Alibaba Pictures invests 100 million yuan for 80pc of Hangzhou cinema operator

PUBLISHED : Wednesday, 24 August, 2016, 7:47pm
UPDATED : Thursday, 25 August, 2016, 12:35pm

Alibaba Pictures, the entertainment arm of e-commerce juggernaut Alibaba, will spend 100 million yuan (US$15 million) for an 80 per cent stake in a Hangzhou cinema company as it looks to further expand its influence in China’s entertainment sector.

In a filing earlier this week, Alibaba Pictures said it will acquire almost 61 per cent of Hangzhou Xingji, which operates the Hangzhou Star Cinema, for 39 million yuan from its shareholder Hangzhou Kunwei. Alibaba Pictures will also invest a further 61 million yuan in Hangzhou Xingji, resulting in an overall 80 per cent equity interest once the deal is successful.

The deal is the latest by Alibaba Pictures as the company looks to expand its reach via investments in cinemas and movie production to sate the growing appetite of Chinese audiences for entertainment and movies. The company aims to build an integrated, online-to-offline (O2O) entertainment platform for the industry by combining its e-commerce capabilities with the traditionally offline entertainment and cinema circuit, enticing consumers to purchase movie tickets on their smartphones before heading to the cinema. Alibaba is the owner of the South China Morning Post.

In May, Alibaba Pictures invested 1 billion yuan in convertible bonds issued by Dadi Cinema Construction, China’s second largest cinema investment and management company behind property-based conglomerate Dalian Wanda.

The collaboration saw Alibaba Pictures extend its internet capabilities and industry services to Dadi, which owned over 300 cinemas across the country at the end of April this year.

Wilson Chow, TMT leader for PwC China and Hong Kong, believes that property developers and O2O players which enter the cinema market do so because China’s entertainment industry still has much potential to grow.

“The number of screens per capita in China is still at a fraction of developed countries like US, therefore, existing movie theatre operators, property developers and other O2O players see an opportunity to groom the cinema market,” Chow said. “We are seeing a lot of investments made in this sector and we expect the movie related box office revenue of China to exceed the US in 2017.”

As of 2015, China had 23 screens for every 1 million people, as compared to 125 screens in the US, according to PwC’s Global Entertainment and Media Outlook report for 2016 to 2020.

Alibaba Pictures is not the only company looking to expand its movie empire. Its largest rival, property conglomerate Dalian Wanda, is expected to seal two billion-dollar film-related deals in the US this year, according to a report by Reuters.

In January, Wanda spent US$3.5 billion for a controlling stake in US film studio Legendary Entertainment, and earlier in July it paid US$1.2 billion for European cinema group Odeon & UCI. It has also invested in a host of Hollywood movies, including the Paramount Pictures’ sequel to Teenage Mutant Ninja Turtles. Alibaba Pictures has also invested in the same movie, as well as Star Trek Beyond.

Chow said that the popularity of mobile internet, e-commerce and mobile commerce in China also offers a wealth of opportunity for sales and distribution of movie tickets online.

All three of China’s largest internet companies, Alibaba, Baidu and Tencent, have invested in or own their own movie ticketing businesses. Baidu sells tickets via its Nuomi O2O platform while Tencent operates Weipiao.

Alibaba Pictures, which runs its own ticketing unit called Tao Piaopiao, also acquired cinema-ticketing system Yueke Software Engineering for 830 million yuan in April last year.

Cecilia Yau, PwC Hong Kong entertainment and media partner, said Chinese internet players that offer ticketing through social media and mobile platforms have helped to change moviegoers’ consumption habits by making the experience more convenient.

However, Yau warned that the rising popularity of on-demand video platforms have also put pressure on the movie industry, since a certain segment of Chinese consumers may prefer to wait for movies to be released on streaming platforms soon after the cinema screenings.

Neil Wang, managing director for Frost & Sullivan China, believes that the entry of internet companies such as Alibaba into the entertainment industry can help rejuvenate the sector.

“The emergence of the internet business model is expected to bring fresh blood to the traditional movie industry … and constitute a vibrant internet-movie ecosystem,” Wang said, adding that internet businesses will also be able to cater to the growing entertainment demands of Chinese consumers.

This article has been amended in the headline and the first paragraph to say that Alibaba Pictures invested 100 million yuan for its stake.