Why Global Road's Film Studio Is Collapsing Less Than a Year After Launch

The indie is trying to bridge the world's two largest film markets — North America and China — by leveraging the unique strengths of each territory.

Even by Hollywood standards, Global Road Entertainment’s mini film studio has hit the skids with unprecedented speed. The company — officially less than a year old — is now in the control of lenders after its chairman, China-U.S. broker Donald Tang, was unable to raise $200 million in needed financing.

This weekend, the situation is likely to grow worse with the release of family adventure A.X.L., which may not earn more than $3 million in its U.S. box-office debut. And Global Road continues to make headlines after pulling the Johnny Depp-Forest Whitaker pic City of Lies from its September release date. If Tang is unable to figure out a solution, the banks now in control can either extend credit to Global Road’s film operation, sell or declare Chapter 11 bankruptcy in the coming days. So far, Global Road CEO Rob Friedman remains at the helm.

The indie studio landscape has undergone seismic shifts in the past year with the epic collapse of Harvey Weinstein’s The Weinstein Co. and the demise of Broad Green Pictures. That followed the messy implosion of Ryan Kavanaugh’s Relativity Media.

Tang began his Hollywood foray in mid-2016 when Tang Media Partners, backed by major China investors China Media Capital Partners, Huayi Brothers Media, Tencent and Sequoia Capital's Neil Shen, bought Stuart Ford’s leading foreign sales, production and financing company IM Global and simultaneously launched a television co-production fund with Tencent. The two transactions were estimated to be worth a combined $200 million.

In August 2017, Tang Media Partners acquired U.S. distribution operation Open Road Films for $28.8 million and installed Friedman as the head of the mini-studio. (Ford, who opposed the acquisition, was unceremoniously shown the door by Tang’s team.)

In October, Tang’s new empire was rebranded Global Road Entertainment, with offices in Los Angeles, Beijing and Shanghai. Tang spoke of grand plans of bridging the world's two largest film markets — North America and China — by leveraging the unique strengths of each territory: moviemaking prowess in Hollywood, box-office growth in China — a strategy he regularly referred to as his "dual-core business model." Thanks to his insider's touch in both markets and cultures — he had served as a behind-the-scenes broker of some of the biggest Hollywood-China deals in recent memory, such as Huayi's 18-picture slate investment at STX Entertainment — Tang said he would succeed where past would-be Sino-Hollywood tycoons, such as Dalian Wanda Group's Wang Jianlin, had faltered.

Friedman and Tang then hosted several road shows where they spoke of Global Road's plans with breathless ambition. At an event held during the Berlin Film Festival in February, Friedman and the company's incoming president of international, Rodolphe Buet, told an event packed with international film buyers that Global Road had amassed a $1 billion war chest to spend on film production over the coming three years.

Not long after, in April, Tang and Friedman hosted a gathering in Hong Kong to announce that Global Road had partnered with Tencent and investment company China Everbright to acquire 10 to 20 Hollywood films per year for distribution in China. At the same event, the company said it had signed veteran producer Lorenzo di Bonaventura (Transformers, G.I. Joe) to produce a big-budget martial arts action film, The Last Masters.

Two months later Tang again had big-ticket news to announce: During the Shanghai International Film Festival, the Chinese exec and genre hitmaker Jason Blum took the stage together to share that TMP and Blumhouse Productions had signed a deal to co-develop and co-finance a slate of Chinese-language horror and thriller films to be distributed in China. Given Blumhouse's impressive commercial track record — the company's many hits include Get Out, Split and the Paranormal franchise — the alliance was instantly viewed as a coup for Tang, although many also wondered how he would get horror projects past China's notoriously strict censors.

At each step along the way, however, Tang has simultaneously hinted that the company was in need of additional working capital. Last November, during the company's rollout phase, Tang told THR that Global Road was conducting a "growth raise for approximately $150 million in equity."

In February, Tang hired investments banks to raise $200 million for Global Road’s film division. But sources say the exec hasn’t been able to raise the money, putting Friedman’s team in a state of limbo. At the event in Hong Kong in April, Tang again said the company was "holding a D round of pre-IPO fundraising."

Tang has been clear from the start that his underlying strategy was to get TMP to an IPO exit, most likely in Hong Kong, within at least two years. Following TMP's acquisition of Open Road in late 2017, most industry watchers assumed Tang had raised at least enough capital to carry the company through its existing slate of inherited titles, no matter how poorly they performed. Last fall, the Reese Witherspoon comedy Home Again topped out at a disappointing $27 million domestically, while Midnight Sun — the first film released under the Global Road banner — earned just $9.6 million in the spring, followed by a forgettable $17.8 million for family pic Show Dogs earlier this summer.

Complicating matters, Global Road’s first acquisition, the Jodie Foster film Hotel Artemis, also bombed badly at the summer box office. The film, acquired for $4 million-plus before a multimillion marketing spend, topped out at $6.7 million in the U.S. and $11.2 million globally.

The lenders who have taken control of Global Road’s film studio haven’t yet been identified, but sources say East West Bank – which straddles both China and the U.S. — is a primary supporter.

TMP's near-immediate run-in with a liquidity crisis suggests Tang either isn't happy with Friedman's stewardship of the film division and is withholding funds, or Tang, fabled Chinese dealmaker, hasn't been able to raise the capital he promised.

One possibility is that Global Road was banking on being able to draw additional capital from mainland China to help see the studio through its easy-to-anticipate growing pains. But Tang's timing for launching a China-financed global media company could hardly have been worse.

In early 2017, Beijing regulators began blocking private Chinese companies from moving money offshore to finance investments in industries considered nonstrategic by the central government — the entertainment sector, which had come to be viewed as overheated at home, was said to rank near the top of Beijing's new no-go list. Chinese investment into Hollywood, thus, came to an immediate halt; and President Trump's ongoing trade war with Chinese president Xi Jinping has assured that the yuan never resumed flowing, and are unlikely to do so anytime soon.

Global Road's very public signs of financial emergency can hardly be expected to help matters. One of Beijing's many rationales for suspending Chinese investment into Hollywood was the growing suspicion that the country's biggest firms were simply making bad bets, squandering capital borrowed from state-backed banks and injecting instability into the economy at home. For a Chinese corporate giant like Tencent (which is understood to be irked with Tang over his public money problems), a Global Road meltdown would cause more reputational embarrassment than real financial damage (Tencent has a market cap of nearly $500 billion on the Hong Kong stock exchange).

Insiders say Global Road’s television and international sales operations are generating revenue, and hence, not in the same dire situation as the film side, whose other upcoming releases include the drama-thriller The Silence in December and Playmobil in August 2019. Lenders are said to be eager to sell off various projects.

So far, neither Tang nor Global Road have commented on the banks taking control of the film studio. There haven’t been layoffs, but morale is said to be dismal. Top execs whom Friedman has brought in include former studio exec Lynn Harris, who is president of worldwide production, and Jack Pan, who is president of marketing.