Move follows frustration with regulatory changes

Warner Bros. is ending its run in mainland China’s multiplex biz.

Move will affect six theaters operated by Warner Bros Intl. Cinemas, including three in which it holds a controlling stake, two others under construction and a planned complex in downtown Shanghai. That complex was supposed to become the city’s version of Hollywood’s Walk of Fame, the company said in a statement issued in Shanghai on Tuesday.

A Warner Bros. spokesman in Los Angeles said, “While we are disappointed that we must stop our investments in cinemas due to significant regulatory changes of foreign investment in the Chinese cinema industry, we remain committed to our other businesses in China.”

Those businesses include local-language film production, a homevideo joint venture, consumer products and studio stores. All of them, he said, “have different legal structures, business models and regulatory requirements.”

Regulations on ownership were toughened late last year after a period of temporary relaxation. New rules prevent foreign companies from owning a majority stake in a cinema, stipulating that “Chinese mainland investors must own at least 51% or play a leading role in their joint ventures with foreign investors.”

WB Intl. Cinemas will sell its stakes in the affected theater developments, but a Warner spokesman said it’s unclear whether properties will be picked up by the joint venture partners or third parties.

The modern plexes have tended to become leaders in their local markets. Revenue from the company’s mainland theaters last year totaled 120 million yuan ($15 million), or 6% of a mainland market estimated at $250 million in 2005. Chinese theatrical market is estimated to be growing at 25%-30% a year on a combination of multiplex building and rising ticket prices. WBIC estimates that current year growth is 35%.

Despite the potential offered by a market expanding at that speed, WBIC has run out of patience with rules it viewed as preventing it from controlling their businesses.

“After looking at all the possible solutions in the past one year, WBIC has no other options than to stop its investments in cinemas in the (China) market,” the Warner spokesman said.

In an experimental relaxation that began in 2003, foreign investors were allowed to own 75% stakes in cinemas that would be built in cities the Chinese authorities considered to be underscreened. Through separate joint ventures, WBIC took a 51% stake in a plex in Nanjing and acquired a majority share in two others, Chongqing and Guangzhou.

WBIC hoped the regs would become permanent and be extended nationwide if operations went well. But in December, shortly after China issued the “Several Opinions on Foreign Investment in Culture Industry” advisory, WBIC prexy Millard Ochs said it would reconsider its Chinese investments if it could not get the control it needed (Daily Variety, Jan. 30).

This summer, WBIC was still optimistic that the deadlock could be broken and relocated its international multiplex design function to Shanghai from Glasgow.

September saw another warning from Ochs about regulatory issues, even though local real-estate developer Shimao announced it had signed a memorandum of understanding with WBIC to redevelop Shanghai’s Wangjing department store into a major entertainment complex (Daily Variety, Sept. 7).

“We are hopeful that an environment can be created that will allow our international cinema business to return,” company said Wednesday.

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