SYDNEY — The economics of building and operating cinemas in China just became more attractive for Western players after Beijing authorities approved a landmark deal under which Warner Bros. will hold a 51% stake in a multiplex outside Shanghai.
It’s the first time China has permitted a foreign investor to take a majority share of a mainland cinema after lifting the longstanding 49% limit.
“I hope this will encourage a lot more investment in exhibition in China,” said Warner Intl. Cinemas prexy Millard Ochs. Decision will allow the company to consolidate the business on its balance sheet.
Ochs hopes the company can take majority positions in numerous cinemas it’s planning with local partners throughout China.
The government agreed last year to a pilot program, beginning Jan. 1, in which it would raise the cap in seven cities, recognizing that it needs a huge injection of capital to modernize its antiquated exhib infrastructure.
In the first application of this ruling, WBIC will own 51% of a joint venture with Shanghai United Circuit for an eight-plex under construction in Nanjing, three hours’ drive from Shanghai. It’s slated to open March 15.
Warner is awaiting government approval as a majority partner for a 10-screen theater in Wuhan, west of Nanjing, also with Shanghai United. That plex is due to open in June.
Earlier this month, the U.S. major signed a management and licensing agreement with mall developer Dalian Wanda Group for 30 cinemas to be built in shopping centers throughout China. That innovative deal gives WB an option to take 51% equity in any of those venues at a time of its choosing.
It also has an agreement in principle with Guangzhou Performance Co. to build multiplexes in the prosperous southern Guangdong province as the majority partner, initially covering three cinemas.
Warner owns 39% of the Paradise Warner Cinema City, a nine-screener that opened in July, the first time the government allowed a major U.S. theatrical company extensively to brand a theater.
“We are grateful and delighted that the government has approved (WBIC) as the first Western investor to be allowed majority ownership in a cinema,” Ochs said.
He said the approval process for taking a majority stake has just been streamlined after authorities decided applications can be handled at a local level without being referred to Beijing.
Ochs is hoping the government will further expedite the process by allowing joint-venture companies to seek approval for all projects they’re developing rather than having to set up a company for each location and make separate applications.
Warner’s breakthrough may encourage other Western players to take the plunge, including Loews, which has been evaluating the feasibility of entering the market.