Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Fresh from losing the chance to buy Paramount, Chinese billionaire Wang Jianlin is hoping a Japanese partner may prove more suitable. Sony, however, may not be the answer Dalian Wanda seeks in its quest to capture global cinema goers' wallets.

The companies will collaborate on movie projects, with Wanda investing in productions from Sony Pictures as part of an open-ended partnership, the Chinese company announced Friday.

For Sony, the upside is clear. Its film unit will receive some much-needed TLC after operating income slumped 40 percent last fiscal year. Wanda is the world's biggest cinema operator, so a partnership would also help Sony expand its reach, especially in China. Friends in Beijing might even help Sony skirt a rule that permits just 34 foreign-made movies a year into the nation, too.

Looking for a Hit
Sony's revenue from motion-picture production has fallen
Source: Bloomberg

But while property-cum-entertainment group Wanda may reign supreme in China, things aren't always a wonderland there.

Blockbusters like the Bourne series and Ice Age are helping Asia's largest economy emerge from a box-office slump. After tumbling in the second quarter, takings fell another 18 percent in July before recovering 12 percent last month. And while Wanda Cinema's overall box-office revenue climbed 41 percent year-on-year in the first half, outperforming domestic revenue growth of 18 percent, that's shy of a 43 percent rise in the same period last year.

Gross margins of Wanda's box-office segment dropped by 3.9 percent year-on-year, while average revenue per screen declined by 15 percent. Analysts at HSBC put that down to the purchase of small players with poor profitability in the first half.

Wanda's larger acquisitions aren't always money-spinners either. Legendary Entertainment, the Hollywood studio it bought for about $3.5 billion earlier this year, isn't in the black and so far the only triumph has been Australia's Hoyts, which made $20 million in the first half, up from about $7.5 million in the three months to Dec. 31.

Turning Legendary around will prove a challenge. It doesn't matter how many screens you might own, for a cinema company, success ultimately comes down to hit movies, along with the advertising and franchise income that follows.

Eyes Wide Shut
Year-on-year, Sony's box-office share has been slowing
Source: Bloomberg Intelligence

That's something Sony lacks. Its top Hollywood movie this year -- Angry Birds -- grossed just $346 million, a fraction of top-spot holder Disney's Captain America: Civil War, which raked in $1.2 billion.

Warcraft, the first Legendary movie after Wanda's acquisition, was saved from global failure by ticket takings in China, but still lost about $15 million, according to Hollywood Reporter. Increasingly, more and more industry watchers say estimates of China becoming the world's biggest film market by 2017 may be jumping the gun.

In searching for an appropriate movie date-night partner, finding the right fit has never been so important. Sony, it seems, just doesn't have the mojo Wanda's looking for.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net