Does This Deal In China Give Legendary Pictures the Power?

When Legendary Entertainment signed a partnership deal with Warner Bros (NYSE:TWX) in 2005, both companies needed each other to pull off franchises like “The Hangover” and “The Dark Night.” Now, just before that contract is set to expire, Legendary East has announced a deal with China Film, the country’s state-sponsored movie arm. It’s safe to say Legendary has bolstered its hand significantly, and will use its new-found power to negotiate a much better deal this time around.

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The announcement, which came Thursday, means that whoever works with Legendary Pictures on its next projects will be able to operate in China with privileges only a few studios enjoy. The multi-year deal penned by Legendary East allows producers better distribution access, an easier go at censorship requirements, quicker notice of script approval and — most importantly — an exemption from its films being counted as part of Chinese quotas. Under current laws, only 34 foreign movies are allowed to be shown on China’s screens every year.

By co-producing with China Film, Legendary and whatever big studio signs with it will be able to sidestep many of the difficulties involved with the Chinese market. Only Sony (NYSE:SNE) and Twentieth Century Fox (NASDAQ:NWS) currently have a foothold in China, so Warner Bros may see China productions as imperative for keeping on top of their game. Universal Studios (NASDAQ:CMCSA) would also have a major interest in getting on board with Legendary as it pushes into the biggest market outside of the U.S.

According to Marc Graser in Variety, if Universal formed a partnership with as big a player as Legendary, it would have excellent material for its theme parks around the world, not to mention the Chinese production aspect. Of course, the other studios could make a move to sign the next deal with Legendary as a way to keep Time Warner out of it.

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Whatever the outcome, Legendary has built the strongest possible position for itself as it plans to negotiate a new distribution deal at the end of the year. The makers of films like “The Dark Night Returns,” “Clash of the Titans” and “The Hangover” already had a lot to offer a major studio. Now Legendary has a foot inside the world’s second-biggest movie market. The price is going to be much higher this time around.

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