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2017-11-21 04:18:12 Commentary

Chinese director Zhang Yimou and American actor Matt Damon flopped with their $150 million film collaboration, “The Great Wall,” earlier this year. The motion picture was supposed to mark the debut of a new Hollywood, one featuring not only American stars, but Chinese luminaries too — a perfect union of American marketing know-how and Chinese financing. But the result didn’t live up to all the hype.

Worryingly, the failure of “The Great Wall” is now becoming a major barrier to future Chinese investment in Hollywood, film industry insiders say. The movie’s Chinese investors are heading up the aisles and out of the movie theaters with nowhere near the 15 percent returns they were promised.

“There’s a return to sanity in investing in Hollywood for Chinese investors,” says Larry Namer, co-founder of American cable channel E! Entertainment Television and president of the Los Angeles-based media property company Metan Global Entertainment Group. “There was an initial rush [between 2015 and 2016], like the waves of previous investment in show business by the Japanese, Russians, and the Arabs. They were throwing money at movies for the glamour, or to get their girlfriend in a movie.”

Funding for “The Great Wall” came from Universal Pictures, as well as an equal three-way split among Chinese-owned Legendary Entertainment, China Film Group, and Le Vision Pictures. The weight of the film’s failure caught up with Legendary in recent weeks, when investors announced that they had sold their stakes in the company that Chinese billionaire Wang Jianlin’s Dalian Wanda Group bought just last year in the largest-ever Chinese acquisition of a Hollywood entertainment company. Two of Wanda’s shareholders, Zhejiang Huace Film & TV and China Oceanwide Holdings Group, have sold their joint 1.56 billion-yuan ($235 million) holdings back to Wanda.

A still frame from the film ‘The Great Wall.’ IC

A still frame from the film ‘The Great Wall.’ IC

As a condition of the original investment, Wanda promised to buy back shares from investors and offer them a 15 percent return if Wanda failed to list on a stock exchange within a year of the deal — a deadline that has now unceremoniously passed. “They thought they could pass off the losses to new shareholders with an IPO,” says Namer, referring to an initial public offering whereby a company sells shares to the general public via institutional investors. “But the [Chinese] government got wise to this. These were some bad investments.”

This spectacular failure may threaten other investment deals, according to industry insiders. To give an example, musician and actor Ice Cube’s film production firm, Cube Vision, notched an investment from financier Kelvin Wu’s AID Partners, a Hong Kong-based media investment firm, earlier this year. As part of the deal, AID Partners became a significant shareholder and strategic advisor to Cube Vision. A press release from the investors at the time stated that AID would fully fund targeted projects in development, while Ice Cube and film executive Jeffrey Kwatinetz would remain Cube Vision’s majority shareholders and retain complete creative control of materials and projects.

Can the firm withstand the increased scrutiny now coming to Chinese deals in Hollywood? Ice Cube has produced several successful films, including “Straight Outta Compton,” a biographical movie depicting the career of gangsta rap group N.W.A., and buddy cop comedy “Ride Along.” But as seen with Zhang and Damon’s zombie apocalypse-style horror film set in China 1,000 years ago, past success is no guarantee of future profits in the volatile film business. “The Great Wall” is testament to the fact that the success of a project relies on the chemistry among directors, actors, and production staff; if this chemistry is not there, the film can easily flop.

Chinese investors haven’t completely given up on show business; they’re just changing their focus.

“Everyone’s a freelancer,” says Dale Pollock, a professor of film at the University of North Carolina School of the Arts and a former film industry journalist for the Los Angeles Times. “There’s no studio system anymore … There’s no guarantee you can get the same people who you worked with on one project on the next one.”

Other big deals are being scuttled, too, even among investors who had nothing to do with the fiasco of “The Great Wall.” Paramount Pictures has not received the first payment anticipated from a billion-dollar financing deal with partners Shanghai Film Group and Huahua Media. Meanwhile, Anhui Xinke New Materials called off a $350 million deal to acquire Voltage Pictures, which produced director Kathryn Bigelow’s Oscar-winning film “The Hurt Locker.”

Chinese investors haven’t completely given up on show business, however; they’re just changing their focus. Wanda is developing a massive $8.2 billion studio complex in the eastern Chinese city of Qingdao, solely to serve the domestic market. The blockbuster war movie “Wolf Warrior 2,” a Chinese production for Chinese audiences, has become the biggest box office success in mainland Chinese history, earning $8.54 billion this year. The film is the Chinese-language nominee for Best Foreign Language Film at next year’s Academy Awards.

“Things are going to have to be more thoughtful going forward,” says Namer. “The films have to have relevance, [and] there has to be more careful vetting. There has to be a cultural connection to be credible. For example, one product placement in an American action movie had the superhero drinking a brand of Chinese milk. This is something bordering on the absurd.”

Yet perhaps these failures have a silver lining. Companies rarely learn from instant successes, but frequently change strategy when they experience failures. For now, Chinese investors are likely to continue eyeing up overseas motion picture projects — except this time, they’ll have more seasoned perspectives.

Editors: Wu Haiyun and Matthew Walsh. 

(Header image: Tourists walk past the Hollywood sign as they visit a shopping complex along Hollywood Boulevard in Hollywood, California, U.S., Aug. 3, 2017. Mike Blake/VCG)