Dalian Wanda Group's $3.5 billion acquisition of US film studio Legendary Entertainment Group has cemented its ambition to become an end-to-end Chinese entertainment company.
It is the fourth-largest Chinese purchase of a US company to date, according to data provider Dealogic, and sees the private conglomerate add the producers of such hits as Jurassic World, Godzilla, and Pacific Rim to its growing film stable.
The deal also overtakes Dalian Wanda’s 2012 purchase of AMC Entertainment for $2.64 billion as China's biggest-ever film industry acquisition, Dealogic states, as the Beijing-headquartered company continues to diversify away from its historic property business.
Taken together with its purchase of Australian cinema chain Hoyts Group for $366 million in June and the 225 Chinese cinemas it operated across 110 cities last year, according to its website, it shows Dalian Wanda's determination to build a fully integrated global film empire.
“Wanda has always had an ambition to expand their movie production business. They currently own Wanda Pictures which is one of the leading domestic movie producers in China,” Richard Huang, an analyst covering gaming, lodging and leisure research in China for Nomura, told FinanceAsia. “The acquisition of Legendary will allow them to have an overseas movie studio focusing on English-language movies.”
The purchase could also presage the spinning off of Dalian Wanda’s entertainment assets.
Wang Jianlin, owner of Dalian Wanda and China’s richest tycoon, said in a November interview with Chinese financial magazine Caixin Weekly that the group plans to list its film production and distribution operations by the end of 2016.
Growth potential
Dalian Wanda officials did not respond by press time to FinanceAsia's requests for comment on its acquisition of Legendary. But what seems apparent from its investments is that it is keen to add international reach and quality to its existing film-making and distribution capabilities in China’s burgeoning film market.
In a press release announcing the acquisition, Wang said: “The acquisition of Legendary will make Wanda Film Holdings the highest revenue-generating film company in the world, increasing Wanda’s presence in China and the US, the world’s two largest markets.”
China’s film sector is the world’s second-largest by box-office income and is still growing fast. Data from the State Administration of Press, Publication, Radio, Film and Television shows that sales reached a record Rmb44 billion ($6.7 billion) last year, 49% higher than in 2014, mainly thanks to the success of domestic films.
Hollywood and other international films accounted for 38% of the Chinese box-office income in 2015, a 46% drop from one year earlier.
Analysts at Nomura estimate that China will overtake North America as the world’s largest film market in 2017, with sales expected to reach Rmb100 billion in 2020.
However, Dalian Wanda’s acquisition of Legendary represents a slight gamble.
The studio, which focuses on action and fantasy movies, has had some stellar successes. It reportedly funded around 20% of Jurassic World, which made $1.67 billion at the global box office, according to Box Office Mojo.
Legendary’s chairman, chief executive, and monster-movie fan Thomas Tull, who will remain in his roles at Legendary post-acquisition, helped to oversee the modern Batman and Superman movies when his company worked with long-time production and distribution partner Warner Bros.
But Legendary’s relationship with the studio dissolved in 2013. And it has had some flops since then, notably writing off $90 million on cyber-thriller movie Blackhat in early 2015, according to Variety.com, and taking an early $85 million hit on fantasy action movie Seventh Son in 2013. The film was produced in 2012 but only released in the US in February 2015.
Legendary is next set to release a film version in March of fantasy game franchise Warcraft.
Nomura's Huang is confident the acquisition of Legendary will bear fruit for Dalian Wanda.
“Legendary is only a mid-sized studio in the US compared to [rival entertainment groups] Disney, Warner Bros., etc,” he noted. “However, it can definitely apply the US production capability in uplifting the quality of domestic movies, which bodes well for the overall China movie market.”
Acquisition spree
Dalian Wanda has been on a sustained overseas acquisition spree in recent years.
The Chinese entertainment and real estate giant bought almost everything from a 20% stake in Spanish soccer club Atletico Madrid for $49.04 million in January 2015 to the Florida-based World Triathlon Corporation, in an effort to diversify from its core but slowing property business.
Other media-related acquisitions include Switzerland-based sports marketing company Infront Sports & Media for $1.19 billion in February 2015, its $272 million purchase of Muwei Fashion Culture Disseminate (Beijing) in June, and the $152 million purchase in the same month of 15 subsidiaries of Shimao Cinema Investment Development, according to Dealogic.
These efforts have since borne fruit.
In 2015 Dalian Wanda’s cultural and entertainment operations, including film production and cinemas, registered revenue of Rmb51 billion, 46% higher year-on-year and far higher than the group’s combined revenue growth of 19%.
The huge potential of China’s film market and a growing demand for high-quality content has attracted the interest of other acquisitive Chinese organisations, including some of the mainland’s internet giants.
For instance, in August 2015 Alibaba and Tencent used a Rmb3.6 billion share placement to invest Rmb1.5 billion and Rmb1.2 billion, respectively, in Huayi Brothers Media Corporation, one of China’s largest film and entertainment groups.
The Wanda-Legendary tie-up could pave the way for Chinese companies to invest in Hollywood film and production firms too.
There are some signs of that interest already emerging.
In 2015, Alibaba Pictures, a wholly owned unit of Alibaba, invested in Paramount’s Mission Impossible: Rogue Nation, its first Hollywood blockbuster, while Chinese conglomerate Fosun Group reportedly invested $200 million in 2014 in US media company Studio 8, which was founded by former Warner Bros executive Jeff Robinov.
