China Media Capital may not have the magic ring of Alibaba or present the wall of money image of the Dalian Wanda Group. But its latest deal confirms CMC as one of Hollywood’s most advanced investors and partners from China.
This week CMC announced that it had taken a minority stake in Brian Grazer and Ron Howard’s Imagine Entertainment. The purchase was made as part of a more than $100 million capital injection into Imagine marshalled by boutique investment bank Raine Group, announced last month.
"Through the investment in Imagine Entertainment we will team up with the top production team in Hollywood to further enter into the heartlands of the world’s movie and television industries," said CMC in a Chinese-language statement on Monday.
The deal is part of an ongoing trend of Chinese investment in Hollywood, following on from Hunan TV’s relationship with Lionsgate, Huayi Brother’s pact with STX Entertainment and most recently Wanda’s $3.5 billion acquisition of Legendary Entertainment, and Perfect World Pictures investment in a slate of movies from Universal. And while the size of CMC’s contribution to the Imagine refinancing is likely to be modest, the company should be considered in the same category of cashed up and forward-thinking Chinese companies looking to find an optimum route into Hollywood. With Paramount currently looking for strategic investors, MGM, Lionsgate and DreamWorks perpetually in play, CMC, like Alibaba and Wanda, has plenty of options.
The capital injection is to be used by Imagine for film and TV production, branded entertainment, location-based entertainment and digital technology. The fit with CMC is a neat one. Those are all areas of interest for the young group which has expanded rapidly under the leadership of Li Ruigang, widely regarded as one of the sharpest minds anywhere in the entertainment and media business.
CMC was founded in 2009 by Li, then the chairman of state-controlled Shanghai Media Group. Among the company’s first deals were the purchase of a clutch of Chinese-language TV channels (Xing Kong China Channel, Xing Kong International Channel and Channel [V] that span mainland China, Hong Kong/Macau, Taiwan and SE Asia) from News Corp.’s Hong Kong-based Star TV. CMC later followed that with Star’s Fortune Star film library, the largest single collection of Chinese movies in the world, built around the 1970s-1990s output of the iconic Golden Harvest studio.
Having done business with News Corp. and Fox, CMC then partnered with DreamWorks Animation, enabling Jeffrey Katzenberg to become one of only a handful of Hollywood executives deeply embedded in the Middle Kingdom. They jointly established Shanghai-based production firm Oriental DreamWorks, which recently co-produced "Kung Fu Panda 3"— global gross to date $324 million.
While Li no longer runs SMG, he retains the title of president. That’s typical of the organization which values ‘guanxi’ (Chinese for connections) and has managed to become a free-wheeling investor, while also maintaining close links to the Communist Party and China’s political hierarchy. (Li was recently part of a delegation led by President Xi Jinping to the United Kingdom.)
That ability to play both sides – loyal servant of a China that wants to see its culture projected globally, and smart capitalist who speaks the same language as the private equity managers, venture capitalists and Hollywood moguls – has earned CMC friends and new business opportunities. As the company has gone through a series of funding rounds – initially in Renminbi, but later in US dollars – A-list investors including Time Warner, Martin Sorrell’’s WPP advertising giant and James Packer and Brett Ratner’s Ratpac Entertainment have provided the financial means to realize Li’s vision.
CMC is credited with having facilitated the creation of IMAX China, the IMAX spinoff that was last year listed on the Hong Kong Stock Exchange. CMC retains a stake and is showing a substantial paper profit.
CMC finally went into business with Warner last year, when they announced the establishment of Flagship Entertainment, a vehicle headed by Warner veteran Richard Fox and hatched to make Chinese-language "global tentpole" movies.
Other deals in the past two years have seen Li steer CMC into technology (through subsidiary Whaley) and visual effects, through a stake in BaseFX. The Beijing-based firm also boasts ILM as a backer and provided numerous shots for "Star Wars: The Force Awakens."
CMC is also becoming more international. In addition to the Imagine stake, the company has acquired a minority stake in Hong Kong’s leading free-to-air TV broadcaster TVB and taken a minority stake in British soccer club Manchester City.
While Li’s roots are largely in content – in China he is often compared to Rupert Murdoch – he appears to increasingly be expressing a technology vision as well. Li now sees content – film, TV, sport rights – all as feeding the smart TV’s and other devices to be launched by Whaley.
That might seem to put CMC on a collision course with other Chinese groups such as Baidu, Alibaba, Tencent, Le Eco or Wanda. Each is developing proprietary ‘ecosystems’ which they see as having Chinese roots, but want to project globally. Li however, seems to espouse a more co-operative approach. Market rumors currently suggest that Alibaba’s Ant Financial division is seeking to buy a piece of the investigative and financial news organization Caixin, in which CMC already has a stake. And both Alibaba and Tencent are investors in CMC’s Whaley.
That could be an indicator of things to come.
In most cases to date, CMC’s approach has been to take a significant minority stake in target companies. Leveraging Li’s Hollywood and Wall Street connections could make CMC the perfect junior partner in an Alibaba bid for a major U.S. entertainment conglomerate.