Chinese studio DMG emerges as bidder for major stake in Paramount Pictures

On Monday evening Deadline Hollywood was first among Hollywood’s trade publications to report that DMG Entertainment (SHE:002143), a publicly traded Chinese media conglomerate, is among the prospective bidders for a sizable stake in Paramount Pictures.

Paramount’s corporate parent Viacom announced last month that it is seeking an outside strategic investor to acquire a large minority stake in the 104 year old Hollywood studio. It has been widely reported that Viacom is offering a 40 percent ownership share in Paramount for a price of about $2 billion.

Source: DMG Entertainment

Based in Beijing, and with an active presence in North America, DMG has interests in feature films, television, music, live entertainment, comic books, and talent management. The company also has an active North American presence, and has worked with U.S. studios during the past several years to co-finance and co-produce such Hollywood films as Iron Man 3, Looper, and last year’s remake of Point Break.

With a market capitalization of RMB 26 billion (US $4 billion) on the Shenzhen stock exchange, DMG is presumably seeking financing partners to help bankroll its Paramount bid. Executives at the company’s Culver City office declined to comment on the transaction.

Viacom will undoubtedly entertain offers from any serious bidder, but its strategic interests would clearly align well with a Chinese entertainment company that can help it produce and distribute films in China, which will soon overtake North America as the world’s biggest and most important movie territory.

Paramount has struggled in the PRC and could benefit from DMG’s resources, experience and connections there. In 2015 the U.S. studio managed to sell only 3 films into the Chinese market, and ranked 5th among the 6 major studios in market share. 2016 also looks to be a weak year for Paramount’s releases in the Middle Kingdom, with only Star Trek Beyond and possibly Teenage Mutant Ninja Turtles: Out of the Shadows likely to catch on with Chinese moviegoers.

Source: Pacific Bridge Pictures

Paramount might prefer a larger partner like Wanda Group, which owns the leading theatrical exhibition chain in China and which has vastly overpaid for other U.S. entertainment assets like AMC Theatres and Legendary Entertainment. But Wanda chairman Wang Jianlin has made it clear that he is only interested in controlling stakes in companies in which he invests.

That’s not to say that an outright acquisition of Paramount couldn’t fly. At least two of Viacom’s major shareholders, Mario Gabelli and Shari Redstone, have expressed displeasure with the conglomerate’s management and its flagging stock market performance. Several Wall Street analysts have suggested that a change in management could unlock tremendous value at the studio. If a Chinese bidder like DMG, Wanda, Alibaba, or Tencent were to show up with an oversized offer, anything could happen.

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