PE-backed film studio gets funding from China’s Huayi

The studio, which was founded last year by producer Robert Simonds in conjunction with TPG's growth capital arm, was already on track to release 8-10 movies a year. With Huayi's backing it is now in a position to greenlight further projects. The Chinese production company will co-fund, co-produce and co-distribute "virtually all" of STX's movies through 2017, according to a statement.

It is said to be first deal in which a Chinese producer will be involved in the entire movie-making process, from production to distribution. Simonds told Reuters that STX will spend $750 million in 2015 and then $900-950 million and $1.1-1.2 billion in 2016 and 2017. Each movie will cost $40 million to produce and require a further $35 million in marketing expenditure.

Initial STX-Huayi releases will include "The Gift," a psychological thriller starring Jason Bateman, "The Free State of Jones," starring Matthew McConaughey, and horror movie "The Boy."

The studio focuses on mid-range movies aimed at wide audiences, an area it feels is currently underrepresented. STX closed its initial financing in March 2014, with participation from the scions of two wealthy American families, Gigi Pritzker and William "Beau" Wrigley, as well as TPG and Hony.

Huayi and Hony's involvement strengthens STX's presence in China, the world's second-largest cinema market behind the US and Canada. It already has a strategic partnership with SMG Pictures, a studio backed by Shanghai Media Group, while Hony and home appliance retailer Suning Commerce control Chinese online TV provider PPTV.

There is a compelling economic argument for co-production agreements with Chinese groups for movies that are likely to appeal to domestic audiences. China only permits 34 foreign films to be show within its borders each year and overseas producers must work with accredited domestic distributors that the majority of the box office revenue.

Movies produced as Sino-foreign joint ventures, with a certain amount of domestically-produced content, are not subject to these restrictions.

Takings at Chinese cinemas reached RMB29.6 billion ($4.78 billion) in 2014, up 36% year-on-year, while revenues in North America slipped 5% to $10.3 billion. "Transformers: Age of Extinction" was the highest-grossing movie with $320 million - beating the record of $204 million set by "Avatar" - although domestic releases accounted for 55% of total receipts.

Two China-focused film funds - Harvest Seven Stars Media Fund and China Mainstream Media - launched in 2012 with a view to supporting local productions and potentially working with overseas studios. Meanwhile, last year the China unit of IMAX, which cooperates with studios on movies that are well-suited for its giant screens in addition to selling equipment, received $80 million from FountainVest Partners and CMC Capital Partners.

Beijing-headquartered Huayi, which was founded by brothers Dennis and James Wang in 1994,sees the STX deal as a means of growing its business in the US. Chinese internet giants Alibaba Group and Tencent Holdings both have minority shareholdings in the company.

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• Topics
• Expansion
• Media
• Greater China
• TMT
• Media
• China
• TPG Capital
• Hony Capital
• Growth capital