Hollywood isn’t sweating the market dive in China – in fact, things could swing its way
China’s “Black Monday” stock crash sent global markets reeling this week but Hollywood, which counts on the Asian economic giant for investment funding and audience growth, isn’t sweating it.
In fact, a selling panic in China could help Hollywood if investment money decides to flee the yuan – and land in Beverly Hills.
“If things get worse, it wouldn’t surprise me to see companies wanting to take some of their money out of the country, and it is apparent that the U.S. entertainment and media firms are very attractive to Chinese investors,” Tuna Amobi, equity analyst at S&P Capital, told TheWrap.
Monday’s 8.5 percent plunge in the Shanghai Composite Index, the worst since 2007, triggered selloffs around the world and jittery U.S. traders took the market on a wild roller-coaster ride before the Dow Jones leveled out and finished down 3.5 percent.
Media firms were among the most volatile and those hitting 52-week lows during the day included Apple, Carmike Cinemas, CBS, Discovery, Dish Network, Lionsgate, News Corp, Regal Entertainment, Time Warner, Fox, Viacom and Yahoo.
Despite all that, executives and media analysts remained confident on Monday while acknowledging the potential for major global problems if the Chinese freefall continues over the next few weeks. Here are 5 reasons why Hollywood firms doing business in China remain calm:
1. Many of the investments are already banked, and in dollars
Nearly all of the major investments by Chinese companies are completed before they are announced and funded in U.S. dollars, which insulates U.S. firms from losses caused by any devaluation of the yuan by the Beijing government.
Dick Cook Studios received $150 million from Citic Guoan; Robert Simonds’ STX cut a three-year deal with Huayi Bros Media to produce 18 films; and Jeff Robinov‘s Studio 8 launched with the help of a $200 million investment from China’s Fosun Group.
2. The box office boom isn’t going away
If the Beijing’s government flooding of the Chinese market with cash triggers a drop in value of the yuan, it could impact the returns for the next set of Hollywood films opening in the country: Paramount’s “Mission: Impossible — Rogue Nation” (Sept. 8), Universal’s “Minions” (Sept. 8), Sony’s “Pixels” (Sept. 15) and Disney’s Marvel saga “Ant-Man” and the Pixar family film “Inside Out,” which are both undated.
But the Chinese box office was at one point this year up a staggering 45 percent from last year, so even if it slows, its growth should still be healthy. “They’re not going to stop building theaters and history shows us that entertainment typically does just fine during tough times,” Robert Cain, a partner in Pacific Bridge Pictures who writes the China FilmBiz blog, told TheWrap. “That big $26 million opening by ‘Terminator: Genisys’ was a very good sign.”
3. China’s giants are cash-rich
Mergers and acquisition activity could slow, particularly if the deals are based on the Chinese firms’ stock equity, so don’t look for a major deal such as a Sony acquisition until things shake out further.
But the largest Chinese media firms like Alibaba, which kicked the tires of several Hollywood studios in 2014, and the Wanda Group, which bought out AMC Theaters in 2012, have plenty of cash on hand, and it is in any number of foreign currencies. So cash-based megadeals wouldn’t be affected.
Barring any further developments, China’s mid-sized businesses should be largely immune. “For talent deals and filmmakers putting together smaller Chinese-American co-productions, it has been business as usual, and it should remain that way,” Elliot Tong, head of Asian sales and acquisitions for Arclight Films, told TheWrap.
4. Hollywood could become a haven
As mentioned, many analysts see this as an overdue but needed correction for the Shanghai Index, which over the past three quarters had grown by 54 percent, 14 percent and 35 percent. But should things become tougher, some Chinese firms and investors could take their earnings and run — and many will see Hollywood as an inviting option.
5. There are 1.3 billion reasons to hang in there
It’s not all rosy. The meltdown could extend and go global and the Chinese government, always a wild card, could try to tighten the screws on “subversive” cultural influences — like American movies. Any loosening of the current 34-film annual limit on U.S. films is probably less likely in the immediate future. But the big picture is what counts for most Hollywood firms. Staying in for the long haul is rarely a bad play for investors, and its population of 1.3 billion makes that especially true for China.
Apple CEO Tim Cook, whose company’s stock was off by 13 percent at one point on Monday before recovering, remained bullish. “I continue to believe that China represents an unprecedented opportunity over the long haul,” he said. Worked for him: Apple’s stock in China closed up 1.5 percent.