One of the biggest stories this week in the China business world is the Chinese conglomerate Dalian Wanda's planned acquisition of America's second-largest theater chain, AMC. The US$2.6 billion deal, announced Monday in Beijing, will -- if approved by U.S. and Chinese regulators -- create the world's largest theater group and mark China's largest corporate takeover to date of a US company and a significant expansion of its global corporate footprint. Wanda, which last year signed a partnership agreement with IMAX to build 75 super-sized screens in a deal said to be worth nearly $100 million, has been building new movie theaters throughout China at a staggering pace over the past several years, placing many within the high-end malls which it also owns. Currently, Wanda -- which operates in industries like real estate, department stores and hotels -- has 86 theaters with 730 screens in China and generates nearly $17 billion annually in revenue.
Considering, as the Hollywood Reporter notes today, that AMC’s private-equity owners - Bain Capital, Apollo Global Management, the Carlyle Group and others – had allowed the theater chain to fall into disrepair compared with its competitors, the deep pockets of Wanda will come in handy as AMC looks to resuscitate its image. Still, one of the broader issues brought up this week about the potential AMC/Wanda tie-up is the effect it will have on the theaters themselves, the movies they show, and the strategic implications for China's "soft power" efforts in the US. Although both Gerry Lopez, CEO and President of AMC, and Wang Jianlin, Chairman and President of Wanda, insisted this week that they plan to make no changes to the AMC "brand, management and day-to-day operations," and instead focus on making upgrades to some theaters, not everyone is convinced.
Said Wang, "We have no plan whatsoever to promote Chinese movies in the U.S. market," noting that Chinese films have yet to find an audience overseas due to generally lower-quality offerings. This doesn't mean Wang Jianlin doesn't have broader strategic plans for AMC. As the Reporter points out, Wang's intention to invest around US$500 million in AMC may include the installation of "bars and restaurants at some locations, as well as upgrades to screens and sound systems."
Among other issues, such as the growing global reach of China's deep-pocketed conglomerates -- many of which have government ties that Western regulators have felt are a little too cozy -- the proposed Wanda/AMC deal indicates that this could be the first of many potential entertainment acquisitions (attempted or completed) by Chinese companies. American theater companies like AMC, hit by sluggish attendance rates and largely ignored by their private-equity owners, may be of particular interest, as the Los Angeles Times writes this week:
Wanda's move to buy AMC could turn the traffic in the other direction, setting the stage for a string of similar moves by other Chinese investors looking to diversify and raise their global profile by scooping up blue-chip American entertainment properties. AMC is owned by Apollo Investment Fund, Carlyle Group and other investors who bought the company in 2004.
Some see parallels with the late 1980s and early 1990s, when Japanese companies acquired a number of prized U.S. assets, including Hollywood studios such as MCA-Universal and Columbia Pictures and crown jewels such as New York's Rockefeller Center and California's Pebble Beach golf course.
"More and more Chinese companies are going to try to come in and buy American businesses, just like Japanese companies did in the 1980s," said Sean Yu, a Los Angeles-based executive director at Morgan Stanley Smith Barney who advises Chinese investors. "They want to increase their prestige and their reputation."
Prestige aside, other observers of this deal see hints of the soft-power push promoted by the Chinese government in its most recent five-year-plan -- a push that has been, in recent weeks, torn to shreds due to a number of controversies and tone-deaf PR blunders. Despite assurances by the likes of Wang Jianlin that their plans for investment in the US entertainment market are purely business-related, and not tied up with promoting Chinese films in America, many question the long-term effects of these corporate acquisitions, which now go both ways between Beijing and Hollywood. From the Reporter:
The Wanda-AMC transaction is the latest involving China’s embrace of Hollywood and vice-versa. With a population of 1.3 billion, the market is enormous, but Chinese officials only allow about 34 foreign films into the country each year, which has the major film studios jockeying for favorable treatment. Disney/Marvel, for example, said Iron Man 3 will be coproduced in China with DMG Entertainment while DreamWorks Animation has formed Oriental DreamWorks with three Chinese partners and News Corp. has invested in Beijing-based Bona Film Group.
Though Hollywood continues to cozy up to the China market in an attempt to better tap the world's third-largest box office, and Chinese companies like Wanda eye acquisitions as a way to enter the world's largest film market, the US, observers generally agree that it will likely be quite a while -- if ever -- before a significant number of Chinese films make it in front of American audiences.As BusinessWeek notes:
Taking control of AMC helps Wanda move closer to [the Chinese] government goal [of "enhancing its soft power and the international influence of its own culture"]. But relax: You shouldn’t expect the multiplex at your nearby mall to take down The Avengers to show Chinese propaganda such as The Beginning of a Great Revival, last year’s government-approved celebration of the party’s 90th anniversary. China’s leaders aren’t naive enough to expect results overnight.
Indeed, imported Chinese films have largely received a cool reaction from US audiences. Zhang Yimou's recent "Flowers of War," though it made nearly US$100 million in China, barely registered in its US release, showing on only 30 screens nationwide in its opening weekend and grossing only $311,434 as of late April.