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Hollywood's new backer: China

The boxing drama “Southpaw” released over the weekend has a seemingly unlikely partner in its corner: Chinese conglomerate Dalian Wanda Corp.

Wanda financed the approximately $30 million production budget for the Jake Gyllenhaal movie. It was produced and is being released by Weinstein Co., which is paying for about $35 million of marketing expenses. The two companies will split any profits.

“They were on the set and involved in production, postproduction, marketing, everything,” said Weinstein President David Glasser. “They wanted to learn how we do what we do.”

In exchange, Weinstein is hoping Wanda will help the movie gain a favorable distribution arrangement in China, which the government grants to just 34 foreign films a year.

“Southpaw” represents one of several ways Chinese companies lately have been trying to tap Hollywood moviemaking know-how.

Four former heads of major studios and studio divisions have in the past year launched or taken jobs atop startups backed by Chinese investors. Together, the four new companies have commitments of more than $660 million from China.

They are launching amid a wave of Chinese investment in the entertainment business, technology and other U.S. industries. The Chinese companies aren't only looking to make money, people involved in the moves say, but to gain expertise in areas where they are currently not global leaders.

“China is the fastest-growing movie marketplace in the world and the source of a tremendous amount of capital,” said Sheri Jeffrey, a partner at law firm Hogan Lovells who focuses on entertainment finance. “That’s why these are such perfect partnerships.”

The wave of startup studios is unprecedented in recent Hollywood history and a sign of how much more accessible funding has become for a very risky proposition.

With no library of prior productions generating cash and no intellectual property, such as comic-book characters, to draw upon, new film companies are betting on their ability to generate multiple hits out of thin air. That has proved difficult even for Steven Spielberg, whose DreamWorks SKG is now a shadow of the fully functioning major studio he and partners envisioned when launching it in 1994.

Such companies typically require hundreds of millions of dollars to get off the ground and can take close to a decade to become successful, valuable entities.

“Many traditional sources of investment dollars are looking for a faster turnaround of their money,” said Dick Cook, who was fired from his job running Walt Disney Co.’s film studio in 2009 after 38 years at the company.

He has spent the past five years putting together a plan for his own entertainment venture and looking for investors. It took five months of talks, he said, to land a recently announced $150 million investment from Chinese conglomerate Citic Guoan Group Co. Ltd.

Mr. Cook has raised other funding from sources that he hasn’t disclosed and is still soliciting more.

China gets its own benefit from the deals: the advice of some of Hollywood’s most experienced hands at a time when its government is pushing entertainment as a source of “soft power.”

Though it has become the world’s second-largest movie market, China has yet to produce a globally popular movie of the type regularly churned out by Hollywood. Allying with former studio chiefs is seen as a tool to change that.

“We do need help from experienced executives in the U.S.,” said Jennifer Dong, chief executive of China’s Meridian Entertainment. Her company has a deal to fund movies made by James Schamus, the former head of Focus Features, part of Comcast Corp.’s Universal Pictures.

“I’m frequently looking for James’s insights and impressions,” she said of the partnership.

Mr. Schamus couldn’t be reached for comment.

Hollywood is far from the only American industry benefiting from Chinese investment. Silicon Valley has also seen an influx of money from across the Pacific, with Chinese e-commerce giant Alibaba Group Holding Ltd. investing $200 million in Snapchat Inc.

Still, the stream of capital comes at an opportune time, some believe, because major studios are making half as many movies as they did a decade ago, leaving holes in the market.

Dick Cook Studios is focusing on live-action family entertainment, a genre that has been virtually abandoned in recent years as parents take children to computer animated films and PG-13 rated superhero pictures.

Jeff Robinov, who was motion-picture chief for Time Warner Inc.’s Warner Bros. until 2013, last year raised $200 million from China’s Fosun Group, a large, diversified investment company. His Studio 8 is developing bigger-budget global tentpoles that will be driven by filmmakers, rather than adaptations of comic books, toys or young adult novels. His movies will be distributed by Sony Pictures Entertainment.

While Messrs. Cook and Robinov are taking what they hope will be the first steps in building new global studios, STX Entertainment is launching faster out of the gate by producing, marketing and releasing midbudget movies in the U.S. This is another category that major studios have let wither as they focus on big-budget “event” pictures and low-cost comedies. STX’s motion-picture group is headed by former Universal Pictures Chairman Adam Fogelson.
Mr. Fogelson said he wanted to follow a “more entrepreneurial path” after being ousted from Universal and was surprised to find there were “a greater number of opportunities than there were before” for executives with his experience to work outside of traditional studios.

Among the investors in STX are Chinese private-equity firm Hony Capital. In addition, 25% of the cost of its movies for the next three years is being covered by China’s Huayi Bros. Media Corp, which previously considered backing Studio 8.

Mr. Schamus’ Symbolic Action is focused on lower-budget “indie” movies, yet another area in which major studios have dramatically scaled back.

Chinese companies have been investing in established Hollywood enterprises for several years.

Though “Southpaw” is the first American movie in which it invested, Wanda acquired AMC Entertainment Holdings Inc., the second-largest theater chain in the U.S., in 2012 for $2.75 billion. Lions Gate Entertainment Corp. in March closed a film financing deal with Hunan TV & Broadcast Intermediary Co. worth up to $375 million.

State-backed China Film Group invested a small portion of the budget of April’s blockbuster hit “Furious 7,” from Universal, and “Pixels,” released over the weekend by Sony.
The former studio chiefs are largely being left alone by their new backers to make the movies they want—another benefit, they say, of Chinese investors who tend to be deferential on such matters. However, in some cases their new backers also want them to help make films in China. Mr. Cook, for example, is setting up a joint venture with Citic to do just that.

Weinstein is expected to partner with Wanda on more movies if “Southpaw” is a success. Mr. Glasser said there is more at stake on the film than just making a profit.

“We see this as a long-term relationship play to show them investing in U.S. movies is a good business,” he said.


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