In the February 29th, 2016 issue of Forbes, the cover story describes how Thomas Tull built Legendary Entertainment into a premier entertainment brand, and what the company’s sale to a Chinese billionaire means for the entertainment industry.
Tull founded Legendary with the concept that he could use data to save costs, and with the thesis that the real money to be made in the entertainment business would come from the most expensive blockbusters tied to great content, rather than smaller productions with lower costs. For example, whereas other companies at the time were trying to use algorithms to determine how plots and actors could drive ticket sales on a movie with a budget under $50 million, Tull was focusing on films with production values above $100 million tied to recognizable franchises like Batman and Godzilla. He used data, such as social media chatter, to determine who the target was, which allowed him to save 15% or more on marketing costs. Similarly, he would use market research analysis to make sure that a potential film would draw at least 40% of the audience into theaters, and then he would target that segment with low cost digital advertising.
As Legendary became a huge success, it drew the attention of foreign investors. China in particular has lately been trying to increase its soft power in the world. It has been hiring very expensive and talented foreign football (soccer) players to improve its standing in the minds of the global populace, and similarly, China believes that owning strong entertainment brands will help the country succeed. It was in this context that China’s richest person, Wang Jianlin, bought AMC Theaters for $2.6 billion, and has now bought Legendary for $3.5 billion, close to the sums paid by Disney for Marvel and Lucasfilm ($4 and $4.1 billion respectively).
This deal is very important for the Media and Entertainment industry, as it may be a blueprint for the future of the industry. Specifically, it appears that there is sufficient evidence now to say that China is going to increase its acquisition spree in the worlds of sports and entertainment to improve its global perception. In that context, it will be interesting to see if China’s brands also begin to create and introduce new properties that grow into global myths on the scale of Batman and Star Wars. The other thing that this sale indicates, coupled with Disney’s many acquisitions, is that the large scale blockbuster definitely still has legs, even as new data shows that the high highs and the low lows are becoming more disparate and difficult on companies’ balance sheets. Finally, and most importantly, it is clear that the old adage is as true as ever – content is king.
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