News Corp targets China’s vast film industry with Bona deal (

17 May 2012 20 h 43 min Comments Off

News Corp. is purchasing a 19.9 percent stake in China’s Bona Film Group Ltd. (NASDAQ:BONA), a movie distributor and producer, as it looks to position itself in a fast-expanding market and grow its China film footprint.

Films in China hold great promise – box-office receipts rose 28.6 per cent last year to 13.12 billion yuan ($2.1 billion) alongside a 40 percent increase in the number of cinemas to 2,803, according to CMM-I — but foreign companies are frustrated since the film industry is tightly regulated, with production and distribution licenses handed out sparingly.

The new deal comes as China slowly liberalizes its film sector to allow more foreign participation. News Corp, which owns Hollywood studio 20th Century Fox, plans to use Bona to strengthen its foothold in the booming Chinese film market, where it distributes some US-made films but has made little headway with local content.

Stan Abrams, a Beijing-based IP lawyer and blogger at ChinaHearsay, looked into the risks of the investment given the complicated structure of Bona and the risks of investing into China via a VIE.

. News Corp is not exactly purchasing equity in a company that holds those licenses, but rather investing in a Cayman Islands holding company that owns several entities in China that have, in turn, contractual relationships with the PRC-national-held entities that have the licenses. If you are a regular reader of this blog, you’re already thinking VIEs (variable interest entities). And you’d be right, that’s exactly how Bona Film Group is structured and how it is able to tap into offshore equity markets.
. The government could declare the contractual arrangements invalid, which is one of the most significant risks of using a VIE structure.
. One of the biggest risks, Abrams said, was in personnel — Bona CEO Dong Yu holds the important connections in China.

As regulation slowly loosens, more Hollywood studios can be expected to explore opportunities in China, but while restrictions do remain, VIEs are likely to be the main initial investment structure.

Source: (16/05/2012)

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