VIAB Viacom Inc

By Erich Schwartzel 

A $1 billion financing deal with two Chinese firms promises Viacom Inc.'s struggling Paramount Pictures some much-needed funds and a foothold in the world's second-largest box-office market.

Shanghai Film Group Corp. and Huahua Media will invest in all Paramount movies over the three-year agreement, the companies said Thursday. The companies will finance at least 25% of every Paramount movie and maintain an office on the Paramount lot.

Last year, Paramount came close to selling a 49% stake in the studio to China's Dalian Wanda Group Co. After that deal fell through due to collapsing support among Viacom board members, the company pursued a financing deal so it could afford to increase the number of movies it produces, according to a person familiar with the deal.

"We've been dealing with China for over a decade, but it was very clear how acute their appetite was," Paramount Chief Executive Brad Grey said in an interview. Shanghai Film Group and Huahua will help distribute and market Paramount features released in China. Shanghai Film Group is the country's second-largest exhibitor, behind Wanda.

Joining with two major Chinese companies gives Paramount a leg up in a market where studios have had difficulty distributing and marketing movies on their own terms. By having Chinese firms invest in a movie, studios can count on them to help sell tickets there. Nearly every major Hollywood studio has a co-financing deal with a Chinese company, and Sony Corp.'s Sony Pictures Entertainment signed a marketing pact with Wanda last September.

Studios are making the deals amid China's continued sway in the global box office. The country now has more theaters than the U.S., and is expected to become the No. 1 box-office market within the next couple of years.

Paramount's financing deal will clear the way for the studio's new plan to produce between 15 and 17 new movies each year, said Mr. Grey. Several years ago, Paramount began significantly cutting back its number of productions, to as low as eight in some years. The studio wanted to generate individual profits on movies while keeping overall costs low, but the reduced slate left the company with no cushion if a movie flopped.

The strategy backfired, and the studio consistently ranked last among competitors for box-office market share. Now, Shanghai Film Group and Huahua are coming on board to invest in many releases that the studio hopes will turn its fortunes around, including the coming "Ghost in the Shell" and "Baywatch."

Mr. Grey said the studio will begin looking for productions that are equally financed among the new partners and released in both countries. So-called co-productions are subject to less-stringent restrictions on marketing in China than pure Hollywood productions, and U.S. studios receive a higher percentage of Chinese box-office sales on the movies.

Huahua and Paramount previously partnered on marketing "Transformers: Age of Extinction," the 2014 installment in Paramount's most important franchise. Paramount cast Chinese actors, filmed in Chinese locations and rolled out a Chinese marketing blitz for the film, which ended up grossing $320 million in the market -- nearly $75 million more than it made in the U.S. and Canada.

Write to Erich Schwartzel at erich.schwartzel@wsj.com

(END) Dow Jones Newswires

January 19, 2017 18:40 ET (23:40 GMT)

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