“We plan more acquisitions to help the development of the Chinese film industry,” said Zhang Qiang, CEO of Alibaba Pictures. “The capital feast has just begun.”
Zhang was speaking Sunday at a seminar at the Shanghai International Film Festival about the massive influx of capital in recent years into the Chinese film industry.
“Alibaba’s investments in (online marketplace) Taobao and (payment system) Alipay are all about helping other businesses to succeed. Our investments in the film industry are in the same vein,” said Zhang. “They improve the efficiency of the industry.”
Zeng Maojun, VP of Wanda Culture Industry Group, and president of Wanda Cinema Line, described the $3.5 billion acquisition of Legendary Entertainment in a similar vein. “It is not because we want to influence Hollywood that we bought the company. Rather we need them to teach us more about the international industry. And also it is because Wanda is building many theme parks and need the kind of intellectual property they can bring.”
“Good chemistry is going to be generated when we combine acquisitions with our own companies,” siad Zeng, when questioned about Legendary’s reported financial losses.
Zeng also pointed to some of the distortions to the industry resulting from the capital surge. “Capital markets focus on the short term and if we are not careful that will affect the level and quality of the films made, which will in turn harm the box office.”
He also pointed a clear finger at some of the fraudulent manipulations that affected Chinese box office earlier this year. “People making derivative instruments based on film are harmful to the film industry,” Zeng said.
Industry watchers have seen the slowing growth of the theatrical box office in the past two months as a sign that the industry has hit a roadblock. But Alibaba’s Zhang denied that the film industry is a bubble waiting to burst. “There is a bubble in the capital markets, not at the box office,” he said.
The $145 million four days opening of Wanda- and Huayi Brothers-backed “Warcraft” this week also demonstrates that Chinese audiences will turn out in huge numbers for the films they like. The film’s opening weekend in China is on course to be five times greater than that in North America.
Similarly, Jerry Ye, CEO of Huayi Brothers Pictures said that the flurry of interest in Internet-derived intellectual property has further to go. “Professionals understand the real value of Internet IP.”
Capital has flowed into Chinese film from private equity sources, stock markets and corporate investments, especially flowing from Internet companies. It has already taken Chinese cinema in directions that are different to other countries.
Online ticketing — promoted by companies including Alibaba and social media giant Tencent among others — may now account of 90% of ticket sales. That puts the Internet giants and vertically integrated conglomerates at the heart of China’s movie industry and gives them analytical understanding of audiences not available to smaller players.
“Wanda has 60 million members for its cinema club,” said Zeng. “That provides us with massive big data insight.”
The recent box office slowdown may have been triggered by a reduction in the volume of subsidies provided by online ticketing services. But seminar speakers predicted that continuing cinema building will further drive box office. “There are individual cities such as Chengdu where we may be reaching saturation, but the market as a whole will not reach saturation until we hit 80,000 screens,” said Wanda’s Zeng. China’s nationwide screen count topped 31,000 at the end of 2015 and will approach 40,000 by the end of this year.
Yu Dong, chairman and CEO of Bona Film Group, is counting on Chinese investors supporting the film business for several years to come. He recently took his company private (with the help of investments from Alibaba and Tencent) after having been delisted from North America’s NASDAQ stock exchange.
“We listed in the U.S. in 2010 in year when some 60 Chinese hotel chains, agricultural groups and Internet startups joined the market. But we have been invisible to Chinese investors for the past five years, and have become severely undervalued,” Yu said. “When we come back to the Chinese (stock) market we can count on our friends being present.”