The land grab at the world’s second-largest movie market by box office sales is getting fiercer—and private equity, known to go where there is an imbalance between the supply and demand of capital, is actively participating.

This week, film producer Robert Simonds announced that TPG Growth, TPG Capital’s midmarket buyout and growth equity arm, and Chinese firm Hony Capital have signed on as anchor investors to support his latest venture, which will invest up to $1 billion in new production over the next five years.

By bringing Hony Capital on board, Mr. Simonds, who has been involved with such Hollywood films as “Happy Gilmore,” clearly has China in mind. Not only is Hony, which traces its roots to computer maker Lenovo Group Ltd.0992.HK +0.79%, one of China’s oldest and largest private equity shops, but the firm is well-versed in Chinese media industries: It owns interests in film production and distribution company SMG Pictures, part of Shanghai Media Group, and video website operator PPTV, among others.

Other Chinese firms are planning to invest in film production directly. National Film Capital, for instance, aims to spend $300 million jointly producing 10 films, including “Ming: The Annihilator,” based on a superhero created by Stan Lee, the co-creator of comic book characters Spider-Man, the Hulk and Iron Man.

Still others, such as Chinese billionaire Wang Jianlin, are targeting both the content and real estate sides of the business. Mr. Wang, whose closely-held Dalian Wanda Group Corp. bought movie theater chain AMC Entertainment Holdings Inc. in 2012 for about $2.6 billion, announced plans last year to build a studio complex in the coastal city of Qingdao to duplicate Hollywood in China.

As part of that plan, Wanda has reached agreements with a handful of talent agencies to attract stars such as Nicole Kidman and Leonardo DiCaprio to produce 30 films each year for both Chinese and global audiences.

All of this capital aims to attract China’s movie-goers. Box office sales in the country rose to 21.8 billion yuan ($3.6 billion) for 2013, from 17 billion yuan ($2.76 billion) in 2012, according to Xinhua state news agency. Foreign movies accounted for a little more than 40% of the gross proceeds.

Simply importing foreign movies isn’t enough to meet the demand, hence the push for new productions that involve Chinese partners. Up until recently, China only allowed annual import of 20 U.S. movies. That number has increased somewhat under a deal struck in 2012, with the provision that additional movies are in 3D or IMAX format. That deal also increased U.S. studios’ share in box-office sales in China to 25% from 13%.

Of course the rapid expansion of the industry doesn’t do much to eliminate the risk involved with investing in films.

“Investing in the film business is a ‘hit’ business,” said Peter Schloss, a partner of Phoenix Media Fund, which invests in Chinese media companies. “Only [a] few films will make money.”

By Shasha Dai and Sonja Cheung (The Wall Street Journal) March, 2014

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