China’s growing love affair with Hollywood is reaching new peaks, with word that major studio Paramount Pictures may be preparing to sell a stake of itself to a Chinese buyer. Such a deal would be the highest profile investment yet in an ever-growing string of Chinese tie-ups with Tinseltown over the last 2 years. In some ways the movement looks strangely similar to Japan’s invasion of Hollywood more than 25 years ago, which saw Universal and Columbia Pictures sold to Japanese buyers.
That parallel may lead some to wonder if this latest Chinese drive into Hollywood could end with similarly disappointing results that saw both studios sputter under Japanese ownership. Prickly US-China relations could also add an element of discomfort to this new budding love affair, since Beijing enjoys a far less friendly relationship with Washington than Tokyo.
China’s interest in Paramount is coming from media reports that say parent Viacom (NYSE: VIAB) is exploring a stake sale in the studio after being approached by several potential investors. (English article) CEO Philippe Dauman disclosed that Viacom has hired an outside adviser to help it evaluate potential deals to sell a minority stake in Paramount, and hopes to reach a final agreement in the next 3-4 months.
Viacom is under pressure to boost its share price, which had tumbled by more than half over the last year before a small rally over the last 2 weeks. Paramount has struggled of late, ranking sixth among the 6 major Hollywood film studios last year. Against that backdrop, it’s not difficult to understand why the company might be looking to China and that nation’s exploding box office as a tonic to cure its woes.
Viacom isn’t giving any specifics on where potential buyers might come from, but one analyst says the most likely source is China or India. He valued Paramount at about $10 billion, meaning a strategic stake sale of around 5-10 percent would cost around $1 billion.
There are certainly plenty of Chinese buyers who could afford such a deal, and I suspect many of those are probably going to set up meetings in a bid to woo Paramount. Such a tie-up would mark the first-ever equity investment in one of the top 6 Hollywood studios by a Chinese buyer. A top prize would be Paramount’s “Transformers” franchise, whose fourth and latest installment broke box office records in China after its release in 2014.
Paramount always held out big hopes for the film in China, and had earlier announced that it would co-produce “Transformers: Age of Extinction” with 2 local partners, the state-owned China Movie Channel and its online movie services partner Jiaflix, which hopes to become the Netflix (Nasdaq: NFLX) of China. It’s possible either of those 2 companies could become Paramount’s new strategic partner, though there are plenty of others that might also be vying for a piece of the studio.
Growing Investment Tide
A growing slate of China’s top Internet moguls and their companies are all investing in US-based movie production, with names connected to e-commerce giant Alibaba (NYSE: BABA), search online leader Baidu (Nasdaq: BIDU) and online video company LeEco (Shenzhen: 300104) all making big investments or seeking opportunities. Others with big interest in the space include real estate billionaire Wang Jianlin, whose Wanda Group owns one of China’s biggest movie theater chains and also US peer AMC Entertainment (NYSE: AMC).
With all of their billions of dollars to invest, this hungry group of Chinese seems almost destined to produce Paramount’s new strategic partner. For its part, Paramount is enviously eyeing a China box office that is growing by leaps and bounds. Ticket sales last year surged nearly 50 percent to 43.9 billion yuan ($6.8 billion), and many predict the country will pass the US to become the world’s largest box office in the next decade.
If I were betting, I would say that Wanda might be the most likely company to buy into Paramount, though Alibaba could also bid aggressively. One other possible candidate is the similarly aggressive Shanghai-based China Media Capital (CMC), which already has major partnerships with DreamWorks Animation (NYSE: DWA) and Warner Bros (NYSE: TWX), and probably wouldn’t mind expanding that slate to also include Paramount.
As to whether these new investments will fare better than the Japanese ones back in the late 1980s and early 1990s, that’s a completely different matter. I do think the Chinese have more to offer to Hollywood than Japan, since China’s box office is larger and Hollywood seems quite interested in producing China-oriented films. But I also suspect that at least a few of these new relationships could sour due to differing philosophies, especially since both sides may have unrealistic expectations for what they can achieve.
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