China’s Huayi Brothers Sees 2016 Profit Fall

One of China’s most prominent film studios sees a 17 percent drop in 2016 revenue.

Huayi Brothers Media Co., one of China’s top privately held film companies, said Tuesday its 2016 net profit dropped 17.21 percent from the previous year to RMB 808 million (US$117.3 million) as it dealt with shocks in the country’s entertainment sector.

Huayi Brothers, which is run by brothers Wang Zhongjun and Wang Zhonglei, pulled in total revenue of RMB 3.53 billion ($512.7 million), with net cash flows from operating activities of RMB 759 million.

The Shenzhen Stock Exchange listed company said in a separate company filing that it expects a first-quarter net loss of RMB 63-68 million versus a net profit of RMB 262.5 million.

The annual report said that during the reporting period China’s entertainment industry had gone through some shocks and had grown at a rate slower than market expectations. China’s box office flagged in 2016, growing just under four percent, a steep fall after years of increasing at around 35% annually.

How much of that previous stellar growth was artificially inflated by fraudulent results is unknown. Last week Chinese officials showed that fake results are no longer welcome when they cracked down on box office fraud by suspending and fining hundreds of cinemas.

The results come as Huayi CEO’s Wang Zhonglei, also known as James Wang, indicated over the weekend that he wishes to “renew and deepen” his company’s cooperation with Robert Simonds’ STX Entertainment “beyond slate financing.”

“We’d like to renew and deepen our cooperation with STX beyond slate financing,” Huayi co-founder and CEO James Wang Zhonglei told Bloomberg in an interview published Monday. “STX has a lot of plans in television and multimedia. They also have a lot of new ideas for the Asian market. We have had a lot of contacts in this regard.”

In its filing, the company said it was steadily implementing the projects it was cooperating with STX Entertainment on and described the relationship as an important part of its internationalization strategy.

Local internet giants Alibaba and Tencent each own about 8.08 percent stakes in Huayi, making them the second-largest Huayi shareholders after company senior executives.