LOS ANGELES — Two summers ago, Legendary Entertainment was the belle of the Hollywood ball.
Thomas Tull, who founded Legendary, a boutique studio, in 2000, finding hits like “Godzilla” and “Pacific Rim,” strutted across a stage at the Comic-Con International fan convention and touted two coming films, “Warcraft” and “The Great Wall,” as surefire blockbusters. Behind the scenes, Legendary was working to tap into Chinese money flowing to Hollywood. That resulted in Dalian Wanda’s purchase of Legendary in January 2016 for what seemed like a large price, $3.5 billion.
Now, in a reflection of the volatility of the film business and the precariousness of deal making with Chinese companies, Legendary is facing uncomfortable questions about its future.
Legendary has been bruised at the global box office; “Warcraft” and “The Great Wall” flopped. The studio has been without a chief executive since Mr. Tull left in January. (He said that was his plan all along; Wanda publicly indicated otherwise.) And Legendary suddenly finds itself operating amid uncertainty — something that Hollywood loathes — as Beijing clamps down on Wanda and other conglomerates, scrutinizing balance sheets and reviewing loans from state-owned banks.
Is Legendary speeding toward the Hollywood graveyard?
A close look at the company suggests no. In fact, there are concrete signs that Legendary is moving past its recent box office troubles. Even so, the upheaval surrounding Wanda is real and could complicate Legendary’s growth plans.
The studio, which employs about 300 people, has ample money to make movies, including announced sequels to “Godzilla,” “Kong: Skull Island” and “Pacific Rim.” Over the last six months, the studio has secured cash investments of nearly $580 million. Legendary also has a $700 million line of credit with JPMorgan Chase that extends through 2021. This information was provided by a Legendary executive, who spoke on the condition of anonymity to discuss financial matters.
Melissa Zukerman, a Legendary spokeswoman, confirmed the numbers on Tuesday but declined to comment beyond a statement released last week. It said, in part, “Legendary is well capitalized with liquidity to fund its film and TV slates and operate its business as usual.”
Whether Legendary has the ability to pull off its ambitious growth plans is less certain. Its expansion goals include taking more control of its North American film distribution (it relies on Universal Pictures and Warner Bros. to release its movies) and increasing output from a couple of movies a year to six or more.
With the right support from Wanda, financially and politically, Legendary could also build a film distribution system in China, one that could be rented to other Hollywood studios, which are now required to use a state-owned distribution system.
In many ways, Legendary finds is in the usual Hollywood spot: crossing its fingers that film bets pay off and a corporate parent comes through with promised backing. In May, Jack Gao, Legendary’s acting chief executive, told Variety magazine that Wanda had committed hundreds of millions of dollars in additional funding.
Legendary has also been caught in the old Hollywood game of perception versus reality. Chinese conglomerates like Wanda, Anbang Insurance Group, HNA Group and Fosun International are being reined in because they have used cheap debt provided by state banks to spend lavishly, in some cases seeming to overpay for acquisitions.
Just last week, Wanda tore up a $9.3 billion agreement to sell a portfolio of hotels and theme parks to the property firm Sunac China Holdings, instead selling it just the theme parks, a move that lessened Sunac’s debt level. (Wanda reached a deal to sell its hotels to another Chinese company, R & F Properties.)
Because of write downs from movie misfires, spending on fast-tracked film and television projects, and the accelerated vesting of stock options in anticipation of a sale, Legendary lost $343 million in 2014 and $462 million in 2015. The losses were disclosed in filings with the Shenzhen Stock Exchange related to a subsequent effort by Wanda to merge the studio with a publicly traded subsidiary, Wanda Cinema Line, which owns theaters. Wanda abandoned that maneuver, citing changing market conditions.
Yet Wanda paid $3.5 billion for the little studio.
In reality, according to the Legendary executive who provided internal information and the spokeswoman who confirmed it, the actual deal was slightly different. The price was $1.88 billion, plus the assumption of Legendary’s debt, much but not all of which has since been paid off.
Those details were not mentioned when Wanda’s chairman, Wang Jianlin, barnstormed through Hollywood in October to promote Legendary as a jewel at the center of an expanding entertainment empire. Soon, he said then, Wanda’s assets would include the purchase of a small TV company, Dick Clark Productions, for $1 billion, and an $8.2 billion studio and theme park complex being built in Qingdao, a city north of Shanghai. Wanda also owns AMC Entertainment, the No. 1 theater chain in North America.
But Wanda soon abandoned the Dick Clark deal and “The Great Wall” was a debacle, costing at least $250 million to make and market and taking in $332 million worldwide. (Theater owners keep roughly 50 percent of ticket sales.) The misfire led to the departure of Peter Loehr, the chief of Legendary’s China operation and a “Great Wall” producer.
Lately, however, Legendary has shown signs of resurgence.
The studio’s last release, “Kong: Skull Island,” was a hit, collecting $566 million worldwide in March against a production budget of $185 million. DVD sales were also strong. As a result, Legendary expects to turn a profit for 2017 of roughly $30 million.
As the hunt for a successor to Mr. Tull progresses, Legendary’s highly regarded production chief, Mary Parent, who joined the company last year, (“Kong: Skull Island” was her first film), has hired lieutenants and started to assemble new films. Legendary executives, agents and producers affiliated with the company say that Ms. Parent’s team has put more checks and balances in place to ensure that the company is not overspending on production, as had sometimes happened.
Legendary’s next release, “Pacific Rim: Uprising,” which will arrive in February, cost about $150 million to make, for instance. Its 2013 franchise predecessor cost an estimated $190 million.
Ms. Parent’s lineup also includes a sequel to “Kong: Skull Island” that will find Godzilla battling the giant ape; “Skyscraper,” a disaster thriller starring Dwayne Johnson; “Detective Pikachu,” a live-action film based on the Pokemon character; and a reboot of the science-fiction classic “Dune,” with Denis Villeneuve in the director’s chair.
Additionally, Ms. Parent, an Oscar nominee for producing “The Revenant,” has some smaller films in the works, including an adaptation of the book “Men Are From Mars, Women Are From Venus.” A not-so-minor financial footnote: Legendary is also an investor in a sequel to “Jurassic World,” which took in $1.7 billion worldwide in 2015.
Legendary, like every Hollywood upstart, has found itself at a crossroads before. Unlike most, it has always found a way forward.
Mr. Tull, once a Laundromat owner, attracted Legendary’s first investors on a premise that turned out to be faulty — that strong DVD sales had put a floor under high-end fantasy films. The DVD market started to crumble in 2005, about the time Legendary took root. Mr. Tull pivoted to the foreign box office, which was starting to grow, especially in China.
With private equity funding, Legendary persuaded Warner Bros. to let it invest in a several films that became megahits, including “The Dark Knight Rises” and the “Hangover” movies. Legendary’s own run as a creative force started in 2007 with the bloody “300,” which cost $65 million to make and took in $456 worldwide — a success that was cited by Wanda last year, among others, as proof of the studio’s potential.