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Huahua, Shanghai Film Co Deal With Paramount Expands China-Hollywood Axis

Variety logo Variety 1/20/2017 Patrick Frater
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The names of China’s Huahua Media and Shanghai Film Co. are set to become far more visible to film-goers worldwide. Their names and logos will be seen on substantially all of the movies flowing from Paramount Pictures – underlining the growing prominence and permanence of the Chinese position in Hollywood.

After several years of testing each other out the China-Hollywood relationship, Chinese companies began seeking ownership positions in indie studios (STX and Studio 8) and equity stakes in individual movies. Increasingly now they are becoming slate financiers.

That is exactly the progression at Huahua and SFC. Until recently Huahua had been content to invest on a case by case basis in the Hollywood films that it calculated to be the likeliest blockbusters in China. Partially state-owned, Shanghai Film Co. has been allied with Disney on a handful of pictures.

So the $1 billion pact announced this week by Paramount, Huahua and SFC is a big step up for both parts of the Chinese pair. Huahua chairman, Wang Kefei told Variety that Huahua and SFG will invest equal amounts across the Paramount slate for the next three years.

“Our strategy from the outset was always to be involved with the best story-telling from around the world. And we began with ‘Transformers 4’ in which we were both marketing partners and investors. And from there we have continued to build up to this position,” said Wang. (“Transformers: Age of Extinction” topped the charts that year with a massive $320 million.)

“Now what we have is a blind selection, investment across all of the movies that come from the studio,” he said. “There remain restrictions on the films that can be imported in to China, but we will be investing in all the titles, including those that do not come here, but which do get global release.”

Wang said that details of the commitments to the individual movies will be negotiated on a case by case basis, and may vary. But details will remain confidential. That is expected to mean that on some pictures the Huahua-SFG pair only take equity positions, in others they may additionally commit as marketing partners. Paramount had previously announced that Huahua was its exclusive China partner on the upcoming “Terminator 5.” Huahua may use that position to bring in other Chinese firms as junior partners.

Huahua started out as a marketing specialist, but since 2014 has rapidly scaled up to become a major investor, vying for position with Wanda, Alibaba, Tencent and others. Wang say he was brought to the table by Kenneth Huang, who is both a board director at SFC and a partner at VoD firm Jiaflix.

Significantly, Wang says says that the Paramount deal does not preclude Huahua from investing in the movies of other studios as well.

SFC, on the other hand, is one of China’s more venerable state-owned enterprises and had long operated as producer and distributor under the umbrella of its Shanghai Media Group parent company, which has interests spanning TV, digital media, publishing and property. Its movie credits include Wong Kar-wai’s “2046,” Ang Lee’s “Lust, Caution and Feng Xiaogang’s “Assembly.” Its Hollywood co-production credits include 2008’s “The Mummy: Tomb of the Dragon Emperor” and last year’s Paramount title “Jack Reacher: Never Go Back.”

SFC, which is headed by Ren Zhonglun, finally gained its spurs with an IPO last year that raised $136 million of fresh capital, and then saw its share price soar from an initial RMB10.19 to the current RMB34.16. At that price it has a market capitalization of $1.86 billion (RMB12.8 billion.)

The Paramount deal is by far SFC’s largest move since flotation. And on a scale comparing the deal with other Chinese slate financing agreements in Hollywood, it is a large play. A year ago Chinese games-to-film company Perfect World unveiled a revolving $500 million investment in Universal’s slate. In November 2015 Bona Film Group, through The Seelig Group, agreed to channel $235 million into a series of 21st Century Fox tentpoles.

The timing is interesting too in that Chinese monetary authorities are currently busy cracking down on the overseas investments of state-owned groups, in order to partially stem the capital flight from China that was sparked by the 2016 weakening of the Chinese currency relative to the US dollar. Film investment is clearly part of SFC’s core business activities, so it is not expected to attract official opprobrium.

“Of course box office is an important part of how we define the success of this relationship,” said Wang. “But more important is the the learning process and the strength of the partnership we are building between East and West.”

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