In the latest sign of retrenchment by Chinese investors in Hollywood, Paramount Pictures said Tuesday that its $1-billion film-financing deal with China’s Huahua Media had collapsed.
The movie studio had announced the blockbuster pact with great fanfare in January, but the deal was scuttled because of China’s clampdown on foreign investments.
Paramount, in a statement, said it and Huahua had “mutually agreed” to end the arrangement, which had been on shaky ground for months. Paramount’s parent company, Viacom Inc., had acknowledged to investors in August that Huahua missed a scheduled payment in June.
Nonetheless, the move was a blow to Paramount, which has endured a prolonged drought at the box office and financial losses.
The studio was counting on the money to finance 25% of the studio’s film slate for three years. Viacom also said Tuesday that it will report a $59-million expense in its fiscal fourth quarter at Paramount because of the termination of the Huahua agreement.
Paramount is not the only U.S. media company that has seen a major deal with a Chinese partner fall apart. Chinese companies have had difficulty moving capital out of the country this year amid a government crackdown on foreign investment in businesses, including entertainment.
Dalian Wanda in 2016 agreed to pay $1 billion for the U.S. television production company Dick Clark Productions, but it failed to come up with the money. Eldridge Industries, which owns Dick Clark Productions, said in March that the deal was off. Wanda also ended plans to merge Legendary with its publicly traded entertainment holdings in China.
The sheer size of the Huahua deal, which probably caught the attention of Chinese regulators, added to the risk.
“Let's face it, the proposed Huahua-Paramount deal was twice as big and twice as ambitious as any of the other slate deals between China and Hollywood to date,” Lindsay Conner, a China expert with the Los Angeles law firm Manatt, Phelps & Phillips, said Tuesday. “A billion dollars is an awfully big number. In the current climate, it will be hard to successfully close a deal that big.”
China is closely scrutinizing such investments, he said.
“Deals of a more modest but substantial scale can still be achieved in the China-Hollywood partnership,” Conner said.
Other Chinese companies have managed to deliver on their pledged financing. China-based Perfect World Pictures last month closed a $250-million credit facility to help finance movies from Universal Pictures as part of a larger $500-million, five-year slate deal. Universal is owned by cable giant Comcast Corp.
Paramount’s arrangement for as much as $1 billion from Huahua Media and a second firm, the Shanghai Film Group, was negotiated by Paramount’s former chairman, Brad Grey, who was ousted from his job in February. Grey died in May.
Viacom and Paramount’s new leader — Paramount Pictures Chairman and Chief Executive Jim Gianopulos — attempted to salvage the pact.
The Melrose Avenue studio said Tuesday it has negotiated a series of individual agreements with financing partners — including Hasbro Inc., Skydance Media and Sega — to help make up for the loss of the money that had been expected from Huahua.
“The actions we are announcing today establish a financing model that is better aligned to Paramount's new strategic approach to film production,” Gianopulos said in a statement. “Our focus on a more balanced slate — a mix of big, broad-audience films and more targeted and co-branded films made with greater fiscal discipline — demands a more flexible and tailored financing model going forward.”
The loss of Chinese funding comes as Gianopulos is trying to turn Paramount's film business around. The studio has released several flops, including the Darren Aronofsky thriller "Mother," the George Clooney-directed crime comedy "Suburbicon" and the Dwayne Johnson comedy "Baywatch."
Paramount is ranked seventh among Hollywood studios with just 5% in domestic market share in 2017, according to Box Office Mojo.
6:00 p.m.: This article was updated with analyst reaction to the collapse of the Huahua Media deal.
This article was originally published at 3:05 p.m.