STX Entertainment secures funding from China’s Tencent and PCCW

In a further sign of Hollywood’s deepening ties with China, startup studio STX Entertainment has secured major strategic investments from Chinese technology giant Tencent and Hong Kong-based telecommunications firm PCCW.

Burbank-based STX announced the deal Thursday and said it would help finance the expansion of its television and digital businesses.

The company did not disclose terms, but a person close to the company said the new investments, including a recent increase to STX’s credit facility, will give the company access to about $700 million in new capital for its planned expansion. The transaction values STX at $1.5 billion, said the person, who was not authorized to comment.

The transaction marks the latest investment in Hollywood from China, which is growing its clout in the film, TV and media industries.

“STX has been at the heart of the Hollywood-China relationship from its inception,” said Lindsay Conner, an entertainment industry lawyer and partner in the firm Manatt, Phelps & Phillips. “This represents a further extension of a business plan that takes advantage of the relationship between Hollywood and China.”

The investment in STX is among a string of entertainment deals by Tencent, which operates the popular social media network WeChat and is a major player in gaming, online video and Internet media.

Tencent launched a new TV production joint venture with IM Global in June. It also created a joint venture with talent agency WME-IMG and Sequoia Capital China. Additionally, Tencent is backing Culver City-based animation studio Original Force Animation, which is operated by two former DreamWorks Animation executives.

Tencent, based in Schenzhen, has also made a name for itself as a big investor in mobile gaming. Last year, it acquired a majority stake in the L.A.-based Riot Games for $400 million and invested $126 million for a 15% stake in San Francisco’s Glu Mobile. The company recently struck a $8.6 billion deal for Finland’s Supercell Oy.

The investments underscore Tencent’s expanding reach in China and abroad.

“You can’t go through your day in China without touching Tencent,” said Robert Simonds, Chairman and Chief Executive of STX, in an interview. “This was much less about looking for money and more about finding cool partners.”

There has been a flurry of deal making on both sides of the Pacific as China’s film industry grows at a breakneck pace. Chinese media companies such as Tencent are eager to tap Hollywood expertise to expand their own entertainment offerings.

Cinema operator Dalian Wanda Group, which owns Leawood, Kansas-based AMC Theatres, earlier this year acquired Legendary Entertainment, the Hollywood production company behind “The Dark Knight,” for about $3.5 billion.

For their part, Hollywood businesses such as STX are looking to tap into new sources of financing and forge partnerships that can help them crack the world’s most populous country where there is a huge demand for U.S. movies and TV shows.

With the new pact, STX has gained powerful partners as it seeks audiences in Asia, not just in China but also in India, Indonesia and other countries. PCCW runs the largest pay-TV service in Hong Kong and has a powerful reach in mainland China and India.

It’s unclear, however, how significant the new round of investment is because of the lack of details about the amount of money the new backers are spending, said Marc Ganis, co-founder and managing director of Jiaflix Enterprises, which helps studios distribute movies in China.

“There’s more that needs to be known [about the deal] before ascribing meaningful value to it,” Ganis said. “Whenever the detail doesn’t include things like the amount, I have a wait and see attitude.”

STX was founded in 2014 with hefty funding from China and Silicon Valley in the hope of creating the next major Hollywood studio. Its backers include San Francisco private equity giant TPG Growth and China’s Hony Capital. Its film slate has received funding from Beijing-based Huayi Bros., one of China’s largest film companies.

Though it has put out some hits, including the low budget thriller “The Gift” and the recent R-rated comedy “Bad Moms,” STX has struggled to make its mark early on. The Civil War drama “Free State of Jones” was a significant disappointment at the box office.

The studio is expected to release 12 to 15 movies a year.

But the new money is not intended to fund STX’s movie business. Instead, Simonds said it will help the company make its long promised forays into television content, short digital videos and virtual reality. The company has so far secured deals for 22 shows with networks in the U.S. and Asia.

Simonds says the new financing will go a long way toward turning STX into a talent-friendly company where major stars and filmmakers will create projects across all its entertainment businesses.

“We wanted to create a one-stop shop,” Simonds said.

East West Bank chairman Dominic Ng is also a new investor in STX.

In addition to funding STX in exchange for equity stakes, Tencent and PCCW have agreed to distribute STX’s productions through their respective channels. STX and PCCW also plan to co-produce local programming for PCCW’s digital and television outlets.

See the most-read stories in Entertainment this hour »

[email protected]

Follow Ryan Faughnder on Twitter for more entertainment business coverage: @rfaughnder

Times Staff Writer David Pierson contributed to this report.

UPDATES:

3:57 p.m. This article was updated with additional details. It was first published at 1 p.m.