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Meet China’s biggest dealmaker in Hollywood

April 10, 2012, 5:32 PM UTC

Instead of waiting for blockbuster Hollywood movies to make it in China, Chinese investor Bruno Wu is going to Hollywood to help make them himself.

When the first batch of Hollywood blockbusters such as The Fugitive and Titanic entered China in the mid and late 1990s, moviegoers were blown away by their cinematic grandeur, breathtaking special effects, riveting storytelling and impressive performances. China even coined a new phrase for the Hollywood tent pole productions, “Meiguo Da pian” or “Big films from the U.S.”

Since then, “big films” have become truly big in China. In 1995, The Fugitive raked in $33 million, accounting for more than one third of the country’s annual ticket sales. The record was broken in 2007 by Titanic with $57 million and then Avatar’s $214 million in 2010 — my 16-year-old niece living in central China lined up for an hour with her classmates and paid about $25, an equivalent of one-tenth of her mother’s monthly salary, to see Avatar. At present, Hollywood imports account for about half of China’s box office takings.

Even senior Communist leaders such as past president Jiang Zeming and Xi Jinping, the soon-to-be Party secretary and president, are said to be fans of “big films.” Xi has been quoted as saying that Hollywood movies are grand and truthful and that they show “a clear outlook on values and clearly demarcate between good and evil.” It was not surprising that during his trip to the U.S. in February, he signed an agreement that would allow more Hollywood 3D and Imax films into China.

The profit potential in China has prompted studios such as Dreamworks and Legendary Pictures to reach out to companies there and forge joint ventures. But Bruno Wu, a big-name Chinese media entrepreneur and investor, is moving in the opposite direction. Over the past year, he has taken numerous trips to Hollywood in search of deals with filmmakers and studios, investing in English and Chinese language content with global box office potential, and building an entertainment distribution system for China and other parts of Asia.

Wu, 46, is chairman of Sun Redrock Investment, one of the largest privately-held media investment groups in China. Educated in France and the U.S., and often compared to Rupert Murdoch, Wu founded the Sun Media Group in 1999 with his wife, a well-known television talk show host. Sun Media Group has investment interests in more than 20 Chinese media companies, reaching more than 200 million consumers.

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Wu is expanding his media empire through Harvest Seven Stars Media Private Equity, an $800 million film fund established in February 2012 by Wu’s Sun Redrock Investment and Harvest Fund Management, one of the top two management companies in China. In recent weeks, Wu unveiled his first two investment projects in Hollywood: 1) Allied Productions East, a joint venture with financier-producer Jake Eberts to develop “Mission Boys,” the story of 20 Chinese high school graduates who were sent to the U.S. in the 1870s to study at Harvard and Yale; and 2) A partnership with director Justin Lin, of Perfect Storm Entertainment, to deliver two to three films a year from blockbuster to specialized fare.

Wu is also currently in talks with John Woo (Mission Impossible II, The Killer and Face/Off) and his partner Terrance Chang over possible co-production deals and trying to “acquire stakes in major Hollywood studio brands,” according to sources briefed on the matter.

Wu spoke twice with Fortune recently about China’s opportunities in the movie business and his own aspirations. Below are edited excerpts of the interviews:

Fortune: Why did you decide to come to invest in Hollywood?

Wu: First, with the development of the Chinese economy, the entertainment expenditure has gone up dramatically. The Chinese movie market is moving at an unprecedented pace. The box office sales surged about 40% to $2.1 billion last year, the third-largest in the world. I’m sure it’ll surpass Japan and become the second-largest this year. By 2015, the ticket sales in China might reach $5 billion. At the moment, the infrastructure is being built and enhanced. The number of screens will increase from the current 6,200 to more than 16,000 in 2015. We lack good movies to attract people to fill the theaters.

Second, most big Hollywood movies that work well in the U.S. are equally successful in China and Asia. Unfortunately, it doesn’t work in reverse, with the exceptions of directors Ang Lee’s Crouching Tiger and Hidden Dragon and John Woo’s Red Cliff, both of which were actually co-productions. Big Chinese movies and stars aren’t seen as widely outside China.

Third, investing in Chinese films is still a risky business, much riskier than elsewhere because the Chinese film industry lacks infrastructure and a workable system. Many filmmakers are operating in the old production studios and their productions are not cost effective. In addition, I haven’t seen any good business models. As a result, many Chinese investors have lost money. That’s why I’ve come to Hollywood.

What kind of projects is Harvest Seven Stars Media Fund targeting?

We hope to operate in three areas – mergers and acquisitions, distribution in Asia and movie content through joint partnerships with studios and individual filmmakers. As you can see, the first two deals we have announced are all related to creative content. We are eager to provide funding for well-established studios and well-known filmmakers in the U.S. and create US-China co-productions that are globally acceptable and popular.

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In the near future, we intend to build two platforms. One is the finance platform — making direct equity investment in existing studios. The other involves a centralized marketing platform — building a distribution channel or providing marketing access to the Asian market for major international studios. At a time when ticket sales in North America and Europe are declining, Asia has tremendous potential. We’ll team up with our Hollywood partners and build a consolidated Asian distribution platform. For our own content, we can leverage the Asian market and our Hollywood peers can supplement us with their European and American distribution networks.

Piracy in China costs the film industry billions of dollars each year. Despite the recent government crackdown, it’s still pretty rampant. How do you plan to deal with piracy?

I’m optimistic about the issue. We continue to work with the Chinese regulatory agencies on the issue. I truly see the situation improving dramatically. Over the past several years, the government has launched extensive programs to crack down on illegal downloading from the Internet. Many Internet portals are joining the fight against piracy and are spending a sizable amount of money buying up intellectual property rights.

I agree that the DVD piracy market is still very big. However, if you buy a copy, you’ll notice that the pirated DVDs have very poor quality. They can no longer meet the needs of regular moviegoers. As the ticket prices for “big movies” are becoming more affordable and theater facilities are becoming more comfortable, people are looking for a great experience in the theaters.

For years, Hollywood has pressured the Chinese government to ease censorship. How will censorship affect your movie ventures?

I think the censorship issue in China is overplayed by the Western media. I always remind Western journalists that it is true there is a great deal of censorship here, but an overwhelming majority of Hollywood titles are allowed to be shown in China without any problems, as long as the movie has no explicit political agenda, excessive violence and overly explicit sexual content. In fact, the gaps in taste and acceptance levels between Western and Chinese moviegoers are narrowing, rather than widening. I’m cautiously optimistic about the situation.

Over the past few years, the Chinese government has stepped up what is referred to as “soft power expansion” through the exports of Chinese cultural products and sponsoring international cultural events, such as the Frankfurt and London book fairs. Do you consider your investment part of China’s soft power building?

First, I want to emphasize that we are NOT a government entity and we are a 100% privately-held company in China. We are interested in making high quality entertainment products and gaining a decent profit. If in the process, our success benefits the Chinese image, that is a byproduct, just like what Hollywood has done for the United States. I’m proud of that.

Wenguang Huang is the author of a forthcoming memoir, The Little Red Guard, to be published later this month.