Foreign exhibs struggle to cultivate the moviegoing habit in China
HONG KONG — A massive vote of “no confidence” in the Chinese movie exhibition sector came Nov. 7 when Warner Bros Intl. Cinemas announced it would abandon its hardtop investments in the world’s most populous nation. But not everyone shares Warner’s gloomy analysis.
On paper at least, the mainland Chinese movie market is the fastest growing in Asia, forecast to triple in size over the next five years. But the theatrical sector is so small the country will not join the top global rankings anytime soon. And it is so beset with structural problems that the pace of development could easily slow. Foreign companies especially have no clear answer to the question: “If we build it, will they come?”
Local data suggests current year B.O. growth will be some 30%, lifting the total to $325 million. A report titled Cinemagoing East Asia, by analysts at the U.K.’s Dodona Research, says China’s turnstile take will rise from RMB2 billion ($250 million) in 2005 to $925 million by 2010.
Much of the current growth appears to be coming from new multiplexes springing up in the major cities. Modern complexes are driving up average ticket prices and attracting increased audience numbers. (China has a measly 2,800 cinemas serving a population of 1.3 billion.) Warner’s cinemas claimed to be market leaders in the cities where they opened.
“Chinese audiences are responding well to day-and-date releases,” says Kurt Rieder, UIP’s VP of sales and marketing in Asia. “But when releases are delayed, the problem is to get people to watch movies in theaters, rather than on high-quality pirate DVDs that came out weeks or months earlier.”
Dodona’s data suggests ticket sales and prices are rising, and that exhibs are also enjoying revenues from ancillary sources, including concessions and screen advertising.
Data also shows the cinema-going habit is not deeply ingrained, and that per-capita visits to the movies are among the lowest in the world. Though they could rise from 0.05 visits in 2005 to 0.11 by 2010, the numbers are tiny compared with averages approaching four in neighboring Korea or six in the U.S.
The sector has been traditionally dominated by state-owned concerns and fraught with political controls. Some of this is now changing, but the pace of change is not fast enough for some players, and in the area of ticket prices, which the government is committed to driving down, policy is anticommercial.
While private-sector capital has been welcomed into the exhibition sector, controls on ownership have been only partially relaxed. Chinese companies are now free to invest in the sector, but congloms from Hong Kong were only this year allowed to own majority stakes in multiple complexes, under the Closer Economic Partnership Arrangement III rules. Foreign firms can take minority positions only and must give a “leading role” to a local partner.
These restrictions are the reason given by WBIC for its proposed withdrawal. “We need majority control,” says WBIC prexy Millard Ochs, in order to invest and to properly account for such investments.
WBIC had been by far the most active foreign operator in China. It has four separate joint ventures with local developers and media groups, and it participated in an experiment which temporarily allowed foreign ownership to rise to 75% in cinemas in seven key cities.
But when the experiment was concluded at the end of last year and policy reversed, Warner was clearly angered at being shut out again. Sites will now be sold.
Other companies have not been so easily deterred by ownership issues. Korea’s CJ Entertainment opened its first Chinese CGV plex this year in Shanghai, while Korean rival Mediaplex is due to open one in the country in December. Japanese-backed Hong Kong conglom Intercontinental opened its first complex in Shenzhen this year under the MCL brand, while Korea’s MK announced plans for its first in partnership with China’s Eastern Dragon, part of the Poly Bona group.
Difference appears to lie in Asian attitudes to long-term investment, a greater comfort with the murkiness of Chinese policy and willingness to see exhibition as a loss leader for other ops. Jim H.J. Park, head of international business at MK Pictures, says, “Timing is crucial to being successful in China, together with having a sound strategy and finding the right partner.”
Hong Kong’s Edko, which operates the AMC brand in the region and runs the sparkling Star City complex in Beijing, may regard exhibition as a step toward its own distribution op. It recently won control of Universal’s product in China.
What Warner did not air publicly were feelings about the other regulatory controls on the entertainment sector. Problem areas for everyone include significant state control; lack of a developed distribution network; state intervention in distribution designed to boost Chinese films; lack of marketable Chinese films; piracy; and lack of a movie rating system.
More telling still are widespread worries that the industry’s growth is still fragile. “With so many operators backed by city councils or borrowing money on unrealistic terms, I don’t believe that any (commercial) exhibitor, Chinese or foreign, in China can be making money yet,” says one exhibition consultant.