Chinese Videogame Maker Investing $250 Million in Universal Movies

Thursday, Feb 18, 2016

One of China’s largest videogame companies is investing $250 million with one of Hollywood’s biggest studios to help launch its global film business.

Perfect World Pictures has signed a deal with Comcast Corp.’s Universal Pictures to cover 25% of the production budgets of most movies made by the studio over the next five years.

The agreement begins with this year’s Universal releases, the first of which was buddy comedy “Ride Along 2.”

Perfect World Pictures is in the process of merging with its former corporate sibling, mobile and online gaming company Perfect World, so that both can be listed on the Shenzhen stock exchange.

The Chinese company is investing $250 million for equity in the deal and expects to raise about $200 million in debt, said its president, Rong Chen.

So-called slate deals, in which an outside company covers a portion of the budgets of most or all films at a studio, are commonly used in Hollywood as a way to reduce risk and help even out results in the unpredictable movie business.

It is a new trend, however, for Chinese companies to be a source of capital. Lions Gate Entertainment Corp. last year signed a similar deal with Hunan TV & Broadcast Intermediary Co. to co-finance many of its movies.

Dalian Wanda Group Co. recently agreed to spend $3.5 billion to fully acquire Legendary Entertainment, an independent movie company that also has a partnership with Universal.

Perfect World Pictures sees the Universal deal largely as a means to an end. Eighty percent of its revenue currently comes from TV, and the company is aiming to expand its movie business by focusing on the global market, said Mr. Chen.

“Working with a company like Universal will help us elevate our skill set in moviemaking, marketing, distribution and on the financial side,” Mr. Chen said in an interview.

The Chinese company is putting together a team of employees in Los Angeles who will consult with Universal and, by later this year, start developing their own slate of movies. Perfect World plans to invest in English-language films aimed at global release, though its knowledge of the Chinese market could give it an advantage in producing pictures that will be successful there.

Mr. Chen said Perfect World will eventually look to make movies based on the company’s mobile games, and vice versa, as well as work with Universal’s theme parks division to expand into that business. He also said he is open to pursuing deals with other American movie companies.

Universal hopes the partnership will help it to expand its business in China, said the studio’s president, Jimmy Horowitz.

China’s box office receipts grew 49% last year to $6.78 billion and will likely surpass those of the U.S. to become No. 1 in the world within a few years. Local companies are looking to take a bigger share of that business—a priority for the government—but due to a lack of experience, many are seeking partnerships in Hollywood to upgrade their skills.

Although Legendary Pictures co-finances a few movies at Universal each year that it selects, the studio has been without a slate partner to invest in most of its films since 2012. In cases where Legendary or another company invests in a Universal movie, Perfect World will cover 25% of the studio’s portion of the budget only.

Universal is coming off the strongest year in industry history, having grossed a total of $6.9 billion globally thanks to such blockbuster hits as “Jurassic World,” “Furious 7” and “Minions.” The next few years should be more challenging, though the studio now enjoys the benefit of more strong franchises in its arsenal.

The Perfect World partnership excludes animated movies from Universal’s Illumination Entertainment unit—responsible for the “Despicable Me” films among others—and very low budget movies. It also doesn't guarantee Perfect World a stake in future “Fast and Furious” sequels.


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