Tencent Is on the Lookout for Hollywood Deals

  • Film unit “very open” to acquisitions as ambitions grow: CEO
  • Tencent negotiating with writer for “Dark Knight” films

Tencent's Big Push Into Hollywood

Tencent Pictures, the film unit of China’s biggest internet company, is looking for acquisitions that can accelerate plans to make its own blockbusters instead of just writing checks for them.

The potential targets could be in Hollywood and include companies on both the creative and production sides of movie making, Chief Executive Officer Edward Cheng said in an interview. He wouldn’t elaborate except to say Tencent Pictures considers whether a target complements its own abilities and resources.

Edward Cheng

Source: Tencent Pictures

“Investment is one of many ways to drive our business,” Cheng, 42, said. “We expedite our business development via suitable mergers and acquisitions. If it helps our growth at the right time, we are very open in that regard.”

The company is clashing with fellow titans Alibaba Pictures Group Ltd. and Dalian Wanda Group Co., both of which are spending big to gain an even larger share of China’s projected $10.4 billion in box-office receipts.

Alibaba Pictures, part of the online emporium that made Jack Ma the richest person in China, invested in “Mission: Impossible - Rogue Nation” and acquired a stake in Steven Spielberg’s production company, Amblin Partners.

‘Great Wall’

Dalian Wanda, run by billionaire Wang Jianlin, paid $3.5 billion for Legendary Entertainment and $1 billion for Dick Clark Productions Inc. this year alone. It’s releasing “Great Wall,” a big-budget action fantasy starring Matt Damon, in China this month.

“In the future, we will work with Hollywood, which has professional expertise, and better explore the global market,” Cheng said. “We will also actively look for opportunities.”

Tencent’s shares fell 1.7 percent to HK$185.10 in Hong Kong, the lowest in four months. The benchmark Hang Seng Index declined by 1.4 percent.

Potential targets for Tencent Pictures could range from a Hollywood studio to a computer-animation company, said Billy Leung, a Hong Kong-based analyst at Haitong International Securities Co.

“All these Chinese players, including Alibaba and Tencent, are trying to ramp up their self-production content,” Leung said. “It’s just a competition of who spends more.”

The Hollywood buying spree comes at a tense time in U.S.-China relations, with President-elect Donald Trump criticizing China’s currency and trade policies, and some U.S. lawmakers calling for increased scrutiny of Chinese takeovers of American companies. The Chinese Communist Party’s official newspaper responded Dec. 6 by urging the nation’s leaders to stay calm amid the “waves” of criticism.

Deal Spree

Shenzhen-based Tencent Holdings Ltd., whose online games and WeChat messaging service fueled its growth into Asia’s biggest technology company, has been involved in $20.8 billion of acquisitions and investments announced this year, according to data compiled by Bloomberg.

Subsidiary Tencent Pictures is best known for investing in this year’s “Warcraft,” one of the most-popular movies in China, and the upcoming “Kong: Skull Island.” It recently announced 21 of its own projects as part of a $295 million spree that includes adapting Chinese-centric content for movie and TV screens around the world.

“We will provide more of our input when we work with Hollywood partners,” Cheng said. “There are many elements of Chinese culture that can be developed into films for the whole world and not just a Chinese audience.”

‘Dark Knight’

To help those efforts, the company is negotiating with David S. Goyer, a writer for the “Dark Knight” and “Man of Steel” franchises. Goyer’s movies have grossed a combined $4.88 billion worldwide, according to Box Office Mojo.

Tencent Pictures’ "Fighter of the Destiny" film set

Source: Tencent Pictures

Cheng sees franchises -- in the science-fiction, comic-book and adventure genres -- as a natural fit for Tencent Pictures and Chinese moviegoers. The parent company bought the rights to more than 300 Japanese anime properties and cultivated others at home to tap into the hundreds of millions of users who come to its platform to read, watch and play games.

Tencent wants to parlay those properties into a Marvel-like universe of cross-platform promotion, said Cheng, whose rapid-fire English was honed during stints at Procter & Gamble Co. and Google Inc.

A linchpin project is “The Tibet Code,” which ticks all of Tencent’s content boxes and is a mystery itself. What started as a 2008 adventure novel about an expert on the Tibetan mastiff dog blossomed into a 10-book series that’s been called an amalgam of “The Da Vinci Code” and “Harry Potter” series.

The author uses the pen name “He Ma,” which recalls “Homer.” His real name hasn’t been publicized, and his prolific output prompted online speculation the series is produced by ghostwriters.

Back Surgery

DreamWorks Animation announced in 2013 it would work with several state-run film companies to turn the epic into an animated movie, though that effort collapsed, the Los Angeles Times reported. Alibaba made the book into an online video series this year.

Cheng read the books while recovering from recent back surgery. Tencent Pictures acquired the rights to make a TV show and a mobile game, and it’s exploring the opportunity to make a film, Cheng said.

“We think ‘The Tibet Code’ has the potential to become a production for a global audience,” he said. “It’s about Tibet; it’s mysterious; it’s about treasure hunting -- a little bit like China’s Indiana Jones.”

China is on course to become the world’s biggest box office next year. Ticket sales are expected to grow 22 percent to $10.4 billion, according to the average of projections by IHS Markit Ltd. and PricewaterhouseCoopers LLP.

Cheng isn’t taking the competition lightly. The CEO said he’s met with several dozen studios and companies in China and Hollywood to learn the business, and he studied the business at the University of Southern California.

Tencent Pictures’ recruiting pitch includes promising better profit-sharing for producers and directors, though Cheng declined to elaborate. Cheng also is betting that creators will be attracted by Tencent’s massive distribution power -- WeChat alone has more than 846 million active users.

“We see that Hollywood wants to increase its collaboration with us,” Cheng said. “Although there’s a lot we can learn from Hollywood, there’s also something we can contribute, too.”

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE