To hear Jack Ma put it, his investment in the film studio Huayi Brothers was largely down to Stephen Chow, the Hong Kong comedian. Ma, who owned 8% of the company when it was listed on the Shenzhen bourse ChiNext in 2009, told reporters that he once eavesdropped on a conversation between his staffers, who were laughing hysterically.
But the Alibaba boss couldn’t understand anything they were saying, until one of them explained to him that they were paraphrasing lines from Chow’s films. “I suddenly felt so behind, like I didn’t know anything,” Ma said. So he went out to find a copy of Chow’s A Chinese Odyssey Part One: Pandora‘s Box. He fell in love with the flick and subsequently decided to invest in a studio that worked frequently with Chow – in this case, Huayi Brothers.
Huayi is now one of China’s largest film studios and Ma’s stake gained substantially in value. In June this year, he sold 3.1 million of his shares, making $15.3 million from the transaction. Given Ma’s reputation as one of China’s most successful tycoons, it was not surprising that news of his selldown quickly rocked the stock’s performance, leading the company to suspend trading the next day.
Perhaps Ma didn’t enjoy Chow’s most recent offering Journey to the West: Conquering the Demons, which was also distributed by Huayi Brothers. That’s because the internet mogul has been selling his shares again. Last week he offloaded 3 million more, generating Rmb260 million (Ma still owns a 4.13% stake in Huayi, worth over Rmb1 billion, or $164 million). And once again, the news sent the shares down, dropping 25% in just one week.
Huayi Brothers will be hoping that a strong performance from its latest blockbuster Young Detective Dee: Rise of the Sea Dragon will reverse the trend. The costume drama, directed by Hong Kong’s Tsui Hark,, has already grossed Rmb544 million at the Chinese box office, a local record for a costume drama (it is set in the Tang Dynasty). Young Detective Dee is the prequel to Detective Dee and the Mystery of the Phantom Flame, which pulled in Rmb304.9 million during its release in 2010. But this time – in an effort to build a franchise for future films – Tsui abandoned the middle-aged Dee of the first film (played by Andy Lau) and turned the clock back 25 years to introduce a younger version of the seventh century magistrate. To appeal to younger audiences Tsui cast actors like Angelababy and Taiwan’s Chao Yu-ting in the lead roles.
The new line-up changes the mood of the film. “Compared with Mystery of the Phantom Flame, [which left a] depressing and dark feeling, Rise of the Sea Dragon is more bright and cheerful,” movie critic Zeng Nianqun wrote in the Beijing News.
Strong performance at the box office could also be a result of Huayi’s new commercial strategy. According to Sohu Entertainment, Huayi has reduced its own share of ticket sales by taking only 30% of the revenue while the cinemas collect the remaining 70%. Film studios typically expect to collect up to a 47% share of box office revenue.
The reason? The studio wanted to keep the film on as many screens as possible for as long as possible. Young Detective Dee, which was released before the National Day holiday, faced intense competition from Hollywood imports like Now You See Me and The Wolverine. But Huayi reasoned that competition in later weeks would prove much weaker. Only two Hollywood films were showing (Stalingrad and Arnold Schwarzenegger’s Last Stand), so the longer that Young Detective Dee could stay on screens, the better.
Industry observers say it isn’t the first time that studios have adjusted their stake to incentivise cinemas to keep a film on screens for longer periods, although the last time this happened was more for propaganda reasons: China Film Group offered to reduce its share of takings to generate as much traffic as possible for The Founding of a Republic, the 2009 ‘epic’ celebrating the 60th anniversary of the Communist Party seizing power.
More often than not it is the opposite situation: studios demanding a larger share of cinema revenues. When Zhang Yimou released The Flowers of War in 2011 (see WiC135), he demanded that the studio kept 45% of entrance money (instead of the 43% offered) to offset the higher costs of making the film (it starred Hollywood actor Christian Bale in a lead role), says Beijing Daily.
Another studio executive told the Securities Times that adjusting studio takings according to film and studio is a fairly standard practice in the United States. In April the Regal and AMC Entertainment cinema chains joined battle with Disney after the studio demanded up to 65% of the box office take for one of the summer’s biggest films, Iron Man 3.
For Huayi Brothers less might have ended up with more by boosting the longevity of Young Detective Dee.
But the strategy may prove less lucrative over the longer term. Meanwhile competitors will worry that the precedent will encourage big cinema groups like Wanda to start to negotiate studio takes closer to the 30% Huayi took for Young Detective Dee for films from other studios too.
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