Investment rollercoaster

Huayi Brothers looks to diversify from films into theme parks and cinemas

Investment rollercoaster

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It was supposed to be called Mickey Mouse Park. But by the time a 160-acre orange orchard had been found its name had changed to Disneyland. It opened in Anaheim in 1955, at a cost $17 million.

As the father of the theme park industry, it would be interesting to know what Walt Disney might think about China’s latest take on his oriiginal idea. But forget Donald Duck and Buzz Lightyear, and think instead of Princess Wencheng. She is to have her own theme park in Lhasa, reports The Guardian, built at a cost of $4.7 billion. The plan is to lure 15 million tourists a year by 2015. Princess Wencheng – for those who don’t know (i.e. most of us) – was the niece of a Tang Dynasty emperor who married a Tibetan king in the seventh century.

The Tibetans themselves seem less than thrilled by the announcement of their new tourist attraction. But another theme park, this time in Hainan province, has been met with more excitement. Huayi Brothers, one of the country’s leading film studios, announced earlier this month that it is building China’s first movie-themed park in Haikou, inspired perhaps by the success of Universal Studios in the US.

The Hainan park, which will cost Rmb5 billion to build, and will feature streets and structures from classic films made by the company’s top director Feng Xiaogang. The rumour is that this will include earthquake-ruined streets featured in Aftershock and a 1940s-era backdrop similar to Feng’s latest disaster film (famine, this time) 1942.

More cheerily, visitors will be able to tour an ancient palace similar to that of his kung fu epic Banquet, stay at a boutique hotel modelled on the romance If You are the One, or dine in a restaurant car inspired by the comedy A World Without Thieves.

“China has not had any real movie-themed parks before. We will develop them based on adventure films or children’s movies to create a place for family entertainment,” says Wang Zhongjun, chairman of the company, sounding rather like Walt himself.

The studio is also planning to build another movie-themed park in Suzhou, Jiangsu province, even though a new Disney resort will soon be opening just a few hours drive away.

The reason? For a start, theme parks are big business (though WiC suspects Princess Wencheng may not be quite as huge as its promoters suggest). In the last financial year Disney’s parks accounted for 30% of the company’s $40 billion revenue, for example.

For Huayi, the new revenue steam is also a major draw. That’s because filmmaking is no longer quite as lucrative for the studio. Despite churning out a number of box office winners in the last few years – including The Message and If You Are The One – earnings have lagged. In the first quarter of this year, Huayi’s net profit dropped 21.6% year-on-year even though revenues went up by 40.9%. In an interview with Southern Metropolis Weekly, Wang says that’s because production and marketing costs have gone up dramatically. In particular, increases in movie star salaries are outpacing growth at the box office.

“A film that cost Rmb50 million to make in the past now costs Rmb100 million. And you used to be able to make money when a film reached Rmb120 million at the box office but these days you have to make at least Rmb150 million to break even. Maybe some studios can handle the losses but not Huayi,” Wang admits.

“The competition is more cutthroat than ever. Every month this year, Chinese movies have competed with three or four Hollywood films,” says Wang Zhonglei, chief executive of Huayi and the younger brother of Zhongjun.

And Hollywood has routinely won. According to recently released data, the five biggest grossing films of the year so far are all American made. Titanic 3D heads the rankings with Rmb977 million of ticket sales, followed by Mission: Impossible – Ghost Protocol (it took Rmb649 million).

One reason for Huayi’s strategic shift into parks is that it is listed on ChiNext, a junior stock exchange in Shenzhen. That means it has to be more transparent about its finances, and give investors more guidance on where its future profits are going to come from. In the past, negative news reports have hit the company hard. Last year it lost Rmb100 million in market value after Huayi’s star director Feng revealed that he might be retiring (he later apologised, saying he was only “whining”).

And when actor Ge You, who has starred in several Huayi productions, announced plans to sign with the Emperor Group, another studio, Huayi saw its share price fall for five consecutive days.

Nor is it the first time that Huayi has sought to diversify. Since 2007, the company has been developing television shows too. TV production has become one of the leading revenue streams for the studio. More recently the company has also bought several cinema operators, as it tries to move the business downstream as well.

But don’t expect Huayi Brothers to exit from its first love, filmmaking. Wang Zhonglei said his passion is still movies. “Every minute of my life is occupied by films,” he told the China Daily.

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