Media

Box office wonder

Another hit for the studio behind some of China most successful movies

Wandering-Earth-w

Lunar lift-off for Beijing Culture

‘Rags to Riches’ and ‘Voyage and Return’ are two of the commonest plots in the movie industry. There is a well-trodden plot for Chinese investors when a movie does well at the local box office too. Find out who is behind it – and if a listed firm is involved, dive in as the share price spikes.

As we reported last week, the runaway cinema hit over the Chinese New Year moviegoing period was sci-fi blockbuster The Wandering Earth (see WiC440 and WiC441). It had taken Rmb4.46 billion ($663.8 million) in ticket sales as of Wednesday, making it China’s second highest grossing film ever. There is talk that it could even overtake Wolf Warrior 2 if its run continues.

So which studios are behind this colossal hit? China Film Group, the state-owned giant, is one of the usual suspects but another key investor is Beijing Culture (its official name is Beijing Jinxi Culture and Tourism).

In January 2018 the Shenzhen-listed firm announced in a stock exchange circular that it would invest Rmb107.5 million in a sci-fi movie that it said would be called The Wandering Earth. The news didn’t generate much interest as the genre has never done very well at the box office in China. Early this year the company put out another circular explaining that it would pocket profits of up to Rmb83 million if the gross box office hit Rmb2 billion. Word of mouth had begun to suggest the movie was going to be a hit and so speculative buyers started to drive Beijing Culture’s share price up (by as much as 20% by early February).

According to Beijing Youth Daily, the company has been one of the most astute investors in Chinese moviemaking, backing at least one exceptional hit every year.

For instance, it was also one of the main producers behind Wolf Warriors 2 in 2017 (which made Rmb5.6 billion) and last year it was involved in the low-cost breakout hit Dying to Survive (see WiC417).

Its market cap surged 66% when Dying to Survive did well in the summer holiday window and the company’s shares surged by the 10% limit for several trading sessions when Wolf Warriors 2 was pulling in huge audiences, reports Beijing Youth Daily.

According to 21CN Business Herald, the entertainment firm’s chairman Song Ge was a former senior official at Wanda’s movie production unit. And under Song, Beijing Culture has been operating more like a “venture capital investor” than a traditional studio, 21CN says. This approach means that Beijing Culture is rarely involved directly in the production process but it has been skilful in selecting promising projects with top directors and compelling scripts.

Wanda may rue losing Song to a rival. It was set to be one the initial investors in The Wandering Earth, China Business Journal reported last week, but it pulled out to back a romantic flick instead. That looked to be a safer bet given that the Chinese New Year period overlapped with Valentine’s Day. But unfortunately, its film was pulled from cinemas at the last minute over a scandal involving its lead actor Wu Xiubo and the jailing of his mistress (see WiC438).

Tencent Finance cautions investors that Beijing Culture’s big screen bets won’t always be surefire. The studio’s share price is also highly volatile and it is trading about 25% below its peak last July (pumped up by the success of Dying to Survive). Tencent Finance also notes that the company has about Rmb1.6 billion in goodwill sitting on its books after a slew of acquisitions, which could wipe out much of its future profits (see WiC441 on why goodwill has become a red flag for A-share investors). That was probably why its shares got less of a pop from the commercial success of The Wandering Earth than some of its earlier investments.

The sci-fi blockbuster continues to surprise on the upside: late last month there was news that Netflix has bought the rights to stream it in more than 190 countries. The value of the deal is yet to be disclosed.


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