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The lower profit and revenues threaten to eat into the hefty war chests of the country’s entertainment industry as it sets out on a bold investment foray into Hollywood.
China’s 2016 domestic ticket sales increased 2.4 per cent year-on-year, compared with 49 per cent growth in 2015, according to Entgroup, which tracks film box office figures.
Huayi Brothers Media, China’s largest private film producer, saw its first drop in net profit since it went public in Shenzhen eight years ago. In its 2016 annual report released last week, the company reported net profit of Rmb808m ($117m), down 17 per cent from the previous year.
Huayi Brothers blamed a 9 per cent year-on-year drop in its film and entertainment business revenues on lower box office income. “This year we’ve experienced substantial regression both in our film box office and our market share,” said Wang Zhonglei, the group’s co-founder and chief executive, in an open letter to staff.
Earlier this year, China’s largest film distributor Wanda Cinema, part of the real estate and entertainment conglomerate Dalian Wanda, reported a 7.5 per cent year-on-year increase in annual net profit to Rmb1.3bn — its first single-digit annual increase and the lowest since Wanda Cinema Line first published net profit figures in 2011.
In February 2017, Alibaba Pictures warned that its 2016 losses could top Rmb1bn ($140m), based on its unaudited figures. Alibaba Pictures blamed the losses on a promotion known as Tao Piao Piao, in which theatre tickets are subsidised.
China’s lacklustre box office is driven by a number of factors, including bad films and slowing economic growth.
“The audience cannot be fooled,” said Hou Zhihui, a film producer. “Ever since 2015, China’s film market has become superficial, with vast amounts of capital flooding into the industry, combined with a severe lack of creativity.”
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“The audience became disappointed with many big productions last year and now only genuinely good-quality films can excel at the box office.”
Chinese authorities are also tackling fraud by theatres attempting to under-report ticket sales, which film executives think may have suppressed 10 to 20 per cent of sales in some cases.
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The downturn may impact the strategic plans of China’s film industry, say analysts.
Lei Ming, head of ABD Entertainment, a Beijing consultancy, said weak growth had caused many film companies to seek partnerships with gaming and software makers and to steer resources away from movie making.
Over the past few years, Chinese groups have targeted Hollywood assets, with Dalian Wanda in January 2016 acquiring a majority stake in Legendary Entertainment in a deal worth $3.5bn. Last October, Alibaba Pictures teamed up with Steven Spielberg’s Amblin Partners to finance, produce, market and distribute films in China and globally.
While a weak box office has provoked a rethink of priorities by film executives, another obstacle for Chinese companies shopping in Hollywood has been Beijing's decision to impose capital controls. Strict vetting of outbound investment deals is thought to be behind the collapse of two deals in the entertainment sector recently.
Source: Financial Times by: Sherry Fei Ju and Charles Clover