Jack Ma and Wang Jianlin have traded many barbs over the years. The charismatic boss of Alibaba once boldly predicted that the rise of e-commerce would eventually destroy China's traditional retailers – like those that rent mall space from Wang – if the industry failed to change.
In a 2012, Ma made a televised, courageous bet with Wang, boss of China’s largest shopping mall builder Dalian Wanda Group, on the future of retailing in China. The war of words between the two powerful tycoons escalated into a Rmb100 million ($15.8 million) gamble – the sum Ma staked on his prediction that online sales would represent half of China's total retail spending by 2020. It was just 3% at that time.
But one thing the two old rivals have in common are their investments in the movie business. And it's that industry that has delivered a massive plot twist in the Ma-Wang rivalry.
To the surprise of onlookers, the two billionaires chose to make peace rather than attempt to disrupt each other’s business, with Wanda Group announcing on Monday that a pair of investors led by Alibaba had bought a significant stake in its film unit.
In the stock filing, Shenzhen-listed Wanda Film said it had secured a new round of investment worth $1.3 billion from Alibaba and Cultural Investment Holdings, a state-owned company. Alibaba and CIH will become the second and third-largest shareholder in the firm with stakes of 7.66% and 5.11%, respectively at Rmb51.96 a share.
The question now is: what do the pair gain from working together in the film sector?
Wanda will delegate pre-movie advertisement of all the theaters to Cultural Investment. Also, Alibaba and Wanda will cooperate on movie distribution, investment, online ticketing platform and movie derivative products.
“The most important aspect of the deal is Wanda can make a push into online e-commerce, covering its shortcomings on internet channels,” a Beijing-based investor familiar with Wanda’s thinking told FinanceAsia. “Wanda realised the best strategy is to partner with the tech pioneers, instead of venturing into the world of the internet by themselves.
“Over the past few years, their ventures into e-commerce and other online channels failed to create a critical mass,” the person said. “For Wanda, the new investment in its film unit creates a win-win situation because the company retains control of the unit and having a partner like Alibaba, which has years of experience in movies and online culture business.”
Wanda said the goal in selling Wanda Film shares was to attract shareholders that had strategic value for the company, not merely for raising funds.
The synergy between the two strategic investors and Wanda Film will have long-term benefits for Wanda Film, the company said.
For Alibaba, the benefits are still more obvious. Its own film unit, Alibaba Pictures, is listed in Hong Kong and focuses on online content promotion. This deal will allow Alibaba to integrate its online channel for movie ticket sales with Wanda’s existing 500 moviehouses across the country.
And Alibaba Pictures certainly needs the help, given its widening losses. While for the first half of last year, revenue at Alibaba Pictures rose to Rmb1.1 billion, up from Rmb257 million the same period a year earlier, its six-month net loss also widened to Rmb485 million from Rmb465.9 million for the same period. It put the losses down to foreign-exchange fluctuations and marketing expenses for its online ticketing and seat selection services.
The sale of a stake in Wanda Film comes after a slew of stake sales and asset disposals at the troubled Wanda Group. In January, Beijing-based Wanda said its commercial property arm had reached a deal to get $5.4 billion from an investor consortium including Tencent, JD.com, electronics retailer Suning and Sunac China, a Hong Kong-listed mainland property developer.
On the same day, Wanda said it sold a pair of its flagship Australian properties for about $913 million, in a move to reduce its overseas exposure. Wanda Hotel also offloaded a London Tower for GBP35.6 million to R&F Properties.
Last month, Wang said the company had significantly reduced its debt and would use its limited cash in developing its Wanda Plaza developments, the group’s core business. Chairman Wang also pledged to reduce its debt exposure to safe levels within the next three years.
Wanda Film, which had been suspended from trading since July, includes the company’s film production, marketing and distribution assets including over 500 cinemas. But the subsidiary did not own AMC Entertainment and US-based studio Legendary Entertainment, which was bought by the group in a $3.5 billion all-cash deal in 2016.
As Beijing increased scrutiny of cross-border investments and clamped down on some of its most acquisitive – and indebted – conglomerates, Wang has made more domestic investments and paid off some of its debt, moving away from making high-profile acquisitions of overseas assets.