Article by Yang Jin

From a market value of hundreds of billions to the brink of bankruptcy, the fall of this "first stock of Chinese film and television entertainment" is not only a failure of a company but also exposes the investment traps and governance dilemmas of the entire film and television industry. As Warren Buffett's warning from decades ago is once again validated, how should investors view this "star-studded" yet crisis-ridden industry?

In April 2026, an announcement shook the capital market: Due to its inability to repay approximately 11.4 million yuan in debt, the Jinhua Intermediate People's Court officially accepted Huayi Brothers Media Corporation's (hereinafter referred to as "Huayi Brothers," stock abbreviation has been changed to "ST Huayi") application for pre-restructuring.

By the end of 2025, the company had incurred losses for eight consecutive years, with a cumulative loss exceeding 8.2 billion yuan, and its net assets had sharply shrunk from a peak of 8.55 billion yuan to negative values. Once a film and television leader with a market value close to 90 billion, it now stands at only about 5 billion, teetering on the edge of a cliff.

The fall of Huayi Brothers did not happen overnight, but it has provided the entire film and television industry with an expensive "risk public lesson." Warren Buffett's assertion from decades ago that he "would never invest in film companies" is echoing repeatedly in this case.

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Triple Loss of Finance, Strategy, and Business Model

Financial collapse, losing a "unicorn" in eight years.

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According to the financial data disclosed by the company, Huayi Brothers' financial situation has long been riddled with holes:

After its first loss in 2018, Huayi has never emerged from the quagmire. By the end of 2025, its net assets had turned negative, rendering it completely insolvent. The direct trigger for this pre-restructuring was a mere 11.4 million yuan in overdue debt—an undoubtedly cruel irony for a once-industry leader.

In 2014, Huayi Brothers proposed a "de-movie" strategy, intending to replicate the Disney model by splitting the company into three major sectors: film and television entertainment, brand licensing and real-life entertainment, and internet entertainment. However, diversification not only failed to bring stable cash flow but also dispersed core resources. Most real-life entertainment projects were short-lived, internet entertainment was out of place, and the film business, which was the foundation of its success, missed several blockbuster cycles due to insufficient investment and talent loss. Strategic focus was lost: "de-movie" turned into "de-profit." Huayi's excessive reliance on star directors is a hallmark event of its decline. In 2015, the company spent 1.05 billion yuan to acquire a 70% stake in Dongyang Meila, which was established only 2 months earlier by director Feng Xiaogang, at a premium of over 15 times. The two parties signed a high-stakes betting agreement, requiring Feng Xiaogang to achieve certain profits within 5 years. This practice of "binding stars at sky-high prices" superficially seemed to secure content production capabilities, but in reality, it tied the company's fate to the creative cycles and market appeal of a single director. With the controversy surrounding "Mobile Phone 2" and the box office failure of "Only Yun Knows," the unfulfilled performance compensation from the betting agreement further eroded the company's profits.

How much did the Wang siblings actually earn?

This is the most glaring and cautionary page in the story of Huayi Brothers for investors. The company went bankrupt, yet the founders had long been "financially free," with losses borne by shareholders while insiders had locked in their wealth in advance. This is not an accident, but a common script of "cash-out decline" among A-share film and television companies.

According to publicly available information (source: company announcements, Wind, Giant Tide Information)

Rough estimate: The Wang siblings realized over 3-4 billion yuan through share reductions and pledges, while the company incurred cumulative losses exceeding 8 billion yuan during the same period, with a market value evaporating by over 80 billion yuan—these losses were almost entirely borne by secondary market shareholders and creditors. A more typical operation was: large-scale reductions at high stock prices: around 2015, the two sold shares at prices of 30-40 yuan/share; pledging the remaining shares to brokers/banks: obtaining tens of billions in cash flow for personal investments, collections, and film projects; after the company's performance plummeted, the stock price fell to 2-3 yuan: pledges were liquidated, banks were forced to close positions, and the founders neither increased their holdings nor provided substantial debt guarantees. The result is: the company has limited liability, while the owners enjoy unlimited freedom.

Moreover, Huayi Brothers' stars like Li Bingbing have profited immensely. Li Bingbing became a steady winner through "binding the company + long-term value investment"; Fan Bingbing, although missing out on Huayi's IPO, achieved a turnaround through personal IP and investments in Tangde Film, later severely impacted by tax controversies;

During Huayi Brothers' most glorious years, the company hardly provided stable dividends (the media industry generally has low dividends). The wealth growth path of the founders is completely different from that of ordinary shareholders:

In other words, going public is not about allowing the company to survive longer, but rather about enabling the owners to cash out on decades of future earnings in advance. Whether the company is still around in ten years is irrelevant to them. Huayi Brothers is not an isolated case. Similar "cash-out IPOs" have repeatedly occurred in the film, media, and entertainment sectors: Tangde Film and Television: binding Fan Bingbing and Zhao Wei, major shareholders reducing their holdings in advance; Beijing Culture: producer of "Wolf Warrior 2" and "The Wandering Earth," internal power struggles + cashing out, company ST; Huanrui Century: star shareholders like Yang Mi and Li Yifeng leaving early, company suffering losses for consecutive years.

A "bloody revelation" for film investors

Huayi Brothers is not the first film giant to fall, nor will it be the last. For investors in the film industry, this case provides three unavoidable risk rules.

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Whether it is actors, directors, or screenwriters, the core competitiveness of film companies naturally belongs to individuals rather than the company. Binding a single star or director at a high premium is essentially a high-risk gamble. When the "halo" fades or public opinion reverses, goodwill impairment and performance changes will erupt simultaneously. Investors should focus on whether the company has the capability to continuously produce content of medium to high quality, rather than relying on one or two "trump cards."

The lesson from Huayi indicates that film companies must prioritize the stability and replicability of content production. Blindly venturing into cross-border areas such as real-life entertainment, derivatives, and the metaverse before establishing a core business moat capable of withstanding project risks will only accelerate cash flow depletion. The underlying logic of real-life entertainment is the "hit IP matrix," and a company that has suffered losses for consecutive years is fundamentally unable to maintain the lifecycle of its IP.

The film industry generally exhibits characteristics such as high goodwill, high accounts receivable, and long account periods. Investors need to view "net operating cash flow" as a more core indicator than net profit. Huayi Brothers appeared profitable from 2015 to 2017, but its operating cash flow was negative multiple times, with large amounts of funds tied up in project production and receivables, ultimately resulting in bad debts. Companies with negative free cash flow for two consecutive years should be approached with high caution.

Another validation of Buffett's "no investment in media" viewpoint

As early as the 1990s, Warren Buffett candidly stated in his letter to shareholders: "Movie companies are not good investment targets. Even if the industry can make money, most of the profits flow to stars, directors, and production teams, not shareholders." He even joked, "If you want, you can bet on the box office of movie companies, but I would rather bet on the fact that they will lose money."

Buffett's underlying logic is very clear: lack of a sustainable moat: movie companies do not own stars and directors, and these core resources can leave at any time. Extremely low capital return: content production has high uncertainty, most movies cannot recoup costs, and the profits of a few hits are shared by upstream and downstream. Disordered competition with no pricing power: audiences buy tickets for individual films, not for the company brand; The distribution channels and screening terminals are not controlled by the production party.

The eight-year decline of Huayi Brothers perfectly illustrates every concern of Buffett. Even in the era of the rise of streaming media and the entry of internet platforms, this logic still holds—platforms like Netflix and Disney survive on stable cash flow from subscription models and strong IP derivative systems, rather than relying on the success of a single film. Meanwhile, the vast majority of traditional production companies remain trapped in the cycle of "blockbuster - loss - betting on another blockbuster."

The pre-restructuring of Huayi Brothers should not be simply interpreted as a failure of a company, but rather as a turning point in the investment logic of the entire industry. When capital no longer blindly chases the "star effect," and when investors begin to examine film and television companies using the balance sheet logic of manufacturing, the industry may truly move towards rationality.

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For investors, every "Huayi-style fall" is a mirror. What is reflected in the mirror is not just the missteps of an entrepreneur, but also Buffett's timeless warning: do not invest in businesses where profits do not belong to shareholders, but risks are borne by shareholders.

However, although Buffett claims not to invest in media, he acquired The Washington Post in 1973. In fact, this is unrelated to investment; the essence of media is "discourse power," which occupies an important link in the investment industry chain. It can be seen that Buffett has almost no negative news, and this is the reason