Film company's acquisition of visual effects maker gives it the inside Edge

Ivy Zhong's New Year gift was a healthy set of financial figures. Three months after the purchase of the Hollywood effects company Digital Domain, which produced the visual effects for Titanic (1999) and many other Hollywood blockbusters, Zhong, vice-chairman of Beijing Galloping Horse Media Group, says that the visual effects company is in great shape.

"When I took over the company, I was shocked by its book debt. I'm quite happy about the results now."

Wearing a ponytail and delicate make-up, Zhong constantly smiles and gestures when she talks. At work, however, the 36-year-old is widely considered the toughest person in the company.

Zhong says that when she gained a master's degree in risk management in Britain nine years ago, she was about to work at an investment bank, but Galloping Horse's founder, Li Ming, talked her into joining the company.

"Entering the company was an accident, but every step since has been carefully planned, because as a business person, I have to treat money well," she says.

The latest deal Zhong completed was a joint venture between the US division of the company and Reliance MediaWorks Ltd of India, to pay $30.2 million (22.74 million euros) for the special effects unit and various other businesses and assets of the US visual effects and animation company Digital Domain. Galloping Horse owns 70 percent of the new venture.

This purchase takes Galloping Horse to the heart of the Hollywood movie industry. In an earlier China Daily report, Hu Ming, vice-president of Huayi Brothers Media Group, one of the leading private film production companies in China, and Wang Guowei, president of National Film Capital Co Ltd, a government-backed film funding company, both talked of it as a significant venture for the film industry in China.

"Many hot Hollywood films spend more than half their budget on visual effects, and it has become kind of a trend," says Yang Shuting, an analyst with EntGroup, an entertainment industry consultancy in Beijing.

"In China's movie industry chain, the weakest point is the lack of visual effects technology, so I think this purchase will bring changes to Galloping Horse as well as the whole industry."

Compared with its competitors Huayi Brothers and National Film Capital, which have more than a decade of experience in the movie industry, Galloping Horse is a relative latecomer.

It dates back to 1994, when its initial business was working as an advertising agency for TV programs broadcast on China Central Television. In 1998 the company expanded its business to making TV series and it produced many big hits.

Being experienced and well-known in these different areas brought the company profits, but not fame. When the company started entering the movie industry in 2007, it had to start from scratch.

In 2009, when the movie company Huayi Brothers went public, many industry insiders still had no idea what Galloping Horse was doing.

There is an anecdote that describes the situation well. In 2009, Galloping Horse's chairman Li Ming wanted to invite well-known Chinese film director Ning Hao to work with the company. However, this was the latter's first reaction: "Galloping Horse? Is it an express shipping company?"

All the same, it took only three years for the company to reinvent itself in the eyes of the industry. With income from producing advertising and TV programs, the company adopted a cautious investment strategy and stuck to high-quality scripts and production teams.

"The investment in making a movie is high, but the returns are hard to predict. Apart from the quality of the films, many other factors, such as promotion, release date and even weather could influence the box office, so we have to be very cautious," Zhong says.

Galloping Horse has signed a group of the best screenwriters in China. It has invested in only a dozen movies in the past three years, and half of them were self-produced. Most of these movies are low-cost productions, but they turned out to be critically acclaimed releases that made more money than many films released at the same time. For example, Eternal Moment, a love story released in 2011, grossed about 200 million yuan ($32 million; 24 million euros) at the box office while only costing about 10 million yuan to make.

Galloping Horse's performance attracted investors' attention and confidence. The company completed a record fundraising of 750 million yuan for expansion early last year, the largest amount raised in China's movie industry.

As for the Digital Domain acquisition, Zhong was able to raise all the money in only three days.

Advertisements, TV series and movies are now the company's main business. Zhong says that its revenue grows by about 20 percent every year, and the market valuation of the company, which is about to go public, should exceed 3 billion yuan.

The company's 2011 revenue was 780 million yuan, of which one-third was from advertisements, and about 60 percent from TV and movies.

The company's ambition is to build a complete industry chain, so it has established companies to explore investment, animation, talent representation and new media. It is also building and running cinema complexes; five have opened so far and two more to be opened next month.

"Many of the businesses that we explore still cannot make money, but I believe in their potential," Zhong says. "As for the movie company, it is like the jewel in the crown, bringing fame and opportunities."

Galloping Horse entered the movie sector with an international angle, working with Hollywood film directors. Since 2008, the company has been in talks with many top-notch Hollywood directors and producers. As a result, the first co-production film Two Gun Cohen will go into production this year.

Early last year, it established a US division to better learn about Hollywood and look for investment opportunities.

Zhong says there are two things overseas that China needs the most: technology and distribution channels, but both take time. Apart from the US market, Galloping Horse is also seeking opportunities to work with the best producers and film directors in other countries.

"We already have partners from India, and will soon have partners from Europe. I think, undoubtedly, the cooperation in the movie industry will be globalized some day. "

While doing business, there are some responsibilities a company should shoulder, Zhong says. Showcasing Chinese culture to the world is one.

Galloping Horse is about to invest and make some Chinese stories with international production teams. One screenplay they are working on is a tale of usurped thrones in the Ming Dynasty (1368-1644) with a Hollywood producer and film director.

"China has a long history, brilliant culture and fantastic folklore. Using international channels to tell these Chinese stories will not only help attract an international audience, but also help the world understand China," she says.

Galloping Horse is also taking measures to bring advanced technology to China. After the acquisition of Digital Domain, it established a joint venture in Beijing in November, which will provide a visual effects service to Chinese companies. At present, four to five companies have been talking to the company.

Zhong says Digital Domain usually works on movies that have a budget of $100 million or more, but the Beijing company will provide some lower-level technologies to Chinese movies that cost less and have lower demands for visual effects.

Moreover, it plans to start visual-effects schools with some universities. Zhong's aim is to cultivate a new generation of technicians who can gain a lot of experience working on big films in her company.

chenyingqun@chinadaily.com.cn

(China Daily 01/18/2013 page17)