Ari Gold, a key character in the long-running HBO series Entourage, is a maniacal talent agent with a heart of lead who annoys everyone around him with his appalling behaviour. In one episode, after screaming at a client, Gold opens his arms and asks to “hug it out”.
Huayi Brothers is now hoping it can “hug it out”, as many of its clients have started heading for the door. Last month mainland press reported that three of its most bankable movie stars are leaving the talent agency. Huayi, also one of China’s largest film studios, is traded on ChiNext, China’s Nasdaq-style stock exchange. It currently represents a strong list of movie stars and directors, a combination that has seen it enjoy box office success (for example, a key client is Feng Xiaogang, who directed Aftershock). Analysts reckon that as much as 20% of Huayi’s revenue comes from its talent management operations, says 21CN Business Herald.
But that figure could soon be revised downwards as Huayi has lost several of its biggest movie stars. Zhou Xun, the A-list mainland starlet, recently announced that she has left Huayi Brothers after a seven-year contract. Zhou was one of the biggest earners for the firm thanks to her many lucrative endorsement deals.
And she’s not the only one. Following Zhou’s announcement, heartthrob Huang Xiaoming is rumoured to be next to go. Actress Li Bingbing has set up her own production company, according to NetEase Entertainment, leading to speculation that she may also leave.
The wave of splits are the latest sign that the Chinese movie stars are growing impatient with their agents, who receive the lion’s share of their income. Zhou, who says she left because she wanted more artistic freedom, has also set up her own production company to manage her career after Huayi.
Industry observers are not surprised. After all, loyalty ends with the bottom line. “The way artists and talent agency usually work is that the former gets 20%, the agency gets 80%. Bigger stars get more, but the agency still probably takes about 30-40% of their fees,” a Hangzhou-based studio executive told China News Service.
Many say Huayi was successful in the past because it was quick to match its clients with its own studio productions (for instance, Zhou was the lead in Feng’s blockbuster film The Banquet, which was produced by Huayi). The company, which is also heavily involved in television production, has also helped many young stars transition from the small screen into films.
With three of its top earners leaving, investors are worried that the future earnings of the company will take a hit. Analysts have questioned the company’s potential for growth. Many say its contracts with the country’s biggest stars are among its most valuable assets, and without them, the company has little leverage against media giants like Shanghai Media Group and China Film Group, both state-owned firms.
Privately, industry insiders say Huayi’s business is simply not mature enough to be a publicly traded company. While media companies in the US have diverse revenue sources (like merchandise and DVD sales), Huayi derives the majority of its earnings from domestic and overseas box office sales and talent management fees.
Angry investors are criticising the movie studio for not disclosing in its prospectus that the contracts with the country’s biggest movie stars are set to expire this year. Its shares are now trading at around Rmb29, a 37% decline from their peak less than a year ago.
But don’t say you weren’t warned, says Beijing Business News. When Huayi became the one of the first 87 companies to be listed on ChiNext, analysts expressed concerns about the potential risks given its high price/earnings multiples. Nevertheless, Huayi raised $176 million and its shares more than doubled on its opening day.
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