Heroes and mortals

Gemma Chan: stars in latest Disney blockbuster Captain Marvel

Captain Marvel, which stars actresses Brie Larson and Gemma Chan in the latest Marvel franchise, has opened to a strong reception in China. The Disney blockbuster took well over Rmb550 million ($81.91 million) in its first three days, showing that local support for American superheroes is far from flagging.

That means that Chinese studios would like to co-finance superhero films with American partners. But first-tier film houses like Disney’s Marvel Studios and Warner Bros DC Films have less reason to do a deal. So Chinese firms have been looking to buy into other comic book publishers that have a cast list of suitable superheroes.

Valiant Entertainment is a good example. The third-largest cartoon publisher after DC and Marvel, it was fully acquired by DMG Entertainment – a China-connected entity (more on this later) – for an undisclosed amount last year.

Valiant owns a library of more than 2,000 characters and DMG took on film projects that Valiant had already initiated, including one based on its Bloodshot character that is expected to star Vin Diesel.

DMG was one of the first companies to spearhead co-productions between Chinese and American firms. It started out as an advertising and marketing agency, expanding into film distribution about 10 years ago when it handled the Chinese releases of US blockbusters like Twilight. It then became a major player as co-producer and local marketer for the 2012 time-travel thriller Looper and Disney’s smash hit Iron Man 3 (see WiC147).

In 2014 DMG was split into two parts. The Beijing-based entity – called Yinji Media – retained DMG’s original marketing business, as well as its film distribution in China. Yinji then went public on the Shenzhen stock exchange through a backdoor listing, where its market value reached Rmb50 billion at its peak in 2015.

Local laws meant that DMG partner Dan Mintz, a non-Chinese citizen, was forbidden from holding an executive position at Yinji after it went public. Instead he took charge of the firm’s privately-held US entertainment unit, retaining the DMG Entertainment brand and basing himself in Los Angeles.

The DMG ‘family’ was in the headlines again this week when Yinji announced that it made just Rmb377 million in revenues in 2018, a decrease of 84% from the year before. Net losses could reach Rmb3.2 billion during the period, says National Business Daily. On Monday Yinji also announced that it would not be able to make an interest payment on a Rmb400 million bond issued in 2017. (Its market capitalisation now stands at Rmb7.6 billion.)

Last July, a Chinese court froze nearly $617 million in Yinji shares held by chairman and co-founder Peter Xiao after non-repayment of a loan to a Dalian-based financial firm.

The court said it was locking up Xiao’s stake, about 44% of Yinji, for three years, or until the debt is paid.

Mintz told Hollywood Reporter that the trouble at Yinji will have no effect on DMG’s separate business in the US. Hollywood Reporter was not so sure that there would be no impact. “Although technically separate – which allows both sides latitude in negotiating US and Chinese regulations — the two companies have operated under a contractual partnership agreement, with the Beijing arm importing DMG’s US-backed films into China under favourable terms,” it explained.

Plus DMG and Yinji’s appeal as a cross-border fixer could also suffer if Hollywood gets the deal it wants out of Donald Trump’s trade war.

In 2017 there was an agreement to increase the quota of American movies screening in Chinese cinemas each year from 38, reported CNBC, “to a number to be determined later” (the higher the better from Hollywood’s standpoint). The US studios also want new revenue sharing deals that would see their percentage take come closer to box office norms in other markets.

However, these measures might reduce some of the need for co-productions with the likes of DMG and Yinji (whose movies don’t currently count towards the quota). “With the changes in the import film market, Yinji realises its existing business model is not going to work; it can no longer play the same ‘international’ card,” Entertainment Unicorn predicted.

Reinventing from a position of weakness and making a comeback? Sounds like a superhero script.

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