywood tie-up is part of James Cameron’s fascination with China, in a growing love affair that could soon attract meddling from Beijing and Washington.

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