Film stu­dio waits for its check

Paramount Pic­tures misses an ex­pected pay­ment from Huahua Me­dia, its Chi­nese fi­nanc­ing part­ner.

Los Angeles Times - - BUSINESS - By Meg James and Ryan Faugh­n­der

Film stu­dio Paramount Pic­tures’ deal to have a Chi­nese com­pany in­vest in its movies is off to a rocky start, a wor­ry­ing sign for Hol­ly­wood as it braces for a fur­ther clam­p­down on in­vest­ment from China.

Paramount’s par­ent com­pany, Viacom Inc., dis­closed Thurs­day that it did not re­ceive its ex­pected pay­ment this sum­mer from its Chi­nese fi­nanc­ing part­ner, Huahua Me­dia.

Viacom has been bank­ing on an in­fu­sion of $1 bil­lion in cash from China over three years to help it re­bound from years of fi­nan­cial losses at the Los Angeles film stu­dio. The June in­stall­ment — the amount was not dis­closed — has not been re­ceived, Viacom Chief Fi­nan­cial Of­fi­cer Wade Davis told an­a­lysts dur­ing an earn­ings call Thurs­day.

“Every­thing is fine.… The deal con­tin­ues to be in ef­fect,” Davis said. “We have been in busi­ness with Huahua for a long time, and they have been a fan­tas­tic part­ner in China.”

A Huahua Me­dia spokesman de­clined to com­ment. Viacom shares closed Thurs­day at $35.07, up 3%, but dropped 8% in af­ter­hours trad­ing.

Paramount in Jan­uary se­cured its $1-bil­lion deal with Huahua and Shang­hai Film Group to co-fi­nance films dur­ing a three-year pe­riod. The stu­dio would ben­e­fit by cov­er­ing some of its losses if the films bombed, while get­ting a mar­ket­ing boost in the world’s sec­ond­largest box-of­fice mar­ket. The pact was or­ches­trated by Brad Grey, Paramount’s then chair­man and chief ex­ec­u­tive, who was re­placed by Jim Gianop­u­los. (Grey died in May.)

But sev­eral movies Huahua backed were ma­jor dis­ap­point­ments. Huahua took a big fi­nan­cial hit on box of­fice fail­ures “Baywatch” and “Ghost in the Shell,” ac­cord­ing to two peo­ple fa­mil­iar with the mat­ter who were not au­tho­rized to com­ment.

And while “Trans­form-

ers: The Last Knight,” the fifth movie in the Michael Bay se­ries, did well glob­ally, it fell short of expectations. “Trans­form­ers: The Last Knight” grossed $229 mil­lion in China, a steep drop from the $320 mil­lion the pre­vi­ous “Trans­form­ers” film grossed there.

Chi­nese com­pa­nies have strug­gled re­cently to move cap­i­tal out of the coun­try as the gov­ern­ment closely scru­ti­nizes over­seas in­vest­ment. That has slammed the brakes on Chi­nese con­glom­er­ate Dalian Wanda Group’s ef­forts to be­come a ma­jor Hol­ly­wood player.

The is­sues with the Huahua Me­dia in­vest­ment have had more to do with the per­for­mance Paramount Pic­tures’ movies than cap­i­tal con­trols, say peo­ple fa­mil­iar with the mat­ter. Signs of trou­ble with the Huahua Me­dia deal emerged in March when Davis flew to China to re­as­sure its co-fi­nanc­ing part­ners about Paramount’s movie strat­egy af­ter Grey was ousted in Fe­bru­ary.

Mul­ti­ple stu­dios have se­cured co-fi­nanc­ing deals with Chi­nese com­pa­nies. Last year Sony signed an agree­ment with Wanda, the world’s big­gest cin­ema chain owner, but Wanda in­vested in only a cou­ple of Sony movies — the dis­ap­point­ing “Pas­sen­gers” and “Smurfs: The Lost Vil­lage.” Also last year, Univer­sal Pic­tures signed a deal for Per­fect World Pic­tures to in­vest up to $450 mil­lion in its movies for five years.

The grosses from “Trans­form­ers: The Last Knight” en­abled the film stu­dio to post profit. The big-bud­get movie helped drive rev­enue of $847 mil­lion in the Aprilthrough-June quar­ter, up 36% over last year.

Paramount had ad­justed op­er­at­ing in­come of $9 mil­lion for the quar­ter, ver­sus an op­er­at­ing loss of $26 mil­lion in the year-ear­lier pe­riod.

“The re­vi­tal­iza­tion of Paramount is well un­der­way,” Viacom Chief Ex­ec­u­tive Bob Bak­ish told an­a­lysts.

The New York me­dia com­pany pro­duced profit of $1.17 a share in the third fis­cal quar­ter, com­pared to $1.05 a year ago. Net in­come was $680 mil­lion, up from $432 mil­lion last year. An­a­lysts polled by Thom­son Reuters ex­pected earn­ings of $1.05 a share.

Rev­enue climbed 8% to $3.36 bil­lion, com­pared with $3.11 bil­lion in the year-ear­lier pe­riod. An­a­lysts had an­tic­i­pated rev­enue of $3.29 bil­lion.

Paramount re­leased two films dur­ing the quar­ter, “Trans­form­ers: The Last Knight” and “Baywatch.”

Davis said the com­pany took $59 mil­lion in re­struc­tur­ing and pro­gram­ming charges af­ter a re­view of the stu­dio’s projects.

Viacom also has been try­ing to beef up its key ca­ble TV net­works, in­clud­ing Nick­elodeon, Com­edy Cen­tral, and MTV. MTV and Com­edy Cen­tral have ex­pe­ri­enced se­vere rat­ings de­clines.

The tele­vi­sion net­works’ rev­enue grew 2% to $2.56 bil­lion, fu­eled by an in­crease in pay-TV af­fil­i­ate fees. In­ter­na­tional net­works rev­enue was up, but do­mes­tic ad­ver­tis­ing rev­enue was down 2% to $955 mil­lion for the quar­ter.

Tele­vi­sion net­works pro­duced ad­justed op­er­at­ing in­come of $870 mil­lion, vir­tu­ally the same as a year ago.

Paramount Pic­tures Bay Films

GROSSES FROM “Trans­form­ers: The Last Knight,” star­ring Anthony Hop­kins, en­abled Paramount Pic­tures to post a profit. The big-bud­get movie helped drive rev­enue of $847 mil­lion in the April-through-June quar­ter.

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