China Film Group Co. is starting to look more like a Hollywood studio.
The Beijing-based company is pursuing a new strategy of investing in Hollywood productions that have no connections to China—a surprising and potentially controversial move for a unit of the state-owned entity that determines which foreign movies get into the tightly controlled country and when they are released.
China Film joined with Comcast Corp.’s Universal Pictures to take a nearly 10% stake in the recently released hit “Furious 7,” according to a person with knowledge of the arrangement, and had a small stake in January’s “Seventh Son,” from Legendary Pictures LLC.
The deals are China Film’s first investments in American-made movies not shot in China, and come as it looks to sell shares publicly for the first time. Meanwhile, the company faces increased competition from other distributors in the country.
“The big problem CFC has is production,” said Jeffrey Towson, an investment professor at Peking University’s Guanghua School of Management. Mr. Towson said China Film isn’t good at producing big hits, so it is looking to U.S. studios that it believes can deliver strong results.
It recently has been discussing deals to invest in other coming U.S. productions, said executives at Hollywood studios.
Implicit in those deals, though never explicitly promised, is that the release of any movies in which China Film invests would get “preferred dating” in that country, said one of the executives.
The investments could result in a conflict of interest: China Film’s state-backed parent sets release dates for all imported movies; now that China Film is considering ownership stakes in some of them, it could have an incentive to give its own films preferential treatment. That would add one more wrinkle to the already convoluted politics of U.S. studios looking to earn money from China, the world’s fastest-growing and second-largest box-office market. CONTINUE READING>>
Written by BEN FRITZ and LAURIE BURKITT for The Wall Street Journal on April 19, 2015