US studio Lionsgate has cut a deal for entry into China, which will give it access to Chinese funding for new movies, and open up China for improved distribution of current and future content.
We have always thought of Lionsgate as living in a tier by itself, not quite as large or as profitable as the major Hollywood studios – Universal, 20th Century Fox, Disney, Sony Pictures and Paramount – but bigger than anything else out there. It has annual revenues between $2 billion and $2.5 billion, but only holds about $29 million in cash at any point in time. – so all projects are funded separately, often using outside investors.
As such, gaining access to Chinese income is pretty vital, but getting better distribution there is even more important. But the deal comes with some form of handcuffs.
Its partner is the Hunan TV & Broadcast Intermediary Co, in a multiyear co-financing deal covering “qualifying” Lionsgate feature films. We are left to work out for ourselves what “qualifying” means, but we suspect it means movies which avoid themes banned by censors in China, or where the Chinese public won’t like them.
Under the terms of the agreement, Hunan’s wholly-owned TIK Films subsidiaries will co-finance all of the movies which “qualify” which could even be a precursor to Hunan buying Lionsgate at some point in the future.
We have to go back to around 1990 when Sony, feeling a need to own content to go with devices it sold which played content, bought Columbia TriStar to form the backbone of Sony Pictures. We have expected similar moves by Chinese finance for some time, and a potential for a counter strike by US finance companies, who may be spurred to action by fear of losing a major content voice from the US.
A partner that funds ALL Lionsgate best films is uniquely placed to control, manipulate or buy the company outright, so this has to be seen as the thin end of the wedge.
The deal will last for three years and will include anticipated properties including Gods of Egypt, an epic reimagining of ancient Egypt, Now You See Me 2, the sequel to a 2013 blockbuster which grossed more than $350 million and the supernatural action thriller The Last Witch Hunter, starring Vin Diesel.
TIK Films, in partnership with Leomus Pictures, also has the option to distribute up to four of the co-financed films each year in China. In addition, Lionsgate, TIK and Leomus are already planning several feature film co-development and co-production projects in China.
Leomus recently distributed the hit films Now You See Me and Escape Plan from Lionsgate’s Summit Entertainment label in China, where Escape Plan grossed more at the box office ($42 million) than it did in North America.
This is no longer a surprise. In the US and Western Europe, Cinema audiences per sitting have been falling for about 7 years. But this has been countered by wider distribution, and earlier overseas distribution. AsiaPacific generally and China specifically, has been building a lot of cinemas, which more than make up for the declining appetite for movies in the US and Western Europe.
But this has come at a price. Nuanced films which deal with political intrigue or obtuse sexual themes which are culturally located in a sophisticated US environment, have had less appeal overseas – and Hollywood has replaced action movie bad guys from Russia and China, with CGI built superheroes from other worlds, in order not to upset the wider Chinese audiences.
The results are more and more bland plots with global appeal – for global appeal read higher sales, but glib and easily anticipated plots.
There has been a mass talent shift from Hollywood to the US TV broadcast industry, itself rife with 10 year “tentpole” revenue blockbusters which run and run – 24, Desperate Housewives and Lost typified that drift, and now HBO’s Game of Thrones and Netflix’s House of Cards are leading the genre.
So that talent – screenwriters, actors and production crews – having made the shift from Film to TV, are now “en route” to OTT original content.
Interestingly these all have a huge appeal outside the US, except in China, where their exploratory themes of political intrigue, and a constant diet of violence and sex – but… and it’s a big but… although the people of China and other AsiaPacific countries like these themes, they are often toned down in official translations or part of the plots are obliterated – so these have piracy based audiences, where the original can be seen, rather than official audiences. We’re pretty sure that Fifty shades of Grey is unlikely to gain official distribution rights in China.
We’re thrilled to partner with Lionsgate, an innovative and forward-looking company that has emerged as a major creative force in the global marketplace, said a prepared statement from Hunan.
Lionsgate is working with Hunan’s cable network, which reaches 15 million subscribers and Hunan TV, a broadcaster with the second most watched programming in China. These will also look to help Lionsgate to explore opportunities outside China. Financing for the deal was provided by East West Bank and Bank of China. The statement does not talk about the amount of money involved, but it is likely to be in the order of multiple $100s of millions and just as likely to be how Hollywood ends up as a Chinese property.