Wanda is to consolidate cinema and film production holdings to cut its reliance on Hollywood.
The move will also help the conglomerate weather the current uncertainty in the Chinese film industry as it expands further into entertainment.
Wanda Film Holdings has announced that it is set to buy nearly 97 percent of movie producer Wanda Media from the current shareholders. The price cited is around 11.6 billion yuan ($1.76 billion).
Shenzhen-listed Wanda Film is the largest cinema operator in China. It has said it will finance the purchase with a combination of about 8.9 billion yuan worth in newly issued shares and cash.
Chinese film industry
The Chinese film industry has expanded rapidly in recent years in conjunction with the rise of the newly affluent middle class. Box-office receipts have grown by 15 percent to 52.3 billion yuan last year. It is likely the market will surpass that of North America (currently the world’s major market) in the very near future.
The Chinese film market, although hugely lucrative, has serious underlying issues. At present the industry is hugely reliant on Hollywood movies, even though only small numbers of them are allowed to be shown in China each year. While around 1,000 Chinese movies were released last year, they only accounted for around 50 percent of sales reports the Nikkei Asian Review.
It was hoped that restrictions on Hollywood movies to be shown in China would be relaxed. However, Chinese-US trade frictions are putting those negotiations in jeopardy and it’s possible that the number will actually be cut rather than increased.
Wanda hopes to place itself in a stronger position by combining the two businesses and producing more of its own films. It is part of a larger movement in China to boost the home-grown film industry. A new international film base will be built as part of the Shanghai International Tourism and Resorts Zone.
Consolidation is considered a key future-proofing tactic, alongside diversification into theme parks and other strands of the entertainment business.
Wanda is also closely watching its box office figures with the aim of becoming highly responsive to what its customers want from their cinematic experience. Demographics allow the company to react swiftly, creating new hit titles based on viewer reactions. The company also has plans to updates its cinemas, following requests from its production wing.
AMC Entertainment, Legendary Entertainment and Alibaba
AMC Entertainment and Legendary Entertainment are not included in the proposed deal.
AMC Entertainment is North America’s largest cinema circuit but the company is listed on the New York Stock Exchange and managed separately. Wanda purchased Legendary Entertainment for $3.5 billion in 2016, but an attempt to consolidate the company with the Group’s Chinese cinema business was put on hold by regulators until it can prove to be profitable in its own right.
In a strategic move in February, Wanda sold a 13 percent stake in Wanda Film to Alibaba and a state-backed investment group for 7.8 billion yuan ($1.24 billion). The transaction gave Wanda some much needed cash as well as access to Alibaba’s big data capabilities and Cultural Investment’s tourism opportunities.