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China to Ban Movie Ticket Subsidies

The Chinese government is introducing measures to ban the subsidizing of theatrical movie tickets that are sold online. Subsidies by both ticket sales platforms and film distributors have distorted the market.

The regulatory moves appear to be in the process of being introduced. Authorities have met with major cinema chains, according to financial news publication Caixin, but so far have not published new rules in either online or written form.

Subsidies have been offered by online ticket sales platforms to win market share from rivals. On occasion that has had the effect of reducing of the film ticket to less than the cost of a soft drink and popcorn.

When subsidies were reduced after a period of consolidation, in the first half of 2016, the net price paid by cinemagoers shot up. That had the immediate effect of halting the ten years of ticket sales in China. National box office stalled for about a year, before resuming its upward track in mid-2017.

Film distributors have frequently used subsidies and purchases of their own tickets to inflate the apparent gross achieved by a film. That has been done to persuade exhibitors and the public that a film is a hit and is worth seeing. In other cases, showing a high gross has fueled movement in derivative investment products based on theatrical grosses. In recent weeks, Chinese film “iHome” was accused of using ticket buying to gain the top spot. But with poor word of mouth, the film crashed out of the charts only days later.

Another component of the new rules appears to be a cap on fees earned by ticketing platforms, of $0.29 (RMB2) per ticket. That will have a direct impact on the Alibaba Pictures-owned Tao Piao Piao, and the Tencent- and Enlight-backed Maoyan, which after a further consolidation, have come to control more than 80% of ticket sales. Maoyan is currently in the process of launching an IPO on the Hong Kong Stock Exchange.

It is unclear whether the new rules will help or hinder these companies. Both Tao Piao Piao and Maoyan have spent heavily to win customers and knock out their rivals. If the regulations mean that the two market leaders no longer have to spend so much on subsidies to consumers, they could lose less money. On the other hand, if the rules mean higher ticket prices and audiences again react by staying away, then they will suffer.

The RMB2 cap appears to be lower than the fees they currently pass on to customers. Data from Ent Group shows that last month the average fee per ticket was RMB2.43, up from RMB2.23 per ticket in August last year. Both companies have diversified into marketing services, film distribution and data.

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