Wanda creates major global movie exhibition powerhouse
Chinese conglomerate Dalian Wanda Group has agreed to purchase the assets of US and international cinema circuit, AMC Entertainment, for $2.6bn including debt. Wanda is one of the top three Chinese cinema chains with 730 screens and deal marks its first investment outside China. The deal is also the single largest bid by a Chinese company to become a full owner of a major US and/or international movie exhibition circuit.
The move highlights the growing cross-awareness and collaboration between US and Chinese firms in film production, distribution and exhibition. On the exhibition side, the deal will undoubtedly mark a change in strategy (as well as ownership) from the current collection of private equity investors to one major private owner, already active in cinema exhibition. For example, Wanda has already committed to investing a further reported $500m in a bid to reduce debt and also update hardware. In fact, the companies already have significant synergies given they are both the largest investors in Imax screens by circuit in US and China respectively. The deal gifts Wanda the AMC circuit brand and a platform comprising 336 cinemas and 4,833 screens in the US market plus select exhibition interests in Canada, UK, France and Hong Kong. AMC has also recently become active in film distribution and acquisition through the joint venture set up with Regal Cinemas, known as Open Road Films for independent titles, although it is not known how this will impact the relationship.
While the deal is only thought to apply to movie exhibition, Wanda has reportedly applied for a license to become a major importer of US films into China, a right currently held by two state-owned vehicles.
The deal closely follows investment by several major US companies in Chinese film production and distribution. Most recently, News Corp, agreed to take just under a 20 per cent stake in Bona Film Group, a leading private Chinese film distributor/exhibitor. Moreover, in February, Dreamworks Animation announced it would construct a new film studio in Shanghai. On more collaborative terms, Disney will co-produce the next Iron Man with a Chinese partner, and part of the movie will also be filmed in China itself.
The flurry of deals appear to have been triggered by the recent relaxation in 2012 of previously strict import quotas for Hollywood films in China on a revenue-sharing basis. The new agreement now permits an additional 14 films per year, but only in Imax, animation or 3D format on top of the existing 20 film allocation.
The acquisition by Wanda will create a strong global powerhouse in movie exhibition with a combined total of at least 5,775 screens, as the second largest player (by screen count alone) and the only company to have major screen assets in the rapidly growing Chinese box office market as well as the US. The deal is, however, one of a series of recent moves by international circuits looking to gain a strategic foothold in the US including Mexican giant Cinepolis, which also operates throughout Latin America as well as India and Indian firm Reliance BIG Cinemas.
Conversely, regulation in China prevents foreign companies from taking majority ownership in cinema circuits, although joint ventures are allowed. There are therefore limited international groups with a stake in Chinese cinema exhibition, that currently include major Korean conglomerate Lotte, Bingo Group (HK) and Imax, although the latter is a provider of technology for existing circuits. Some years ago, Warner Brothers withdrew from Chinese exhibition after a failed joint venture exercise.
Regal USA is currently the largest global circuit by screen footprint, with over 6,600, all in the US. Wanda itself has been rapidly building its domestic screen count in China through organic growth and it has approximately doubled its base in the past two years alone with plans to increase provision to over 2,000 screens by 2015. China is currently in the midst of a phase of rampant new screen construction, adding 2,879 screens in 2011, equivalent to a 36.8 per cent annual increase. China has 10,700 screens compared to 39,641 in the the USA. Wanda will also be inheriting a circuit comprised of the highest concentration of multiplex screens per site in the US (average 14.4 screens per site) compared with Wanda in China, with an average of just 8.4 screens per site. The strategic logic, outside of a presence in the US, is harder to discern as the US is a mature market unlike the rapidly growing Chinese one.
Deal is clearly part of longer term strategic goal for Dalian Wanda to become a major global force in the business sectors it operates. However, the designated level of further investment by Wanda highlights the company is looking at growing market share at the US box office by upgrading facilities.
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