Huayi Brothers Media Corporation: A

Strategic Industry Analysis

Presented to the Board of Directors of Huayi

Brothers Media Corporation

Prepared By

Group Members
Janelle Twomey
Brittany Primrose
Devin Vornbrock

Table of Contents
1 Executive Summary............................................................. 3

2 Introduction......................................................................... 4

3 Analysis.............................................................................. 4

4 Problem Analysis.............................................................. 4

5 Market Analysis................................................................ 5

6 Discussion........................................................................... 5

7 Alternative Analysis.......................................................... 5

8 Alternative 1:................................................................. 6

9 Alternative 2:................................................................. 6

10 Alternative 3:................................................................. 6

11 Recommendation and Implementation................................... 7

12 Timeline Analysis............................................................. 8

Executive Summary
 The following report provides a detailed analysis of the long-term strategy of Huayi Brothers Media
Corporation. More specifically, the issues outlined are whether or not to enter into a partnership with STX
Entertainment as well as the cautious nature of top management.
After extensive research, The Concept Crew recommends the following actions be taken. First, we
recommend Huayi enter into the prospective partnership with STX. By doing so, Huayi gains access to a much
needed talent base from the mature American market. Due to the fact that the partnership is mutually beneficial to
both STX and Huayi, there is a high probability of success.
Following the partnership, Huayi should phase out plans to enlarge the live entertainment division. Since
the live entertainment division only accounts for 20% of Huayis revenues, The Concept Crew recommends
focusing a majority of resources on the two largest divisions of the organization, which include visual and internet.
Huayi can capitalize on the partnership with STX through increasing profits within the visual entertainment revenue
stream. Continually, Huayi can increase revenue growth in internet entertainment through its majority stake in
Yinhan Technology.
Lastly, we recommend Huayi reorganize their top leadership structure in order to streamline their
processes. Currently, Huayis top managements responsibilities are misaligned with their designated roles, therefore
leading to inefficiency. Due to the fact the reorganization only affects top management, we foresee this as an easy
implementation with very little impact on their remaining organizational culture.
The implementation strategy outlined by The Concept Crew provides Huayi with both short-term and long-
term success within the entertainment industry. Through the partnership with STX, Huayi will increase its
competitive advantage as well as ensure it's success within the industry as a market leader. By focusing on the two
fastest growing revenue streams, Huayi can increase market growth while also ensuring financial stability for years
to come. Likewise, reorganizing Huayis leadership structure will ensure Huayis management are focused on a
specific task rather than multiple tasks. This is conducive towards a more efficient and detailed leadership structure,
thus allowing Huayis core to focus on a holistic strategy for the organization.

Introduction

As one of the first private entertainment companies within China, Huayi Brothers Media Corporation has

rooted itself as one of the most prominent entertainment companies in the industry. Established in 1994, Huayi
operates in a variety of entertainment markets including visual entertainment, live entertainment, and internet

entertainment.

Although sales in China continue to expand, Huayi requires a brand presence in America to continue to

grow the corporation for the long-term. In order to enlarge its business, Huayi is in need of the talent from the more

mature American market. To accomplish this, Huayi is in search of an American hands-on partner with skills in

both movie production and distribution. After three failed attempts at partnerships, Huayi is currently in discussion

with American-based STX Entertainment. Also looking to grow its brand awareness and global position, STX

provides a promising partnership for Huayis future growth.

As a professional consulting firm, The Concept Crew has been tasked with determining the correct course

of action for Huayi Brothers Media Corporation with respect to their prospective partnership and future strategy.

Problem Analysis

The primary problem that Huayi Brothers Media Corporation is facing is whether or not they should enter

into the partnership with STX. The shift in the entertainment industry has forced Huayi to look into new ways of

doing business, which means potentially partnering with U.S based organizations in order to secure their competitive

positioning in the marketplace. This decision leads Huayi to consider which of the three revenue streams they must

focus on in order for the partnership to yield the most profitable results. A secondary problem that arises is the

cautious nature of top management in regards to making decisions and expanding internationally through

partnerships. In order to yield profitability from a partnership with STX, they must be able to relinquish control to a

certain extent and trust in the business relationship. In previous attempts at partnerships with U.S companies, Huayi

has failed due to the inability to take risks and share controlling interest. Therefore, they will need to change their

approach in order to reach and extract the talent pool within the United States.

Market Analysis

In the current entertainment market, Huayi Brothers Media Corporation faces growing competition within

the film and entertainment industries. Currently, Huayi Brothers are a leader in the industry, and there is a strong

opportunity for them to move in a different direction. This is dependent on the fact that the industry is growing

rapidly and continues to show strong upward trends through foreign investments within Asia. In recent years, China
has begun expanding its technological reach drastically. More than 461 million people in China currently stream

videos online, which results in a very high market density and provides a strong opportunity for expansion and

differentiation within the Chinese market. However, there are strict censorship laws within China, and there is a

large amount of competition within the industry. Many competitors are currently choosing to engage with foreign

partners such as the USA, leaving Huayi Brothers one-step behind their counterparts. Moreover, Huayi Brothers has

a history of failed partnerships in the past which could ultimately affect their ability to partner in the future. Exhibit

1 depicts Huayis current situational analysis in more detail.

Alternative Analysis

Alternative 1

The first alternative involves refraining from entering into any partnership with STX in the near future.

Instead, we suggest that Huayi Brothers continues to focus on the subsidiary in the U.S., which allows for them to

concentrate on increasing their talent pool. While this may not provide a large profit margin upfront, it allows for the

company to take less of a risk initially and creates more time for them to find a perfect fit with a potential joint

venture in the future. Moreover, the first alternative suggests continuing to focus on the three broad revenue streams

that are currently being explored. This will allow for the company to maintain the wide target market they currently

are servicing. Due to the immense size and diversity of the Chinese market, widening Huayis revenue streams will

still result in extensive profit margins within the Chinese economy. However, by taking this approach Huayi

Brothers would not be positioning themselves for future success. While this scenario provides low risk for the

company, it would diminish the opportunity to expand and develop a stronger long term strategy.

Alternative 2

The second alternative is to not engage in a partnership with the U.S company, STX. As depicted through

Huayis 2014 balance sheet, cash equivalents have increased by 692 Million since 2013. This means that Huayi are

currently in a profitable financial position, and therefore, it is not necessary to immediately expand internationally.

This decision would mean that Huayi must find another way to differentiate themselves in order to continue as a

market leader. Due to the fact that the visual entertainment division is already saturated by competitors, we suggest

that they focus on the most profitable and fastest growing revenue stream, which is Internet entertainment, in order
to differentiate themselves. This revenue stream accounted for the largest portion of revenue in the first quarter at

410 million. We feel that this will be a successful strategy due to the fact that China is immersed with young and

affluent consumers who provide demand for this initiative. Furthermore, the Internet entertainment segment is

lucrative due to the low cost of distribution through online platforms and the governments plan to modernize the

infrastructure. However, this initiative does not allow for Huayi to capitalize on the benefits of partnering with a U.S

based company and expanding internationally. Additionally, by focusing on Internet entertainment, they are

ignoring one of their core competencies through visual entertainment.

Alternative 3

The third alternative recommends entering into the partnership with American-based entertainment

company STX. With numerous competitors already involved in partnerships with major U.S. companies,

implementing a joint venture is exactly what Huayi needs in order to ensure its strategic growth for the long-term.

Unlike other American companies, STX operates in both production and distribution and is also looking for a

Chinese strategy in order to compete with larger American companies. By partnering with Huayi, STX is ensuring

their future growth while also supplying the missing talent to Huayi.

In addition to the partnership, the third alternative recommends Huayi focus on its two largest revenue

streams: internet and visual entertainment. As shown in Exhibit 2, the internet and visual entertainment markets

account for roughly 80% of Huayi revenues, over 1.9 billion. By focusing only on the industries with the largest

profit potential, Huayi can better position themselves as a leader within their respective entertainment industries.

However, in order to accomplish this task, we recommend a restructuring of Huayis top management in order to

ensure the leaders of Huayis time is being effectively utilized. As shown in Exhibit 3, the current leadership

structure between James, Dennis, and Brenda has resulted in broad roles for the organization's top management.

More particularly, top managements roles should align with their respective job titles. For instance, Denniss

current role has him in charge of financial management for the organization; however, Dennis himself admits

finance is not his strong suit. In order to ensure structure and focus in a long-term strategy, alternative three

recommends these roles be trimmed and divided among the leaders, as depicted in Exhibit 3.

Recommendation and Implementation

After extensive analysis, The Concept Crew recommends Alternative three be implemented within Huayis

current and long-term strategy. As depicted through Exhibit 4, this alternative provides the most market and
financial growth potential through it's partnership with STX and focuses on Huayis two main divisions. Moreover,

alternative three provides the most stability in a long-term strategy by ensuring that top management is undertaking

suitable roles and ensuring that no one individual is undertaking too many tasks.

Timeline Analysis

In order for Huayi to implement the chosen alternative in the smoothest manner, The Concept Crew has put

together a three year plan to implement. The timeline is included as Exhibit 5 below.

Year one consists of Huayi phasing out plans to enlarge the live entertainment division within the first three

months. Even with the location-based entertainment model, creating a live entertainment sector results in large

amounts of capital spending upfront and more risk for the company. Since the live entertainment division only

amounts to roughly 20% of sales, we recommend limiting the small live entertainment towns to only 10 as opposed

to 20. Within the first six months, we recommend reorganizing the leadership structure of the organization to the

revised structure shown in Exhibit 3. This will result in hiring either internally or externally to fill the leadership

positions of manager for the three various divisions. By doing so, this will allow the leadership team of James,

Dennis, and Brenda to focus on the responsibilities outlined in Exhibit 3. More specifically, Brenda will assist

Dennis with the financial aspect of mergers and acquisitions as well as forming a more long-term budget for the

organization. Lastly, we recommend solidifying the joint venture with STX Entertainment Group and begin pooling

resources with STX through Huayis U.S. subsidiary.

While most changes occur in year one, The Concept Crew recommends Huayi evaluate and monitor brand

awareness throughout year two. More specifically, this includes evaluating the short-term success of the joint

venture with STX as well as making plans for a five-year long-term budget for Huayi. With the restructuring of the

organization, Brenda and her newly appointed controller will have more time to focus on Huayis budget for the

long-term. Moreover, we recommend Huayi begin expanding the internet entertainment market through their

majority stake in Yinhan Technology.

In year three, we recommend Huayi continue to reevaluate the partnership with STX and make any

necessary changes to the partnership. By continuously evaluating the success of the partnership and communicating

with STX, Huayi can ensure their visual entertainment division is flourishing for years to come.

Risks and Contingencies

 The first contingency that we foresee is the failure of the partnership with STX. Huayi Brothers have

emphasized the importance of trust and personal relationships with business partners, which can be attributed to

cultural differences. In order to combat this risk, we suggest hiring Donald Tang as a liaison between the two

companies in order to mitigate the cross-cultural barriers of communication and doing business.

Huayi Brothers currently has a strong corporate culture, however with the proposed reorganization of the

company, this culture may change and adjust. We feel that with the structure of the reorganization, only the

responsibilities of upper management are shifting to be more aligned with strategic goals and the roles of each silo.

Therefore, we feel that this reorganization will positively impact the overall function of the company, which

outweighs the potential for adjustments in corporate culture.

With the internationalization and the new partnership with STX, Huayi is taking a risk due to the fact that

the industry changes so quickly and may shift in a new direction where the partnership is not as beneficial. In order

to mitigate this risk, we emphasize that the partnership with STX will increase connections and networking which is

beneficial regardless of the direction of the market. Finally, the reorganization of the company will streamline

processes through aligning executives responsibilities with their roles. Exhibit 6 below compares each to Huayis

overall success as well as the probability of the event occurring.

Appendices
 Exhibit
1

Exhibit

2
*Based upon data provided by Huayi Brothers: Strategic Transformation

Exhibit 3
Exhibit 4
 Alternative Analysis Criteria Matrix
Weight % Alt. 1 Alt. 2 Alt. 3

Security 15% 4 4 3
Market Growth 25% 2 4 5
Potential
Financial Growth 30% 3 3 5
Long-term Strategy 30% 1 2 5
Total 100% 2.3 3.1 4.7
*Ranking based on a scale of 1 to 5 - 5 being the best in the category, 1 being the worst.

Exhibit 5

Exhibit 6
** The volatile industry is the highest risk due to the partnership and the company hinge upon the industry. If industry fails, so do the other two
elements.