Videogame maker Perfect World Co. Ltd. announced plans last month to buy the struggling midsize Antaeus Group theater chain for 1.35 billion yuan, or around $200 million. Perfect World chief executive Robert Xiao sees the acquisition of Antaeus’s 217 cinemas as a first step in building a major chain.
“Consolidation is inevitable in the theater business,” Mr. Xiao said. “We hope that we can be one of a handful players left in the market.”
There is still a long way to go before that happens. In contrast to the U.S., where a handful of chains control most cinemas, China’s theater market is fragmented—with 31,600 screens divided up among 48 chains.
The biggest of these, the Wanda Cinema Line spun off by parent Dalian Wanda Group, accounts for less than 14% of the nation’s box-office. The runner-up, with 8.7%, is China Film Stellar Cinema Chain, which is controlled by the state-run China Film Group.
Theater exhibition used to be controlled by the central government through China Film Group, but under reforms initiated about 15 years ago the business was opened up to China’s provinces and municipalities. These local governments launched cinema chains in their regions, some of which have developed into leading players while others are struggling.
What’s more, the boom in moviegoing over the past decade has encouraged more investors to enter the business, including relatively small entrepreneurs.
As a result, China’s 10 biggest cinema chains commanded a smaller percentage of box-office receipts last year—65.8%—than the 72.2% they had in 2012, according to the Chinese government’s media regulator.
By contrast, the U.S. cinema business is dominated by four major chains— Regal Entertainment Group, AMC Entertainment Holdings Inc., Cinemark Holdings Inc. and Carmike Cinemas Inc. AMC Entertainment, owned by Wanda Group, has a pending deal to buy Carmike, which would concentrate theater ownership in three companies.
That said, many industry observers agree with Mr. Xiao that consolidation is inevitable and may accelerate if China’s infatuation with moviegoing continues to lose steam.
Through the first eight months of this year, China’s box office receipts rose by a healthy 12%, to 32.7 billion yuan. But that is still way off the pace for recent years. In 2015, for example, the box office was up 30% over the same period for the previous year.
The decline has been attributed to theater owners effectively raising prices by cutting back on deals and discounts, and by a shortage of buzzy, must-see films. Whatever the cause, it means China is no longer expected to surpass the U.S. as the world’s largest movie market next year, as had long been anticipated.
The cooling-off trend could also provide another impetus for consolidation, giving smaller cinemas an incentive to sell as the market matures and their margins dwindle, said Wang Zheng, chief media analyst with Everbright Securities.
“Those small cinemas might not be willing to be sold,” if movie attendance continued to rise at a blistering pace, she said.
Big players are also edging into the game, possibly testing the waters for future acquisitions. Alibaba Pictures Group Ltd. , the film arm of China’s internet giant Alibaba Group Holding Ltd., spent $152 million in May for 4.76% stake in Guangdong-based Dadi Cinema, China’s third largest cinema chain by tickets sales last year.
In August, Alibaba spent $15.2 million to buy 80% in an 11-screen cinema in its home base city of Hangzhou.
Alibaba Pictures “highly values” the cinema business, and will keep investing in existing cinemas and building new ones, Yang Leilei, vice president of Alibaba Pictures, said in a written response to
The Wall Street Journal. He said the company now is in talks with several cinema operators, with a focus on theaters in coastal cities.
China’s entertainment juggernaut, Dalian Wanda Group, is also hoping to solidify its position as the nation’s No. 1 cinema operator through a combination of acquisitions and new construction.
Its Wanda Cinema spinoff recently announced plans to add 150 new IMAX theaters over the next six years. The company is also putting new theaters in its shopping complexes and entertainment theme parks, but hasn't specified a number.
Wanda Cinema has also shown an acquisitive streak, last year shelling out $150 million to buy an 18-cinema chain owned by the Shanghai-based rival Shimao Property Holdings Ltd.
Company officials declined to be interviewed about future acquisitions, but Wanda Cinema President Zeng Maojun said at a public forum in August that it remains on the lookout for a “suitable target.”
Beijing-based Bona International Cineplex Investment And Management Co., which owns a stable of 35 cinemas under its Bona Film Group, also sees a future where China’s cinema business has fewer big players.
“Consolidation will bring [a] large brand system and regulated management, which is the foundation for an industry’s future development,” said Huang Wei, Bona International’s general manager.
“Consolidation also helps standardize services and avoid low-level competition…which is necessary for it to leap to the next level.”
Source: Wall Street Journal