Galloping Horse picks up the pace

One of a crop of ambitious young Chinese film investment companies, Beijing Galloping Horse Film Co (BGH) was virtually unknown in the West until it hit the headlines in a big way last September with its acquisition of leading visual-effects studio Digital Domain.

BGH partnered with India’s Reliance MediaWorks (RMW) to beat out bidders including France’s Technicolor to buy the beleaguered company for $30.2m. Despite its work on films such as the Transformers series and Pirates Of The Caribbean: At World’s End, Digital Domain had fallen victim to the combination of unpredictable cashflow, low profit margins and intense competition, which has plagued many US VFX houses in the last few years.

‘Now our box office is going up, local producers are encouraged to spend more money on VFX’

Ivy Zhong, Beijing Galloping Horse

Both BGH and RMW were already involved with Digital Domain. BGH had a joint production venture with the US company, through which they were co-producing animated feature The Legend Of Tembo. RMW was partnered with Digital Domain in studios in London and Mumbai. Following the acquisition, BGH has a 70% stake in Digital Domain while RMW owns the remaining 30%.

As soon as the deal closed, BGH started overhauling the company’s business model to make it less dependent on feature films and increase its involvement in gaming, advertising and other digital projects.

“A lot of good VFX companies have been facing bankruptcy recently, but their problem is not their artists or management. If they continue to focus on film work, they face cash-flow problems due to the inevitable delays,” says BGH vice-chairman and managing director Ivy Zhong.

“Most of their costs are payroll and you can’t have hundreds of artists just sitting around when a movie has been delayed. Relying on the slow cashflow from movies is dangerous so we’re looking for work that generates frequent inflows of cash.”

Zhong has already brought in new clients to Digital Domain, such as Chinese internet giant Tencent Holdings, and another big company to be announced soon. There are also plans for Digital Domain to start taking equity positions in some of the films it works on. “The company was involved in around 15 out of the top 20 movies last year, so why not invest equity in those projects, as we hear about them early and can choose,” says Zhong.

Digital Domain will also soon start working on its first Chinese film production — John Woo’s as yet- untitled romantic epic, which starts shooting in mid-May with a glittering ensemble cast including Zhang Ziyi and Korean actress Song Hye-kyo.

BGH is majority financing the $30m film, which follows the loves stories of three men and three women against the backdrop of historical events in 1940s China. Digital Domain will be involved in recreating battles from the Second World War and the Chinese Civil War, along with a shipping disaster off the coast near Shanghai. Woo and Terence Chang’s Lion Rock Productions are producing with BGH and China Film Group.

The project heads an ambitious new slate from BGH, which is ramping up production this year with around eight Chinese-language features. Also in the pipeline are movie adaptations of two top-rating Chinese TV series — The Legend Of Zhen Huan, about palace intrigue in the Qing Dynasty, and Soldier Ge Erdan. BGH is also developing an action comedy Get Rio,scripted by Shu Ping and directed by Wei Xiao, who are both regular collaborators with leading Chinese film-maker Jiang Wen.

Established in 1998 as a TV and advertising company, BGH has a long history by Chinese media and entertainment industry standards. It quickly became well-known for producing hit TV dramas and in 2008 attracted $40m investment from Baring Private Equity Partners Asia.

The company started investing in films in 2009, at first collectively with other Chinese companies, which is common practice for new investors, then later started to take larger stakes or fully finance films. One of its first big projects was Reign Of Assassins (2010), co-directed by Woo and Su Chaopin, which starred Michelle Yeoh.

‘The US films that are successful in China have huge budgets of $100-$200m and we can’t do those kinds of movies in China’

Ivy Zhong, Beijing Galloping Horse

The company’s credits also include 2011 romantic drama Eternal Moment, directed by established film-maker Zhang Yibai, who heads production for the company. Last year BGH released Ning Hao’s heist caper Guns N’ Roses and arty crime drama Lethal Hostage, directed by newcomer Cheng Er. With a gross of $24m, Guns N’ Roses was the only bright spot for the local fi lm industry after China’s import quota was widened last spring. Lethal Hostage managed a respectable $5m in August.

In addition to production, BGH distributes in mainland China and is ramping up its international sales division, headed by former Mega- Vision Pictures’ executive Ronan Wong. The company also has a talent management arm and operates five cinemas in mainland China, with plans for another five to open this year.

The company has been outward-looking from the very beginning, exploring opportunities to invest in or co-produce international projects, and was one of the investors in Sony’s 2010 The Karate Kid. It is also developing an English-language project that originated in the US, Two-Gun Cohen (working title), about a UK adventurer who became aide-de-camp to China’s first president Sun Yat-sen. Doug Liman was attached to direct but had to leave the project due to other commitments. Zhong says the script is now ready and she is looking for partners and a new director in the US.

Zhong say further investments in US projects are in the pipeline, some of which will be US-China co-productions while others are co-financing deals. As co-productions are exempt from China’s import quotas, they have recently attracted huge attention, although the Chinese authorities started to clamp down on what they described as “stick-on co-productions” last year. As Zhong explains, it is not just regulatory hurdles that make US-China co-productions difficult to arrange.

“Firstly our cultures are very different,” says Zhong. “Comedy doesn’t usually travel and even with romantic dramas you can feel the differences in values when you’re talking about love.

“Then if you look at the type of movies that are popular in both markets, they are mostly action, sci-fi and VFX films that don’t have a cultural backdrop. The US films that are successful in China have huge budgets of $100m-$200m and we can’t do those kinds of movies in China. So it’s not easy to find projects that are suitable for co-production, although we’re still trying.”

Presumably, owning Digital Domain is a step in the right direction towards making $100m movies and taking on Hollywood at its own game. But Zhong says this is not going to happen overnight. For that reason BGH is not relocating Digital Domain’s US and Canadian facilities to China to take advantage of cost savings. “The VFX industry is all about the artists and you can’t train people to a very high standard in a short space of time,” says Zhong. “You can do some simple VFX work in India and China to lower costs, but not the high-end work.”

But she does acknowledge the acquisition should enrich the local fi lm industry by giving it access to tools and skills it will increasingly need to remain competitive with the growing number of Hollywood imports. Zhong observes that two kinds of local movies are currently performing well in China — comedies and CGI-driven fantasies based on local mythology, such as Painted Skin: The Resurrection. “Now our box office is going up, local producers are encouraged to spend more money on VFX,” she says. “We know this because a lot of people have approached us since we bought Digital Domain.”

Outside of the movie sphere, Zhong says Digital Domain will also continue to develop new forms of digital entertainment, such as the hologram of late rapper Tupac Shakur that astonished audiences at the Coachella music festival last year. Although she will not be drawn on specifics, Zhong says the company is looking for Asian stars and singers to bring back to life. The possibilities are mind-boggling