There is a world of difference behind guaranteed film distribution: financial leverage appears to help

For anxious capitals, China's film market is like a piece of "Tang Monk's meat." Capitalists want to use all their strength to tear open a bloody hole, invest in it, and then share the excess profits.

For anxious capitals, China's film market is like a piece of "Tang Monk's meat." Capitalists want to use all their strength to tear open a bloody hole, invest in it, and then share the excess profits. If existing investment methods cannot meet demand, financial innovation will emerge.

After the "Ip Man 3" incident, the reporter visited film industry regulatory agencies, industry executives, and front-line operators to deeply discuss the "red and black" of film financial innovation, and on this basis compiled the "Case and Boundary of Film Financial Innovation" white paper. Various financial innovation methods have gradually penetrated into the texture of the film industry:

1. Through "ticket compensation" and financial capital through "guaranteed issuance", it has quickly penetrated into the film industry chain and reconstructed the industry pattern;

2. A series of calls of capital levers and setting of game rules have already redistributed the interests of this industry;

3. When the film market is linked to the P2P market and the securities market, through" cross-market operations", movies have long become a financial product that can leverage tens or even hundreds of times of capital...

Viewpoint 1: Guaranteed issuance brings" power inversion" between investors and issuers. The film investment risk is transferred to the distribution process, which also greatly shortens the investor's payment cycle. A new way to play has also emerged in the "Mermaid" case-multiple capital parties form funds to enter the market and then hire a distribution company to distribute the film. Film distribution has been split into two parts.

Viewpoint 2: What gave birth to the new gameplay of guaranteed guarantees is the changes in the core resources of the entire film market. As directors begin to realize their market value, they will increasingly leave big companies and set up their own studios or companies. They are good at creation but do not understand marketing and distribution, so they are more willing to reduce their own risks through guaranteed guarantees. This provides space for non-industry capital to participate in guaranteed guarantees.

Viewpoint 3: As a new distribution method, guaranteed distribution is increasingly favored by the film industry. "Mermaid","Ip Man 3","Journey to the West to Conquering the Devil","No Future Meeting","Heart Flowers on the Road","Taiping Wheel","Gardenia Blooms","Master","Hot Pot Hero", as well as the unreleased "I am Not Pan Jinlian", all adopt a guaranteed distribution method.

Viewpoint 4: The guaranteed release of "Ip Man 3" is just one of Shi Jianxiang's "movie financial fraud". The purpose is to increase the industry's box office expectations and extract money from the secondary market. The guaranteed release of "Ip Man 3" is an extreme case full of "evil nature".

Viewpoint 5:"Capital leverage" has appeared in individual guaranteed issuance cases, which gives guaranteed issuers more possibilities to "grow with small amounts".

The guaranteed box office of "Mermaid" is between 1.6 billion and 1.8 billion yuan, the highest in history, which once triggered a tsunami of doubts. But the film eventually won the box office championship in China with a box office of 3.3 billion yuan. The following "Ip Man 3" seemed to have a similar transaction structure, but the "box office scandal" triggered public opinion. In the end, Kuailu Group "faltered" and the distribution team was directly disbanded.

What are the reasons behind the world's difference? Is the guaranteed issuance wrong?

What is guaranteed issuance?

The word guaranteed originally originated in the West. During the production process of an overseas film, an insurance company usually intervenes to ensure that the film is produced and completed on time within a certain cost range. The domestic guarantee is more like a box office guarantee after the film is finished. It guarantees the box office revenue rights after the film is completed.

Before the film is released, the guarantee party will pay the film company a cash share in advance based on the expected box office revenue of the guarantee contract. In this way, it is equivalent to the film company locking in the risks in advance and making steady profits without losing, but at the same time it also gives up the opportunity to obtain more profits, while the guaranteed distributor has greater authority to announce the film.

Compared with ordinary distribution, guaranteed distribution has two main characteristics:

first, before the film is released, the investor can recover the box office revenue that would have been received one year after the film is released;

second, the risk of the film project is passed on by the investor. To the issuer, participants in guaranteed distribution are required to have more accurate expectations about the box office of the film.

In 2013, Huayi Brothers once guaranteed a guaranteed guarantee of 300 million yuan for Stephen Chow's "Journey to the West to Conquering the Devil", and Huayi Brothers 'share was 70% for the box office exceeding 300 million yuan; since then, Bona Films also guaranteed a guaranteed guarantee of 350 million yuan for Han Han's "No Future Meeting", and Bona received a 40% share of the box office exceeding 350 million yuan.

The guarantees of these two films are obviously not as high as the topics brought by "Heart Flowers on the Road". In 2014, China Film and Beijing Ferris Wheel Company paid 125 million yuan to the film "Heart Flower Road Release" with a guaranteed release of 500 million yuan. The final box office of the film was 1.17 billion yuan. Since then, more and more films have begun to adopt this method of distribution. For example, LeTV Pictures has guaranteed a minimum of 800 million yuan for John Woo's two "Taiping Wheels", and Theater Corner Pictures has guaranteed a minimum of 430 million yuan for "Gardenia Blooms".

As film production costs continue to increase, the threshold for the guaranteed amount is also increasing. The risk of one company buying out the distribution rights is increasing. Once it fails, it may cause a large performance loss to the guaranteed company.

Why are guaranteed issuance becoming increasingly popular?

Although guaranteed issuance amplifies the risks in the issuance process, there are still many risk-takers who enjoy it. This is closely related to the overall environment where the entire film market is in short supply.

At present, the number of screens in China is growing at a rate of 30% per year. At the end of last year, it exceeded 30,000, and the total annual film output reached six to seven hundred. This market environment has stimulated the emergence of a large number of small and medium-sized companies, especially some independent director studios. They have high-quality production capabilities but are reluctant to cooperate with large companies.

"These directors have become increasingly aware of their value in the market. They don't want to be a wedding for any company. Behind a movie, a company can often collect dual benefits from the film project and the secondary market, while the director only gets a fixed salary or excess income. They think this is unfair."

--Industry insiders who have participated in guaranteed distribution

While more and more high-quality projects are concentrated from large companies to independent director studios, a large amount of non-industry capital is pouring into the film industry. In the absence of channels, distribution and other resources, high-priced guarantees have become the most direct and rapid way for some non-industry capital to enter the film and television industry.

"For most producers, the shortest production time for a film project is one year, and the longest time is two to three years. During this period of time, box office revenue is the only income of the film company, and it bears this risk from beginning to end. The guaranteed issuance is equivalent to a cut in this process, which means that the investment of the film company in the early stage has been basically safely withdrawn, and then the baton is handed over to the publisher, similar to the separation of production and broadcasting in TV production."

--Another fact behind producer Wang Yibing

is that many independent production companies have strong control over film creation, but they need more professional partners in promotion and distribution. As long as the production company reserves the right to say no on the major issues of distribution, and can concentrate on creating at other times.

Since guaranteed issuance is a subversion of the previous issuer's power, it will naturally be resisted by the issuing company.

Wang Changtian, president of Enlight Media, has a clear attitude that he is not optimistic about guaranteed issuance. The reason is: "Guaranteed issuance always bears the risks and benefits tilt towards the other party. Therefore, the vast majority of guaranteed operations fail." But in fact, Light did participate in the guaranteed release of several films such as "Mermaid" in a guaranteed way.

An insider at Bona also said that Bona's own films will not be released at a guaranteed level because the company itself has a good distribution promotion system and even has theaters, so there is no need to sell the films to others for distribution. But if we trace Bona's history, the company started as a distribution company. There are too many precedents for guaranteed distribution in history. Yu Dong, CEO of Bona Films, once said that guaranteed distribution is a normal thing in the global entertainment industry.

What are the new ways to play guaranteed issuance? In

order to reduce investment risks, guaranteed issuance has explored a variety of new ways to play.

1. Connecting to the secondary market

Last year, before the release of "Lost in Hong Kong", Hong Kong-listed company 21 Holdings bought 47.5% of Zhenlao (the investor of "Lost in Hong Kong")'s net box office revenue (excluding distribution costs) for 150 million yuan. This practice of buying out box office revenue rights is essentially a variant of guaranteed issuance, which is equivalent to using 150 million yuan as 47.5% of guaranteed revenue rights. This means that before "Lost in Hong Kong" was released, Zhen Le Tao had already taken back all of his share accounts in advance and settled it in peace.

Since Xu Zheng is also a shareholder of 21 Holdings, 21 Holdings 'share price soared sharply, which also allowed him to gain additional benefits from the capital market.

2. After multiple capital parties organized funds to guarantee

the guarantee of "Lost in Hong Kong", the most successful guarantee case was "Mermaid". Before the release of this film, Kuailu Group, e-Zubao, Huayi Brothers, Bona Pictures, etc. all participated in the "distribution battle" of this film, but Stephen Chow finally chose Heyhe Pictures to take the lead as the main guarantee.

Hehe Pictures provided a box office guarantee of 1.6 billion to 1.8 billion yuan for "Mermaid", and the participants also included film companies such as Enlight Media. In addition, Xinghui and He He also hired Lianrui as the executive publisher and Matt Media as the promoter. This is equivalent to dividing the entire issuance process into two parts: guaranteed issuance and execution issuance.

3. Increase capital leverage for guaranteed issuance

. Not long ago, Hehe Pictures once again organized a guaranteed issuance of "Hot Pot Hero".

The system behind it is contract funds, which are structured products. Part is priority and part is inferior, which gives inferior participants the opportunity to leverage greater yields through capital leverage.

4. Guaranteed guarantees in advance before filming. The

above-mentioned guaranteed release cases are all guaranteed guarantees after the filming is completed. Yaolai Film and Television's guarantee for "I am Not Pan Jinlian" is even more special. It has obtained a guaranteed guarantee of 200 million yuan long before the filming.

Previously, Yaolai Film and Television Culture jointly signed an agreement with Huayi Brothers and Ferris Wheel Culture to distribute Feng Xiaogang's new film "I am Not Pan Jinlian". If the box office is less than 500 million yuan, Yaolai will pay 200 million yuan in net box office revenue, and the box office will be 500 million to 800 million yuan. Part of the net income will be exclusive to Yaolai, and if the box office exceeds 800 million yuan, Yaolai will receive 50% of the net box office revenue.

The reason why Yaolai is confident that it will ensure its guarantee before the filming of the film is completed this time is that, on the one hand, as a producer, it participated in part of the pre-production process of the film and has a certain degree of confidence in the quality of the film; on the other hand, as a company that borrowed a shell from Songliao Automobile to go public at the end of 2014, Yaolai needs to have a beautiful box office report in the listed company performance report. In order to achieve performance, a film with the participation of famous A-list directors and A-list stars and seems to be relatively low-risk becomes a good choice.

In the opinion of a producer of "I am Not Pan Jinlian", with Feng Xiaogang and Fan Bingbing around, with a guaranteed guarantee of 500 million yuan, it should not lose too much money. Moreover, Yaolai still has 15% investment rights, and the guaranteed guarantee investment of real money is less than 200 million yuan.

Guaranteed release of "Ip Man 3": Guaranteed release is false, but monetization is true

Among the numerous guaranteed release cases,"Ip Man 3" may be the most special example.

In February this year,"Ip Man 3" had not yet been released, and A-share listed company Shenkai announced that it was preparing to spend 49 million yuan to subscribe for a fund based on the box office proceeds rights of "Ip Man 3"; Hong Kong-listed company Shifang Holdings purchased 55% of the box office proceeds rights of the film for 110 million yuan.

Among these guaranteed arrangements, Shanghai Zhonghai Investment Financial Holding Company provided guarantees for the funds subscribed by Shenkai Holdings. The guarantee company guaranteed a minimum of 1 billion yuan for "Ip Man 3" and paid box office proceeds to the film's investors based on the benchmark of 1 billion yuan regardless of the final box office.

On the surface, there seems to be nothing wrong with this guarantee. However, public information shows that whether it is Shenkai or Shifang Holdings, the controlling shareholder behind it is Shanghai Kuailu Group, the investor behind Ip Man 3, and Shanghai Zhonghai Investment Financial Holding is also a related company of Kuailu. In other words, Shanghai Kuailu first invested in "Ip Man 3" and then used its two listed companies to make box office guarantees for it. This turned the bottom line of "Ip Man 3" into a "left-handed game leading the right-handed game."

I wonder what it feels like to use the assets of a listed company to protect the projects of major shareholders. From the perspective of Entertainment Capital, Shi Jianxiang did this because on the one hand, he hoped to raise funds through the platform of listed companies, and on the other hand, he also wanted to raise market expectations for "Ip Man 3".

Unfortunately, with doubts from public opinion, Shenkai finally decided to cancel the investment agreement. This "atypical case" of "guaranteeing oneself" did not proceed to the end.

Editor: yvonne