Huayi Brothers Seeks to Expand Ties With STX Entertainment

  • Companies’ three-year finance agreement expires in early 2018
  • Chinese firms’ overseas investments face government control

James Wang Zhonglei.

Photographer: Qilai Shen/Bloomberg

Chinese film producer Huayi Brothers Media Corp. is seeking to renew and expand its ties to Robert Simonds’ STX Entertainment, despite recent capital controls imposed by Beijing that have set back several China-Hollywood deals.

“We’d like to renew and deepen our cooperation with STX beyond slate financing,” Chief Executive Officer James Wang Zhonglei said Friday in an interview in the Chinese resort city of Boao. “STX has a lot of plans in television and multimedia. They also have a lot of new ideas for the Asian market. We have had a lot of contacts in this regard.”

Huayi reached a three-year agreement in 2015 to co-produce, co-finance and co-distribute almost all STX Entertainment’s films for three years. The partners said back then it was the first time a Chinese company would be involved in producing, marketing and distributing U.S. films. The accord expires in the first quarter of 2018.

Wang said the two companies have held in-depth discussions on further collaboration on investments and strategies, but declined to provide specifics.

Patricia Rockenwagner, an STX spokeswoman, declined to comment. Simonds produced more than 30 movies before launching STX in 2015 with private-equity investor Bill McGlashan, the founder and managing partner of TPG Growth, an arm of private-equity firm TPG Capital.

Investment Round

Hong Kong telecom company PCCW Ltd and Chinese tech giant Tencent Holdings Ltd last year led a round of investment in STX Entertainment. In November, Simonds told the South China Morning Post that the company was setting up a Hong Kong office and that the city was its favored option for an initial public offering.

Since late last year, the Chinese government has tightened scrutiny over what it calls “irrational” deals. The government particularly singled out real estate, sports and entertainment. The scrutiny resulted in the collapse of high-profile transactions, such as Dalian Wanda Group Co.’s $1 billion takeover of Golden Globe Awards producer Dick Clark Productions Inc.

Wang, who co-founded Huayi with his older brother Dennis Wang Zhongjun in 1994, admitted he too has felt the impact from the curb.

“We have plans and wishes for more international cooperation, but we’re to some extent affected by capital control,” he said. “It’s fortunate that our overseas business plan is not acquisition-driven, nor are we financial investors, so our needs for foreign exchange are not vast,” he said.

Up for Renegotiation

A 2012 agreement between Beijing and Washington that expanded Hollywood’s access to the Chinese market is up for renegotiation this year. The accord increased the number of films that could be exported to China, along with Hollywood’s share of the revenue. However, distribution in China is still closely held by two state-owned companies, China Film Group and Huaxia Film Group.

Wang said he believed Chinese market would gradually open up, with changes to the import quota, revenue split and distribution.

“China’s film industry needs to be more diversified and internationalized,” he said. “Chinese companies need to be tested in an international environment.”

Despite a drastic slowdown in China’s box-office sales, Wang holds a sanguine outlook for the Chinese market, predicting it will grow 20 percent a year for another four to five years.

“There’s still a lot of potential waiting to be unleashed from the China’s film market, such as the incremental gains from new screens and the arrival of new, young film-making talent,” he said.

— With assistance by Jing Yang De Morel

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