Paramount Pictures has agreed a deal by which Shanghai Media Group and Huahua Media will fund up to a quarter of the studio’s slate for the next three years. There is an option for a fourth year if successful.
This deal is worth $1bn cash for the studio, significantly less than a proposed deal with Dalian Wanda that was called off late last year. Shanghai Media Group is a major distributor in China, while HuaHua is a marketing specialist, so this deal boosts Paramount’s ability to penetrate Chinese cinemas.
Huahua has already invested in Paramount’s Star Trek Beyond and Shanghai Media Group in Jack Reacher: Never Go Back, and Huahua has undertaken the marketing on several Paramount films. Paramount has often been at the lower end of market share analyses for the US market, with a restricted release slate compared to others and lacking the financial muscle to acquire prime franchise content. This deal seems to unlock that financial problem: the studio is aiming for 15-17 films a year (from a low of eight) and the Chinese investment could cover the financing of around a quarter of the slate. The deal starts with the current release of xXx: Return of Xander Cage.
The agreement may also lead to Paramount producing films in China at some point, but that is not on the table for now. Paramount will be speaking to Huahua about tailoring films for the Chinese market.
Paramount is one of a growing list of companies, including studios, to conclude investment from Chinese media groups. So far, Paramount has done individual financing deals with Wanda for TMNT and Transformers (Huahua was appointed the Chinese marketing partner for Transformers: Age of Extinction) as well as with Huahua and SMG (see above). Wanda was also involved in advanced talks to take a significant stake in Paramount (49% stake for $4.9bn) which fell through late last year. This is now the first long-term deal Paramount has signed with Chinese investors.
There have been a series of Chinese investments into US film groups in the past two years, of which several have involved US studios.
The investment of Chinese companies in Hollywood is interesting to watch, especially in the light of a new direction in US trade policy after Donald Trump became President. The Paramount deal opens it up to the Chinese market at a time when the rules of engagement are subject to change with a new trade deal in 2017 through the World Trade Organisation (WTO). Before the US election, the signs were that more films would be allowed into China through the quota system and in fact the number of US films allowed in during 2016 exceeded the quota as the market struggled to grow on the back of local films. The WTO deal is being carefully monitored around the world, and especially in the US, to see if studios and content producers/distributors will be allowed to extend their access to the Chinese cinema market, and the percentage they can take out in revenues. This currently stands at 25%.
The new President specifically targeted trade with China during the election campaign and while the reality may be different when in office, US media groups do not exist in a vacuum. Any trade war with China would impact the growing influence of and reliance on Chinese money within the motion picture groups. If protectionism and tariffs are to become a part of the US armoury in a way they weren’t before, such an open cultural and financial two way street in the film industry would run counter to this.