IS CHINA BIG MEDIA AMBITION FOR HOLLYWOOD FALTERING?

We all remember last year excitement about China, “SHANGYWOOD” mega studios, the dream of a stellar box office and mega deals swallowing Hollywood in Dollars coming from China. Legendary purchased by Wanda for an amazing $3.5 Billion transaction. The great Zhang Yimou, who captivated the world with his opening and closing ceremonies for the 2008 Beijing Olympics, announcing “the Great Wall” to be a smash hit at the International box office. The trade magazines were announcing that China was clearly becoming a superpower in the movie Industry!

Well, a year later and an election passed, the landscape is different and all the “rosy” predictions have turned sour.

Wanda Group purchased Legendary after AMC Theaters, saw its 2016 revenue drop 14% from a year earlier because of a decline in residential property sales. Wanda is a major real estate group in China and the real estate market in the past two years in China has been going down creating the “biggest bubble in history” with entire cities empty of residents, failed mortgage and mountain of debts piling on real estate tycoons.

The mountain of debt accumulated by tycoon Wang Jianlin, China’s richest man, to maintain his faltering real estate empire are affecting his entertainment acquisitions.

After the bad years of Legendary it seems that the Dick Clark Productions acquisition is almost collapsing with rumors of renegotiation at a lower price. It now appears Wanda is about to default on the acquisition if the last payment is not received.
Wanda Cinema stock in China are down 35% on December 2016. Clearly it is a challenging time for Wanda. However, like in the USA Wanda is too big to fail the Chinese government will not let Wanda falter but will increase its controls.
This might explain some of the larger deals currently being investigated, will the Dick Clark Productions deal may collapse?

Legendary Pictures, now controlled by Wanda and acquired for a staggering $3.5 Billion lost $500 million according to Chinese regulators in 2016.

The now Chinese company, saw its first major co-production underperform expectations in China. The Great Wall, starring Matt Damon managed to gross $150 million locally by no means a mega-hit. The film’s budget and worldwide marketing costs are set to exceed $350 million. Legendary will likely take a massive write-down for The Great Wall in 2017. Any hopes of Legendary breaking the downward trend with upcoming Kong: Skull Island and the sequel to Pacific Rim are unrealistic.
This is another bad news but even a symbolic one because of all the hype in the expectations.

Wanda is not alone, Alibaba Pictures, the filmed entertainment division of Jack Ma’s empire Alibaba Group, has officially informed investors of massive losses for 2016. The company may lose up to $160 million.

To make things worse, China doubled the number of movie screens from 20,000 in 2013 to 41,000 by the end of 2016, surpassing the U.S.’s 40,500 screens. However, 2016 was the worst growth year in a decade at China’s box office. Theatrical revenue growth slowed to only 4.5% from 2015 to 2016, compared to nearly 50% from 2014 to 2015. Total China box office in 2016 was 44 billion yuan, up from 42 billion yuan in 2015. This slowdown just compound Wanda’s problem as a real estate concern. Wanda invested in major multiplex construction across China in 2014, 2015 and 2016 so with a sluggish economy and a slowing in box office the landscape is getting ...challenging.

Now we all know that Chinese have a 100 years’ perspective so time will heal 2016 but perhaps closer collaboration with US Film makers could assist in avoiding costly mistakes and allow Chinese Tycoons to succeed….
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*Libra6 Management invests in Media related projects from Production to new electronic medium.

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