With Wanda Cinema’s IPO imminent we thought it would be a good to revisit the article ‘China’s Multiplexes Are Headed For a Crash – Statistics Show Why‘ that we published last April. With another year of strong box office growth in China and no large scale cinemas going bust in the Mainland, were we wrong?
At the time we wrote that “It is too early to say whether Chinese cinema exhibitors are in for a hard crash or a soft landing, but a correction is now becoming overdue.” It increasingly seems like 2015 will be the year that the correction is due, with several troubling indicators making themselves felt.
We will not re-hash the arguments from the original article, which remain valid, so we urge anyone not familiar with it to read it first. We will instead look at some new factors that we did not highlight back then.
It is also worth noting that at the time overall growth in China was slipping below 8% and now it has fallen even more. For the third year running China has missed its export target and as the FT reports,
The missed target comes as China prepares to release annual gross domestic product figures next week that will show growth in the world’s largest economy (in purchasing power terms) came in below the government’s annual target for the first time since 1998.
This is the macroeconomic picture to keep in the back of the mind when discussing the cinema market in China.
In broad strokes, the five trends can be summarised as follows:
- Mistaken belief in a demographic cinema dividend;
- Unsustainable price-war in micro-blog ticket services;
- Inability of Hollywood films to fill a post-quota gap;
- Failure of Chinese film production due to censorship;
- A ‘hidden’ decline in the growth rate of the box office.
1 – The demographic cinema dividend fallacy
Wanda Cinema is very confidant about the future growth of the China cinema market, as stated in its IPO document, which begins with the bold claim “The company’s main business is the cinema industry, [and] the [cinema] industry has always come out on top”:
Our cinema industry in the future continue to benefit from the rapid growth of the film industry
In recent years, China’s film market continues to maintain a rapid development momentum, the movie industry revenue is expected to usher in the 2015-2016 phase of explosive growth. We believe that our large population, the urban population has a number of screens compared with Europe and other developed countries, a big gap under the background of the geographical distribution of the theater, the per capita number of screens there is a large room for improvement, the cinema industry will continue to maintain a high level of development.
This is a refrain often heard in discussions about Chinese cinema: that the country is under-screened compared to markets in Europe or that cinema attendance is low compared to that in the US. As the market matures it will continue to grow, is the belief.