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Why Is Time Warner Increasing Its Focus on China?

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Time Warner’s increased focus on China

On April 27, 2016, the Hollywood Reporter cited producer Brett Ratner, who stated that along with Time Warner’s (TWX) Warner Bros., he and Australian billionaire James Packer’s RatPac Entertainment intend to launch a film fund. The fund is intended finance Chinese movies in China (FXI).

Ratner told the The Hollywood Reporter at the Beijing International Film Festival, “We haven’t announced the deal yet, so I can’t give you the dollar number, but it’s us, Warner Bros and [China Media Capital] who will do a local Chinese fund to invest in Chinese movies.”

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According to the report, RatPac and Time Warner’s Warner Bros. became investors in the Chinese media fund set by China’s “state-backed investment group” China Media Capital (or CMC) in 2014. Time Warner is increasingly focusing on the Chinese market as indicated by the launch of Flagship Entertainment, a joint venture between Time Warner’s Warner Bros. and Richard Fox and mostly controlled by CMC.

Time Warner stated at a Deutsche Bank (DB) investor conference early last month that it expects the number of movie screens in China to increase by about 30% in the next two years.

Late in 2014, Time Warner’s HBO had also entered into a content distribution agreement with Tencent Holdings (TCEHY). Under the terms of the agreement, Tencent Holdings would distribute HBO movies and dramas through Tencent’s online video streaming service. This partnership has resulted in Time Warner’s Chinese subscribers increasing by around 5 million.

Other media companies targeting China

China’s Internet penetration rate is rising. According to a January 2016 report from the China Internet Network Information Center, “China had 668 million Internet users” and Internet penetration of 48.8% as of June 2015. Other media companies that have also expressed an interest in China include The Walt Disney Company (DIS) that has partnered with Alibaba (BABA) to launch DisneyLife and Tencent Holdings to distribute its ESPN sports programming in China.

However, censorship issues have been a hindrance for companies such as Netflix (NFLX) to expand into China. Netflix makes up 0.74% of the PowerShares QQQ ETF (QQQ). QQQ holds 4.4% in the television sector.

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