Just 15%. Remember that figure as you listen to Hollywood representatives and trade press falling over themselves to laud the growth of Chinese cinemas.
At this year’s CinemaCon MPAA’s Chris Dodd marvelled at China’s USD $3.6 billion box office in 2013, representing a year-on-year growth of 27.5%, saying that “with China building 13 new screens every day more growth is coming.” The Hollywood Reporter breathlessly reported last week that Chinese box office “first quarter revenues for 2014 have already exceeded the country’s full-year total for 2009,” and that it could surpass USD $4 billion for the whole year.
The opening of screens has also accelerated since Dodd quoted the 13 screens per day figure last month. “In the first quarter, there were 325 movie theaters built, for a total of 1,609 screens, which means an average of 18 new screens went up per day,” says THR. Thus, China presently has 20,007 cinema screens compared to the 40,000+ in North America.
There is just one problem with all this exuberance; if the rate of cinema openings outpaces Chinese box office growth, then it is not a boom but a bubble. Because we’ve been here before and it did not end well.
Gravity Defying No More?
Any news and analysis about China has taken place against the wider economic landscape of the mainland. Last week Reuters reported that ‘China economic growth slows to 18-month low in first-quarter‘ as China’s new leaders reign in credit and rule out major stimulus “to fight short-term dips in growth.” It is noted that “even three or fours years ago, growth of less than 8 per cent would have alarmed Chinese officials,” who have been used to double digit figures, but in January-March the economy grew just 7.4%. The housing market in particular was a source of worry. Keep that in mind.
Of course, there were plenty of pundits saying, “this time/one is different.” Yu Yongding, former President of the China Society of World Economics, wrote in the article ‘Fears of a Chinese crash are unfounded‘ that “the market is always in search of a story, and investors, it seems think they have found a new one this year in China,” noting that dire predictions about China’s economy have “abounded for the past 30 years.” He admits that “China’s real-estate price bubble is often named as a likely catalyst for a crisis,” but tries to assuage fears by pointing out that China does not have sub-prime mortgages.
Whether China’s economy as a whole is headed for a crash/slowdown/correction is beyond the scope of this article. But it should be noted that the property market is identified even by defenders of the economy as the weak point. Commercial real estate is more exposed than private housing and multiplexes balance most precariously on top of the countless, recently constructed, shopping malls.
But surely the Chinese middle class’ insatiable appetite for domestic hits, Hollywood blockbusters in 3D, giant Imax screens and popcorn ‘dyed in all colors of the rainbow’ and ‘coated with sticky sweet syrup’ (thanks Joel) will keep cinemas going? Statistics say ‘no’. Here is why.
The Worrying Piece of Data – 15%
While you wouldn’t pick up the worry about a Chinese cinema sector bubble from western media and trade press, the issue is debated fairly openly in the Mainland’s Chinese-language press. In an article originally titled ‘Perspective Hidden Behind the 20,000 Screens‘ [a reference to the total Chinese screen count] on CE.cn (source: Beijing Daily) author Lu Yang quotes:
“From the status of the overall development of the market, the growth rate of the domestic box office this stage and movie theater attendance is nowhere near the speed of construction, an increase of the ratio between the two is in an unbalanced state, which means that the national theater attendance is actually not ideal. “critic Liu Chang says.
Cultural Industry Research Institute of Peking University, the Beijing Daily reporter Chen Shaofeng pointed out, “statistics show that the average attendance was only 15% of the national theater. Oversupply in the market [means] the theater’s income will be diluted further. “
These are shocking and worrying admissions that should set alarm bells ringing. The 15% occupancy rate might be the norm for western multiplexes, but just like China needs a growth rate of above 7.5% to 8%, so too it cannot sustain its cinema sector with what passes for normal in the US and Europe. Consider the fact that IHS stated last year that in the UK “The average cinema has an occupancy rate of 20-25 per cent across the week.” So Chinese occupancy rate is way below a mature market like the UK that has gone through extensive consolidation.