STX Entertainment has just established itself as a force to be reckoned with. The company today officially sealed a deal with China’s largest privately held film firm, Huayi Brothers Media Corp, in a three-year pact that begins in 2016 for 12-15 projects per year. Deadline understands the deal is to be structured as a revolving line of credit estimated at upwards of $1 billion for films to be co-produced and distributed with Huayi. There are a number of titles that have already been approved, but have yet to be announced. Although the relationship between the parties begins immediately, STX will not see its slate ramp up until next year.
In addition, Huayi will share in the global revenues of the slate and have a first-look distribution deal in China on most of STX’s films. According to the company, “the deal marks the first time that a Chinese film company will be involved in the entire process — from production to marketing to distribution.”
Deadline understands that this is a pure investment play, intended to broaden Huayi’s reach outside of China and see it participate in a global slate. Along the lines of a Wanda/AMC, China is not the focus of the partnership — in other words there is no mandate to make Chinese movies. Huayi, it is understood, will automatically invest in the titles that STX triggers. The planned model of $20M-$60M budgets will stick; and output deals are being established for international distribution.
However, there is clearly a more strategic play at work. Look at the relationship tree. Key to the deal was Tang Media Partners Donald Tang, who is the former chairman of Bear Stearns Asia and has done business who has strong relationships both inside the U.S. and with most major players in China. (for instance, Tang was involved in the mega Wanda/AMC deal).
The low-key executive was the center of the wheel and brought all these players together. Simonds and Tang had known each other for decades; Tang had known Huayi brothers Dennis and James Wang for 20 years. Tang also was longtime friends with Dominic Ng, chairman/CEO of East West Bank, which provided the financing component for the STX/Huayi transaction.
The talks on the STX/Huayi partnership began last October in Beijing. Tang told Deadline that this transaction is really part of a bigger picture, a strategic alignment for both parties. “This transaction is part of a deeper strategy. It’s a strategic financing arrangement that will bring STX into a collaboration with major players in China,” he said. In other words, this is clearly a first step in what will be a deeper series of strategic alliances.
The Huayi private shareholders approved the deal at 1:15 AM PST today. Noah Fogelson and Jordan Lichtman were in-house counsel for STX.
“It’s very satisfying to see a deal of this size come to fruition,” said attorney Lindsay Conner at Manatt, Phelps & Phillip, who led the legal team for Huayi Bros. in the U.S. “I believe it represents an increasingly close partnership between Hollywood and China. Both sides of the Pacific understand the benefits of working together in what is clearly a global film business.” Manatt’s Sophia Yen and Kiley Wong were the other attorneys on the team.
This strong tie between STX and Chinese investors comes as the country is poised to become the No. 1 market for theatrical films and SVOD. It has 1.3 billion people and already has about 20,000 movie screens. Also interesting is that China’s biggest Internet companies, Alibaba and Tencent have both taken 8% interests in Huayi Bros. Entertainment.
Tencent then entered into a strategic tie-up with HBO to become the pay-TV company’s sole distributor in China. Quite interesting is that today launches some government controls in China over the Internet via its regulatory authority SAPPFRT which is designed to limit foreign content on Chinese video websites. However, think about this: Since STX and Huayi are in a strategic partnership and Huayi has a sharing interest in STX film content, it seems that this limitation can be avoided for the most part.
This deal marks yet another Chinese player who has reached into Hollywood. Hony Capital is already invested in STX. Fosun International, the largest privately-owned conglomerate in mainland China, invested last year in Jeff Robinov’s Studio 8 to produce 24 films over five years (Huayi had previously held talks with Studio 8 and also Lionsgate.) Dalian Wanda, a leading Chinese conglom, acquired AMC Entertainment Holdings for $2.6B in 2012. Last month DMG Entertainment (which co-produced and co-financed Marvel Studios’ Iron Man 3) grabbed hold of Valiant Comics in what they said was an eight-figure series C round of equity investment deal for international business development with an additional nine-figures in film financing capital to be used for production of film and television projects.
Combined with financial backer Hony Capital, STX is well-heeled push through as many films as any major Hollywood studio, however their deal structures are very different. The company is headed by Robert Simonds with the largest stakeholder being global private investment firm TPG Growth. They, along with Gigi Pritzker, have one ultimate goal: to become a major Hollywood studio… one step at a time. The mantra for the company seems to be “respect the capital.”
According to an executive with knowledge of the Huayi deal, STX will be able to greenlight “already approved” projects which are yet to be announced. It is already established that STX was going to develop product for the Chinese market. TPG Growth’s Bill McGlashan, who lived in China for five years and has done business with the Chinese for 25 years, told Deadline at the onset that was the strategy.
With Hony, it had planned to put four films in the marketplace next year, then six the following year (2016) and then eight a year moving forward thereafter with an average budget of $40M on a marketing and distribution budget on average of $35M domestically. With Huayi Bros. now as a partner, STX Entertainment’s business plan has accelerated significantly.
The company has already ramped up with executives, established a multi-year output deal with Showtime Networks to air their slate of films (an agreement that takes them through 2019), and negotiated separately with the nation’s exhibitors to carry their films. The agreement with the exhibs ensured the company a certain amount of screens each year. When STX launched a year ago, they said they wanted to produce “studio-caliber” films in the $20M to $60M range.
To that end, they have put a number of films into the pipeline: writer-director Gary Ross’ Free State Of Jones starring Matthew McConaughey as Newton Knight who was the leader of one of the greatest rebellions in Civil War history; a remake of the 2010 Oscar Best Foreign Language Film The Secret in Their Eyes with Chiwetel Ejiofor, Nicole Kidman and Julia Roberts; the psychological thriller The Gift from producers Rebecca Yeldham and Jason Blum’s Blumhouse with Jason Bateman, Rebecca Hall, and Joel Edgerton (who is making his directorial debut); and the horror film The Boy from William Brent Bell (The Devil Inside). Huayi Brothers will now be STX’s partner on all of these films.