China's media sector attracting PE

The recent private equity fund launch by media mogul Bruno Wu to invest in China’s film and television sector is the latest move that highlights PE interest in the sector.

Private equity is showing increasing interest in China’s media sector, highlighted by the recent tie up between Chinese media mogul, Bruno Wu and Thomas Middelhoff, owner of German media group Bertelsmann AG, to launch a media-focused alternative investment fund. 

The firm, BT Capital, is targeting $500 million to invest in global media companies that want to expand in Asia, especially China, the Wall Street Journal reported. It quoted Wu as saying that small- to medium-size enterprises “need China for their next wave of expansion”. 

In June, Chinese media reported that Hony Capital plans to jointly raise a 3 billion RMB (€366 million; $490 million) fund with Shanghai Media Group Pictures aimed at China’s film and television industries. The same month, the Bona Film Group launched an RMB 1 billion (€122 million; $163 million) venture capital fund to invest its own film and TV drama productions, according to PEI’s Research & Analytics division. 

China’s box office revenue hit $2.7 billion in 2012, up 37 percent year on year, making the PRC the second largest market for films globally after North America ($10.8 billion), according to the annual report of the Motion Picture Association of America.

China’s box office revenue hit $2.7 billion in 2012, up 37 percent year on year, making the PRC the second largest market for films globally after North America ($10.8 billion)

Motion Picture Association of America annual report

Roughly 60 of China-focused GPs have a mandate to invest in the media sector, most of them domestic funds, according to PEI’s data.

However, foreign investment in China’s media sector, which, broadly defined, includes newspapers, television, film and the internet, has certain restrictions. US dollar funds typically invest in the sector through the controversial variable interest entity (VIE) structure.

John Fadely, partner at Weil, Gotshal & Manges in Hong Kong, believes the interest in media from private equity investors signals a move toward more sector specialisation.

“There should now be more room for China-focused private equity funds that also have a sector focus,” he said. “I don’t think that was so much the case a few years ago.  Given China’s need to transition to a consumer-driven economy, it wouldn’t be surprising to see more sector-focused funds in consumer-driven areas of the economy, such as media and entertainment, the healthcare sector and so on.”

In the first half of 2013, private equity investment in China’s media/entertainment sector reached $281 million across five deals, according to Thomson Reuters data.