Slump in China’s box office is helping big cinema chains squeeze the air out of independent theatres, analysts say
- First-quarter box office income plunged by 8 per cent and looks set to slow further
- A spike in the number of new screens being installed intensifies competition between cinema chains
The growth of China’s film market is likely to slow down further this year after a disappointing first quarter. But that could be good news for big cinema chains, according to analysts.
China’s box office revenue plunged by 8 per cent year-on-year in the first three months to 18.6 billion yuan (US$2.8 billion), data compiled by movie ticketing platform Taopiaopiao shows.
That suggests the industry could be facing another tough year ahead after a decade of exponential expansion ended abruptly four years ago.
But big cinema chains are likely to do better and squeeze out smaller independent theatres, analysts said, with the industry set to consolidate amid a surge in the number of new movie screens.
“Intense competition will force small and medium-sized cinemas to phase out of the market and enhance the market share of top players,” analysts led by Gary Guo, head of A-share media and internet research at HSBC Qianhai Securities, wrote in a recent report.
Cinemas in China usually get to keep 50 to 60 per cent of a film’s income from box office sales, making it one of the biggest segments in a market which is second only in size to the US.
Last year, the annual growth in box office revenues in China slowed to 9 per cent from 16 per cent in 2017 – and down from 49 per cent 2015 – amid a sluggish domestic economy and a national crackdown on tax evasion that hit entertainment companies hard.
Orient Securities forecasts growth of between 5 and 10 per cent this year.
Cinema chains have expanded frenetically over the past year, adding 9,303 new screens, according to the Orient Securities report. The number in top-tier cities like Beijing and Shanghai jumped by about a fifth.
As a result, the average revenue per screen – a measure of profitability used in the cinema industry – declined by 9 per cent across the country and 15 per cent in top-tier cities.
That has placed tremendous pressure on independent theatres and smaller chains, which are usually less efficient and profitable.
A total of 315 cinemas closed down last year, compared with 245 in 2017. Eighty per cent of them were independent cinemas that do not belong to any chain, according to the report.
Hong Kong-listed SMI Holdings was forced to suspend temporarily 140 of its 365 cinemas in December because of a serious cash crunch. The company added more than 100 cinemas from the beginning of 2017 to mid-2018.
The competition will only intensify, experts say. The number of screens in China could increase by 10 per cent annually for the next two years, according to analysts at Southwest Securities, driven by a State Film Administration target to have more than 80,000 screens in urban cinemas by 2020.
A reshuffle in the cinema chain industry is inevitable, and Shenzhen-listed Wanda Film, a subsidiary of the conglomerate Dalian Wanda Group, looks likely to benefit, according to a recent report by Southwest Securities analysts.
Already the dominant player with a 15 per cent market share, Wanda Film could see its market share rise even further. It has a big pool of audience data to optimise its screening schedule, and its good brand image allows it to sell more expensive tickets.
The average ticket price at Wanda cinemas was 38.3 yuan last year, 5.4 yuan higher than the national average, according to the report.
Wanda Film will release its 2018 earnings report and the first-quarter report on April 26 and 30 respectively.
