Is China’s Sunac Culture Group the Real Deal, or Is It Wanda Redux?

By Rebecca Davis

LOS ANGELES (Variety.com) – At the height of the Chinese film industry’s hot money years, no one could compete with Wang Jianlin for flashy boasts. The Dalian Wanda chairman pledged to buy stakes in all six Hollywood major studios and threatened to unleash a “wolf pack” of Chinese theme parks that would devour Shanghai Disneyland. In 2013, he promised to spend $8 billion to turn a podunk coastal stretch of the city of Qingdao into a “Hollywood of the East,” shelling out a reported $22 million on a launch event that flew in Leonardo DiCaprio, Catherine Zeta-Jones and other stars.

Although some of Wang’s claims fizzled, Wanda did in fact build the Qingdao Oriental Movie Metropolis, a studio complex with 40 state-of-the-art soundstages that has become the go-to production locale for China’s most ambitious blockbusters. But Wanda, whose meteoric rise in the entertainment space was followed by a speedy downfall because of its debt-fueled purchases, is no longer involved.

In July 2017, it sold 91% equity in 13 tourism projects, including the Qingdao development and one in Hainan that never came to fruition, to Sunac China Holdings for $6 billion as part of the second-largest real estate deal in Chinese corporate history. In a follow-up transaction last October, Wanda sold Sunac the properties’ management rights for about $900 million.

Sunac, China’s fourth-largest real estate developer, has now stepped directly into Wanda’s shoes as China’s biggest resort and theme park operator by area. It set up Sunac Tourism last October to manage those newly acquired properties, which are sorely in need of IP to attract visitors. In December, it also established Sunac Culture Group, which runs the massive Qingdao studio — and which says it’s ready to drop some major cash into the Chinese film industry at a time when most investors have been scared off by new regulations and uncertainty.

The parallels between Wanda and Sunac, two real estate conglomerates making a push into the entertainment space despite a lack of experience, are obvious, and have raised skepticism that Sunac can succeed where Wanda failed. But Sunac is careful to distance itself from its predecessor’s big-talking reputation.

“If I were Wanda 2.0, you guys would have heard of me a long time ago,” Sunac Culture president Kevin Zheyi Sun says with a laugh in an interview with Variety, his first with a foreign news outlet. “Because of the market bubble of the past few years, everyone in China is really good at telling big stories — ‘I’m going to do 20 films this year’ — and then no one ever delivers.

“I don’t want to announce any big, grandiose plans without actually being able to do them,” Sun says in a subtle jab at Wanda’s Wang, adding dryly: “We won’t be buying any soccer teams.” (In 2015, Wanda paid $46 million for a 20% stake in Spain’s Atlético de Madrid.)

Sun, only 29, is a graduate of Boston College and the son of Sunac China founder Sun Hongbin, a naturalized U.S. citizen known for his aggressive acquisition style. Despite serving five years in Chinese prison on embezzlement charges and receiving a rebuke from the Hong Kong Stock Exchange two years ago for breaking listing rules, the elder Sun has become one of China’s richest men, with a personal fortune of nearly $10 billion — $4.5 billion of which he transferred to the U.S. last New Year’s Eve, the same day Sunac Culture Group was founded.

The younger Sun wants Sunac Culture to be the first company in China to achieve a proper film-to-offline business model in the vein of Universal or Disney. While U.S. studios derive perhaps 30% of profits from content and 70% from ancillaries, he says, in China, companies typically make 90% of their money from the box office and 10% from everything else, an approach Sun believes is no longer sustainable.

“If you compare yourself to Chinese companies, you’re kind of dead, since there’s very few that are worth that much,” he says. “We need to start moving toward the Disneys, Universals and Comcasts of the world.”

Backing that vision is parent company Sunac China’s RMB 180 billion ($26.2 billion) in property assets. Sun says there’s no pressure on Sunac Culture to turn a profit in its first five years, although it already has content in the pipeline, including an animated film that Rob Minkoff, the helmer of Disney’s original “The Lion King,” is in discussions to direct.

Sunac Culture’s content director, 31-year-old Tom Sun (no relation to Kevin Sun), declares that the company hasn’t even “set a budget — we want to be dynamic and responsive to what’s out there.”

Whether that’s a smart approach or a lackadaisical one remains to be seen.

“They don’t have deep experience, but then there’s not a lot of deep experience in China,” says Dede Nickerson, a longtime China-based American producer. Sunac Culture is “not Wanda,” Nickerson says, “in the sense of ‘Let’s go out and buy everything.’ … They actually have a strategy and a plan, and they’re not doing it in a way that’s like, ‘Let’s go write an $11 billion check.’”

But some question the company’s creative commitment, saying the culture division exists mainly as a way to bolster Sunac China’s property portfolio.

More than 94% of Sunac China’s revenue in 2018 came from property sales, 4% from property management and less than 2% from cultural tourism operations. Like Wanda, Sunac is making far more from selling residences built around theme parks and cultural attractions than from the attractions themselves. Such parks are also vehicles to get yet more developable land on favorable terms from local governments.

“I don’t see Sunac investing in these projects as a real attempt by them to diversify into other industries. I see it as an attempt to gain more land to do more [residential] projects,” says Michael Cole, chief analyst at Asian real estate intelligence website Mingtiandi. “They have a demonstrated interest in expanding their core business very rapidly, and acquiring these projects was the fuel to do so.”

Other doubters point to Sunac’s past missteps, including its disastrous $2.2 billion investment two years ago in LeEco, the conglomerate that had ambitions to be China’s Netflix, Tesla, Apple and Disney rolled into one. An additional $271 million was sunk into financing its Shenzhen subsidiary Leshi, which suspended trading in April and in which Sunac remains a minority investor. The elder Sun, who acted as Leshi chairman for eight months, has since said that his bailout of LeEco founder Jia Yueting was his life’s one regret.

“If you compare yourself to Chinese companies, you’re kind of dead, since there’s very few that are worth that much. We need to start moving toward the Disneys, Universals and Comcasts of the world.”
Kevin Zheyi Sun, Sunac Culture president

The LeEco and Wanda deals have, however, provided the resources to help Sunac build out a real studio. More than 80% of Sunac Culture’s approximately 1,200 employees came to the company via LeEco, and about 80% of Sunac Tourism’s 20,000 employees are holdovers from Wanda. “We’re a new brand name built on old assets,” says content director Sun.

Sunac Culture oversees four operations: the Qingdao Oriental Movie Metropolis, inherited from Wanda; Suniverse Film Ent., a re­branding of LeEco’s Le Vision Pictures, which produced films such as Zhang Yimou’s “Coming Home”; its small but growing in-house content-development arm; and LeEco’s smart TV-building unit.

At the Qingdao studios, Sunac is shunning Wanda’s vision of a Hollywood-driven international production base in favor of attracting domestic projects, at least in the short term. In the works is a new backlot with interchangeable parts that can be retooled and reused quickly.

The content-development branches have different emphases. Suniverse, with about 130 employees, has greater freedom to take risks with more adult-oriented subject matter and genres, creating not just feature films but also potentially TV, miniseries and even mobile content. Suniverse is working on the co-production “Wolf Totem,” an animated adaptation of a famous novel, which Oscar winner Minkoff is being courted to direct.

Sunac Culture’s in-house development team will focus on safe bets: family-friendly content with strong visual elements, like animation and sci-fi, which can pair well with the firm’s property assets. It has a core team of about 10 employees, along with 30 in-house animators in China and 30 more in Japan.

They are busy preparing content for the company’s first IP acquisition, which the firm hopes to introduce into Sunac’s theme parks immediately: a red fox named Ali that originated in a picture-book series popular with young women and that rose to internet fame as an emoji. Sunac hopes to make a film, an ani­­mated TV series, short videos and rides based on the fox, which already does about $7.3 million a year in merchandising and licensing fees.

Sunac has also nabbed a black cat named Luo Xiaohei, with a feature film coming out in September, and a nut character popular with young children. In-house animators are developing five kid-friendly characters for use at Sunac’s ski parks, but the focus, in the early days at least, is on IP acquisitions.

Sunac Culture has also recently co-invested in three upcoming movies: the patriotic film “Liberation,” the mystery thriller “Assassin in Red,” and Wanda-backed “The King’s Avatar: For the Glory,” an animated title hitting theaters Aug. 16 that’s based on one of China’s top esports-related IPs.

A former high-ranking employee of China Film Group, who asked not to be named, is not impressed so far. “This is all a capital game,” he says. “Sunac itself never did film before. … They’re not making movies.”

But Sunac insists that it’s a serious entrant into the film space and is eager to play ball. And it’s determined to do so in smarter fashion than Wanda and LeEco did, says Sunac Culture president Sun.

“Dumb money failed in this industry already,” he says. “We can’t afford to be that player again.”