By Ben Fritz And Laurie Burkitt
China Film Group Co. is starting to look more like a Hollywood
studio.
The Beijing-based company is pursuing a new strategy of
investing in Hollywood productions that have no connections to
China--a surprising and potentially controversial move for a unit
of the state-owned entity that determines which foreign movies get
into the tightly controlled country and when they are released.
China Film joined with Comcast Corp.'s Universal Pictures to
take a nearly 10% stake in the recently released hit "Furious 7,"
according to a person with knowledge of the arrangement, and had a
small stake in January's "Seventh Son," from Legendary Pictures
LLC.
The deals are China Film's first investments in American-made
movies not shot in China, and come as it looks to sell shares
publicly for the first time. Meanwhile, the company faces increased
competition from other distributors in the country.
"The big problem CFC has is production," said Jeffrey Towson, an
investment professor at Peking University's Guanghua School of
Management. Mr. Towson said China Film isn't good at producing big
hits, so it is looking to U.S. studios that it believes can deliver
strong results.
It recently has been discussing deals to invest in other coming
U.S. productions, said executives at Hollywood studios.
Implicit in those deals, though never explicitly promised, is
that the release of any movies in which China Film invests would
get "preferred dating" in that country, said one of the
executives.
The investments could result in a conflict of interest: China
Film's state-backed parent sets release dates for all imported
movies; now that China Film is considering ownership stakes in some
of them, it could have an incentive to give its own films
preferential treatment. That would add one more wrinkle to the
already convoluted politics of U.S. studios looking to earn money
from China, the world's fastest-growing and second-largest
box-office market.
An executive at China Film declined to comment.
Regardless of a film's popularity, China Film can influence its
success in the country through numerous means. The longer it takes
for a film to make its debut in China after its release in the
U.S., for instance, the more likely people in China will have
already watched a pirated version. The state-backed company also
can determine how many screens a picture plays on and how soon a
competitive imported film opens. It can yank a movie from theaters
at any time.
"Furious 7," opened on April 12 in China and set a record for
the biggest first day in the country, with $68.8 million in ticket
sales. Helping to boost that total, China Film played "Furious 7"
on a record 5,454 screens. The film's gross in China totaled $250.5
million for the eight days through Sunday. "Furious 7' is now the
second-highest grossing U.S. movie in China to date, after
"Transformers: Age of Extinction."
It won't face competition from another big-budget U.S. action
film for a full month. Walt Disney Co.'s "Avengers: Age of Ultron"
opens May 12 in China, nearly two weeks after its May 1 premiere in
nearly every other country, including the U.S. The extra time could
boost ticket sales in the country for "Furious 7," which has
already grossed more than $1.15 billion world-wide.
The "Avengers" sequel will be only the second of the six Marvel
superhero movies released by Disney that doesn't open the same week
in China as in the U.S.
The other, "Guardians of the Galaxy," looked like a far-riskier
bet before it opened, thanks to elements such as a talking-raccoon
protagonist. "Age of Ultron," by contrast, is widely expected to be
the most successful movie released this summer. The first
"Avengers" grossed $90 million in China and $1.5 billion
world-wide.
Legendary's "Seventh Son" grossed a comparatively modest $26
million in China, but that is more than the flop earned in any
other country, including the U.S. Given the movie's dismal
box-office performance world-wide, it didn't look like a strong
contender to get one of China's 34 annual slots for imported
movies.
China Film also struck a deal with Legendary last year to invest
in another of its movies, "Warcraft." That film, based on the hit
videogame, comes out in 2016.
Investments by China Film don't guarantee a movie will get a
quota slot, said people who have done such deals. The only way
around the quota is to make an official co-production. To qualify,
films must be shot at least partially in China and have some
Chinese cultural elements, in addition to being co-financed by a
local company.
The investments in U.S. movies come as China Film is preparing
to sell shares publicly on the Shanghai Stock Exchange.
Beijing-based China Film's net profit in 2013 totaled 428 million
yuan ($69 million), off 24% from 560 million yuan in 2012,
according to the company's IPO prospectus.
In the first quarter of this year, China Film's releases pulled
in five billion yuan of the Chinese box office's total 9.58 billion
yuan, according to film research firm EntGroup. That compares with
3.7 billion yuan from the same period in 2014, when overall
box-office revenue reached 6.74 billion yuan, according to
EntGroup.
Last year in its IPO prospectus, China Film made clear that
international development--including increased productions with
U.S. companies--would be part of the growth strategy.
Lilian Lin contributed to this article.
Write to Ben Fritz at ben.fritz@wsj.com and Laurie Burkitt at
laurie.burkitt@wsj.com
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