Chinese group Wanda Dalian is to acquire US big-budget movie production house Legendary Pictures, continuing its measured progress towards becoming an integrated global film player. Wanda has paid $3.5bn in cash for 100% of Legendary Pictures, and all its activities. These include Legendary East, already operating in China and working on a $150m blockbuster called The Great Wall, as well as analytics, digital and publishing.
Wanda intends to combine Legendary Pictures with its own production unit into a new company, with the founder of Legendary Pictures still in operational charge, and float the combined group on the stock market at an unspecified future date. This will make a powerful force in the global film business.
Wanda owns one of China’s largest cinema circuits, and acquired US exhibitor AMC Entertainment in 2012 and Australian cinema group Hoyts more recently. It has a range of film interests in China, including production, and the world’s largest Wanda Qingdao Studios facility opening in April 2017. The facility will be accompanied by a range of production incentives. Wanda is also building a $1.2bn headquarters in the US.
Wanda has long been linked to acquisitions of major circuits in Europe but described the asking prices as too high, an interesting comment in the context of mature Western European markets.
The trend for Chinese and American co-operation in the film business is well established, with activity both ways over the past decade. In 2015, Hunan TV signed a co-financing deal with Lionsgate for its non-blockbuster slate and Huayi Brothers Media signed a co-financing and distribution deal with US producer STX.
Wanda’s goal is to become a global player in the film industry, although it is also present in retail, property and e-commerce sectors. This acquisition takes it closer to its global goal than the previous purchases of cinema exhibitors AMC and Hoyts, which were dominant in one territory. Legendary, while not a distributor, has a global presence through its films at the box office. However, the US studios, the only real global film players, have that position through the distribution of globally attractive films and Wanda cannot become a global player without that kind of a presence. Currently, it is building a trans-Pacific presence. Given that the US and China are the two largest box office markets, by some distance, this is not to be dismissed.
Legendary is a well-established film producer, started by Thomas Tull in 2003, moving quickly but not exclusively into the realm of big-budget movies. The producer signed co-finance deals first with Warner in 2005 and then Universal, as a way to spread risk but has more recently produced its own films. Legendary was behind Jurassic World in 2015, the fourth highest grossing film of all time in the US (non-adjusted) behind the recent Star Wars, Avatar and Titanic, which isn’t a bad place to sit, as well as the Batman films (back to Batman Begins in 2005), Inception, the Hangover franchise, Interstellar, Superman and 2014’s Godzilla . The unit’s films aren’t exclusively of the tentpole variety though, with Steve Jobs and Straight Outta Compton also amongst its recent catalogue.
The new company will not only have a decent claim to be counted as Chinese in terms of local quotas but would also get more revenues back than the regulated 25% that Hollywood Studios get, putting it in a good position to benefit from China’s predicted box office growth in year to come. The Chinese quota issue is more of a grey area. The group will be making both Chinese films and films for global audiences. It is unclear where the line sits when it comes to cultural tests for counting domestic films in China, which require a minimum amount of input from local actors and crews. Ownership and finance are not the only criteria.
Another facet to this deal, and one which fits within a wider narrative, is that the digital world has allowed retailers (ie those with a direct link to consumers) to become producers/owners of content and to bypass the distribution channel (often the studios). In the case of Wanda, the exhibition circuits owned by Wanda (in China, Australia and USA predominantly) can show content made by its own production unit. However, mainstream cinema does not yet often exist without third-party distributors, who also provide finance and wider distribution, so while it can be useful to own units either side of the distributor, the group will still need to find distribution. Even if it self-distributes, at the level Wanda will exist it effectively becomes a major distributor in its own right. If Wanda ends up in distribution in the USA, the Paramount Decree of 1948 specifically bars the studios from owning cinema circuits, and it would be interesting to see what the US anti-trust laws of today would make of an international group owning an integrated film studio on its shores.