China's investment in silver screen

Even coal mine owners are looking for a slice of the movie industry pie

BEIJING - The movie tells a story about 13 women living alongside Qinhuai river in Nanjing who extricated their fellow countrymen from Japanese troops during World War II.

But The 13 Women of Nanjing, Chinese arts guru Zhang Yimou's new work, is not a purely Chinese creation. The dialogue is in English, the star is a Hollywood celebrity and the technical know-how with which it is made comes from the US film industry.

Zhang, China's most famous movie director, will name the movie's starring actor in December. It's hoped the move will guarantee its entry into the US film market.

Bringing in Hollywood actors is not the only way forward for Chinese film companies who want to explore oversea markets. Chinese firms are now speeding up their internationalization and strengthening ties with their peers across the Pacific through direct investment in Hollywood, as the dream factory has seen financing from its home market drying up in recent years.

New Pictures Film Co Ltd, the film-producing and distributing company, specializes in investing in the production of Zhang's movies, including The 13 Women of Nanjing. It has been reported by Chinese media that it may now buy stakes in Metro-Goldwyn-Mayer Inc (MGM) after the Hollywood film studio giant filed for bankruptcy in early November because of its inability to repay its $4 billion of debt.

State-owned China Films Group Corporation contributed $5 million early this year to help finance the remaking of the film The Karate Kid, starring Jackie Chan and Jaden Smith, Hollywood movie star Will Smith's son.

Mostly made in Beijing and produced by China Films and Sony's Columbia Pictures Industries Inc, the movie took receipts of more than $356 million worldwide and China Films was given distribution rights for the movie in China and some other Asian countries in return for its investment.

"A good combination between Chinese and Western modes can be an incentive to the development of the Chinese movie industry and will also give Chinese movies an international status," China Films said.

On Sept 26, Orange Sky Golden Harvest Entertainment, a Hong Kong-based film company, paid $25 million for a 3.3 percent stake in Legendary Pictures, one of the largest film studios in the US.

Shanghai Film Group Corporation (SFGC) also plans to acquire some cinemas in the east of the US, going abroad and choosing the biggest film market in the world as its first overseas development.

"I have begun to negotiate with some companies in the east of the US about the acquisition of their cinemas," Ren Zhonglun told 21st Century Business Herald, adding that acquiring cinemas in the international market provides business opportunities for Chinese film companies who plan to develop abroad.

China is now offering huge potential as a funding source for Hollywood, always a dream factory for movie fans across the world and powered by US moguls.

"Chinese investors are very sophisticated and have been contemplating the kinds of investments they want to make," Bloomberg cited Charles Paul, a longtime Hollywood executive and an adviser to investment bank Centerview Partners, as saying.

"Their activity may pick up as Chinese officials become more comfortable with the ways of Hollywood and the Chinese government hopes to gain the technical and creative know-how to build its film industry through investment," Paul added.

The Poly Bona Film Group, China's biggest private movie distributor-turned-movie studio, has filed for a Nasdaq initial public offering seeking to raise $80 million through the sale of its shares to US investors, papers filed in New York show.

"We will witness better development if we strengthen the cooperation with foreign film studios at a time when the Chinese film industry is growing at a staggering rate," said Yu Dong, president of Poly Bona.

Chinese investors in the film industry are expecting a good return from their partnership with foreign film studios because China will further open its entertainment market next year, according to World Trade Organization regulations.

In March 2011, the rule that limits the number of foreign films that can be shown in the domestic market every year to just 20 will be lifted.

Zhao Rui, vice-president of Jackie Chan Cinema, jointly owned by the film star and Beijing Sparkle Roll International Cinemas Management Co, said: "If the Chinese film market can be more open, we will definitely take advantage of Jackie's network in Hollywood to expand our business in foreign markets."

However, industry experts believe Chinese film companies should develop themselves more before offering huge capital just for a Hollywood ticket.

"At present, most Chinese companies are not strong enough to meet market demand from Hollywood, where US film studios have their own operating rules including capital operation, profit models, the film production and industry chain, all of which are different from those in the Chinese market," said Gao Jun, vice-general manager of New Film Association, one of China's largest film distributors.

After news about MGM's bankruptcy emerged, not only New Pictures Company, but also State-owned China Films and Huayi Brothers Media Corporation, were said to have bought a stake in the film studio as part of their efforts to enter the international film market.

China Films is the largest film enterprise with a complete industry chain in the country and Huayi is the first listed film company in China.

"None of these film companies is capable of acquiring all of MGM, because even the gross output value of China's film industry is not enough to pay the Hollywood studio's total debt," Gao, of New Film Association, said.

According to the China Film Producers Association (CFPA), takings hit 8 billion yuan for the first nine months of this year and are set to reach more than 10 billion yuan for the whole year, a 60 percent increase compared with 2009.

However, MGM's debt is $4 billion, nearly three times the expected box-office receipts of the emerging film market for the whole year.

In the next three to four years the number of screens in China will increase to 13,000 from 8,000. The US has about 39,000 screens

China is also IMAX's fastest-growing market with 23 of the high-tech cinemas opened to date. Giant-screen movie technology company IMAX Corp has plans for more than 50 IMAX theaters by 2012 in China.

In mid-June, IMAX and Wanda Cinema Line Corporation, one of the fastest growing cinema chains in China, announced plans to add three additional IMAX systems, in the cities of Quanzhou, Wuhan and Dalian.

Wanda Movie Theater also plans to build more than 70 cinemas by the end of this year and make the total more than 120 by 2012, aiming to generate revenue of 3 billion yuan.

"Apart from industry insiders, investors without industry background and professional knowledge have also streamed into film investment, creating haphazard competition within the industry," said Liu Debin, general manager of Poly Film Investment Co Ltd, the cinema branch of Poly Bona.

According to Liu, investors from the coal industry in China are increasingly rushing to the film industry, in both domestic and foreign markets, in an attempt to get a cut of the profits brought by the fast growth of the industry.

CFPA predicted that Chinese receipts will reach 40 billion yuan by 2015, making the country second only to the United States.

Foreign blockbusters are believed to be a catalyst for China's fast-growing box office receipts. James Cameron's Avatar accounted for 18 percent of China's total box office revenue for the first nine months of this year, according to the State Administration of Radio, Film and Television.

"To be powerful in the international market, Chinese people should also make more of an investment in creating a storyline tailored to the tastes of global audiences instead of just the Chinese," said Zhang Jiarui, director of Distant Thunder, one of the most popular films at the Hong Kong International Film Festival.

"Our main focus is to improve the production and distribution of Chinese movies," Jiang Defu, a spokesman for China Film, said, after being asked about the acquisition of MGM.

"The Chinese want to be market leaders in producing film," Doug Belgrad, president of Columbia Pictures, told Bloomberg News.

"The Chinese are using their financial relationships to get teaching moments whenever they can. The Columbia crew, for instance, showed the local Chinese production team how to more quickly upload film from daily shoots to be viewed online," Bloomberg cited Belgrad as saying.