July 5 (Bloomberg) -- Bona Film Group Ltd. founder Yu Dong is trying to build China’s largest private filmmaker into a global player, and to get there he’s calling on one of Hollywood’s tried-and-true plots: A great train robbery.
“Moscow Mission,” about a series of robberies on a line linking Beijing to Moscow, is one of four Chinese-language movies Yu is developing with 21st Century Fox Inc. The project joins an American screenwriter with a Chinese director and actors. A Chinese writer will probably be called in, too. He’s working on a fifth film with Comcast Corp.’s Universal Pictures.
Yu is tapping Hollywood expertise as Beijing-based Bona seeks to exploit soaring demand for home-grown films. Ticket sales in China rose 27 percent to 10.3 billion yuan ($1.68 billion) in the first half of 2013, led by local productions, the China Daily reported this week. Ernst & Young predicts the country, with box-office sales growing about 30 percent a year, will pass the U.S. as the biggest market by 2020.
“If Bona is able to control 7 to 10 percent of the market going forward, we’re in position to become one of the biggest film companies in the world,” Yu said in an interview through a translator. “Given the really rapid growth, this is the market we want to focus on.”
Bona owns theaters and a talent agency, along with production and distribution. Yu sold a 20 percent stake to News Corp. last year, before Chairman Rupert Murdoch split that company into separate entertainment and publishing businesses.
Yu competes with companies including the government-backed China Film Group, the country’s largest producer and distributor, and Huayi Brothers Media Corp., which is independent. Bona and Huayi must navigate an official censorship board and government controls over distribution. Like its competitors, Bona also distributes Hollywood films.
Bona and Fox say that over the long run, lower-cost Chinese-language movies will yield a higher return than foreign blockbusters.
Tallies for the first half of 2013 support the premise. Box-office sales for domestic films more than doubled during the first half of this year, accounting for 63 percent of ticket sales, China Daily reported on July 2.
Chinese films account for four of the top five releases this year, according to EntGroup, a Beijing-based researcher. Huayi Brothers’ “Journey to the West: Conquering the Demons” was the top-grossing movie with sales of $199.8 million. Walt Disney Co.’s “Iron Man 3” was second with $121.3 million.
Yu recently finished a tour aimed at assuring U.S. investors that the company, down 15 percent on the Nasdaq Stock Market this year, will continue to build its production, distribution, theaters and talent agency.
“Investors don’t understand the China market,” Yu said. “I’ve been actively buying back stock in the past six months, to show my confidence.”
Fox bought its stake from Yu’s personal holdings, a transaction that left Yu with 27 percent of the company, according to a statement at the time. Since then, his holdings have grown to 30 percent, according to company materials presented at an investor conference last month.
The drop in Bona shares coincides with the decline in Chinese mainland indexes. The Shanghai Stock Exchange Composite Index and the CSI 300 Index of stocks on the Shanghai and Shenzhen exchanges are down more than 10 percent this year on weaker global and domestic demand for Chinese products.
Bona fell 1.2 percent to $4.20 on July 3 in New York. The company first sold American depositary receipts in the U.S. in December 2010 at $8.50. Each receipt equals one-half of an underlying share.
In addition to film production and distribution, Bona owns 20 cinemas with plans to increase its theater chain to 40 by 2014, Yu said. Although he may invest at some point in large Hollywood films made for global audiences to expand Bona’s exposure, it will never be the company’s focus.
Success hinges on Yu’s ability to make movies people want to see. “The Last Tycoon,” released in December 2012, failed to attract a large audience, said Doug Creutz, a Cowen & Co. analyst in San Francisco who recommends the stock.
Bona has said revenue could increase to $800 million annually in five years, with growth in China’s film market, Hollywood co-productions, theater expansion and library revenue, Creutz wrote in a May 31 note, citing a presentation. Sales totaled $142 million in 2012.
The company is pursuing agreements with Internet streaming services to expand revenue beyond ticket sales, Creutz said.
First-quarter profit excluding some items dropped to $1.2 million, or 3 cents a share, from $3.3 million, or 5 cents, from a year earlier. Sales fell 0.8 percent to $43.3 million, Bona said on May 16, as the company distributed fewer films.
New movies in the pipeline, such as “Moscow Mission,” should perform better, Yu said. The company will release 16 films this year, up from 13 in 2012. Box-office sales of Bona films are projected to double this year, according to Mark Marostica, a Piper Jaffray Cos. analyst in Minneapolis.
“They’ve built a relatively diversified business,” Creutz said. “It’s really just going to come down to their ability to keep their pipeline full and market their films successfully.”
Sanford Panitch, president of Fox International Productions, which makes local-language films with Bona and other Chinese companies, said producers in both countries can benefit from closer ties.
“There’s getting to be a very good understanding in China of what makes a good commercial movie,” Panitch said.
Studios may find there is as much money to be made in the local-language market as in exporting home-grown product, said Dominic Ng, chairman and chief executive officer of Pasadena, California-based East West Bancorp. The bank helped arrange a $20 million loan to finance production for Bona last November.
“The U.S. studios are going to have to compete with domestic Chinese studios on getting the audience,” Ng said. “The U.S. studios need to spend more time studying how to develop stories that appeal to Chinese audiences.”
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