Hollywood

China’s Richest Man Ousts a Hollywood Mogul. Hollywood Shrugs

Wang Jianlin promised to leave Hollywood's managers in place. A year after paying $3.5 billion for Legendary, he has replaced its founder, Thomas Tull. Insiders explain who really won the deal.

Husam Sam Asi 26 January 2017

Wang Jianlin at the World Economic Forum in Dalian, September 2009. Photo: Natalie Behring / World Economic Forum, via Wikimedia Commons. License: CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0/).

Husam Sam Asi with Matt Damon, star of The Great Wall — Husam Sam Asi with Matt Damon, star of Legendary’s *The Great Wall*, during promotion for *Elysium*, April 2013. ASI Photos archive.

When Dalian Wanda’s chairman, Wang Jianlin, embarked on a buying spree of American entertainment companies, he promised to keep their managements intact so that they would retain their American identity. Last week he ousted Thomas Tull, the founder and chief executive of Legendary Entertainment, which he had bought only a year ago for the baffling price of $3.5 billion. Tull’s replacement is one of Wang’s own senior executives, Jack Gao, who will run the company until a new chief executive is found.

Washington is already suspicious of Chinese companies’ motives for acquiring American assets, and an administration unfriendly to China has just entered the White House. Wanda’s move might be expected to complicate its plans for further acquisitions. Remarkably, Hollywood is neither surprised nor fazed by Tull’s departure.

The American media was quick to blame the divorce on Legendary’s big recent release, The Great Wall, which failed to match expectations in China. It took about $170 million there, far less than Hollywood films such as Furious 7, which collected $391 million, and Zootopia, which made $236 million. Directed by Zhang Yimou and starring Matt Damon, The Great Wall cost $150 million to make and needs to gross at least double that amount at the box office to see any profit.

Wanda rejected the suggestion. It insisted in a statement that Tull’s exit was part of a larger restructuring and reflected no dissatisfaction with Tull or with The Great Wall. The change, the statement added, belonged to Wang’s previously announced expansion plans. Hollywood insiders and executives are still not convinced. “Tull is not an easy guy to work with; he is a control freak,” an insider tells me.

A partner who wanted control

This is the second time Tull has broken up with a bigger partner. In 2013 his eight-year co-production and distribution deal with Warner Bros. came to an end when, according to insiders, he insisted on a more hands-on approach to establishing Legendary’s own brand at the expense of the big studio’s. That did not go down well with Warner executives. They had allowed him to be an active producer and to cherry-pick the best films on their slate to invest in. Other co-financing arrangements in Hollywood work differently: passive financiers typically invest in almost every title on a studio’s slate without question. Tull was able to dictate favourable conditions because he had a lot of money.

Before shifting to the entertainment business, Tull had achieved great success in private equity, and in 2005 he used it to raise some $500 million in equity to finance films under the Legendary Pictures banner. He was an outsider to Hollywood with no experience of film production, but the size of his fund prompted Warner, which needed money to bankroll its slate of tentpoles, to jump into bed with him. In return, Warner enabled him to make the kind of films he wanted to see as a fan of superhero, science-fiction and fantasy fare. The deal paid off and became one of Hollywood’s most successful partnerships, producing an enviable run of blockbusters that included Batman Begins, The Dark Knight and the Hangover series.

With success came more demands for control from Tull. This time Warner had no need of his money, having found other, less demanding financiers. Other studios were eager to tap into his pile of gold and lined up to lure him to their lots. He picked Universal, which agreed to fulfil his grand vision of a larger entertainment company with interests in television production, computer games and even theme parks. The deal provided Universal with much-needed funds for its projects and opened China’s doors to its releases, through a three-year co-production pact between Legendary and China Film Group.

The $3.5 billion temptation

Tull’s obsessive control of his company wavered two years later, when Wanda flashed a whopping $3.5 billion in front of his eyes. He knew that his company was worth a fraction of that amount and could not resist the offer. So eager was he to conclude the deal that he reportedly agreed to take “phantom stock” in the company, because of China’s prohibition on foreigners investing directly in entertainment companies. Tull would own no piece of the company. He would receive payments corresponding to his interest in it, mimicking the benefits of ownership without the security. The upside for Tull was the eye-popping price tag. The downside was that he got no tangible stock to hold on to.

“He knew that he wouldn’t last there more than a year, because he is someone who can’t take orders from someone above him, which doesn’t work in China,” the insider tells me. “But he had $3.5 billion in his pocket, so he didn’t care.”

Tull still had a chance to cash in his stock if Wanda reorganised its entertainment assets into its publicly traded cinema chain, Wanda Cinema Line, which could have provided liquidity. Legendary, however, reportedly lost $500 million in 2015 and has yet to return to profit, and the reorganisation plan was suspended. Chinese regulators required Legendary to report four consecutive quarters of net profit before it could become part of the publicly traded entity.

Losing hope of liquidating his stock any time soon, Tull has probably negotiated an exit with Wanda, which was most likely happy to oblige, given their different styles of management. Hollywood studios salivated after Tull’s money and his access to China. Wanda needs neither. It needs someone with production skills, which Tull did not possess. Tellingly, no one from Legendary left with their boss. “People in Hollywood follow a creative person, not a money man,” an insider says. “He is considered kind of an outsider to Hollywood, who came in with a big buck.”

Did Tull really net $3.5 billion?

A studio executive with vast experience of dealing with Chinese companies does not think so. Reports have also indicated that Wanda paid Tull in stock, valued before it emerged that the company had lost $500 million in 2015. For the reasons above, that stock is now worth little. If that is the case, China’s richest man has played yet another winning game. Legendary is now firmly under his control, without any distraction from Tull. He will remould it to his own vision: a studio that makes crossover films which play well in both China and the United States. Having turned the cinema chain AMC from a loss-making company into a profitable one in less than three years, he must be convinced that he can repeat that success at Legendary.

In the meantime, Wang has the company’s production chief, Mary Parent, to oversee its eight ongoing productions. Parent is one of Hollywood’s most respected producers and is credited with saving the Oscar-winning The Revenant from total collapse. “She is more of a valuable asset to Legendary than Tull, because she really understands production and she is good at it,” says the insider, who thinks she may end up taking Tull’s job.

Most likely, though, Wang will go for a bigger name to run his studio. “There is a small number of people who can do this job,” an insider says. “They move from one studio to another.” Wang has reportedly approached Jim Gianopulos, the former boss of 20th Century Fox, to fill Tull’s position.

Washington’s suspicion

The biggest challenge for Wang is the new administration in Washington, which is suspicious of the motives behind his investments and wants closer scrutiny of his deals in the United States. His response, in a speech at the World Economic Forum in Davos last week warning the US against protectionist trade practices, went down well with neither Washington nor Hollywood. “Give me a break,” says an executive, shaking his head in amazement. “He is freely buying out US media assets and taking control over them, but Americans or any other foreigners are forbidden from doing the same in China?”

The Trump administration is already demanding trade reciprocity with China and threatening to impose tariffs on Chinese products. Hollywood’s concern is limited to increasing the quota of its films released in China, which currently stands at 34 a year.

Unlike Washington, Hollywood has no fear of losing control over its content and its American identity, and it believes Wang’s assertion that his only goal is to make a profit. “Legendary will always remain American,” insists one executive, who seems unfazed by Tull’s departure.

With little trust between Hollywood and the new US administration, Wang may still have the upper hand at the end of the day. He has promised to invest $5 billion to $10 billion in American companies this year. That is good news for business and awkward news for politics. It will be an interesting year to watch.

Read in Chinese: 好莱坞秘事：王健林为何解雇传奇影业创始人图尔 (Tencent Entertainment, 31 January 2017)