Curtain rises on new era in cinema

Despite the small proportion that foreign theaters accounted for in terms of ticket sales in the cinema market nationwide, they have shown remarkable performance in certain cities, including Beijing.

Although there are relatively few foreign theaters among the hundreds of cinemas in the capital, they contributed more than 30 percent of revenue from ticket sales, said Yang Feng, a consultant with EntGroup.

Last year, Beijing's total box office revenue amounted to about 1.32 billion yuan, making up 10.1 percent of the total in the country, according to the State Administration of Radio, Film and Television.

"Relatively speaking, foreign-funded cinemas are more advanced in equipment, acoustics and picture quality compared with domestic rivals," said Yang, adding that their mature operating and management methods and emphasis on service also distinguish them from the domestic counterparts.

The average investment in each cinema is between 30 and 40 million yuan. Between 40 and 50 percent of the total cost goes on hardware equipment, said Steve Lee, general manager of Beijing Megabox Zhongguan Cineplex Co, the joint venture that oversees Orion's theater business in China.

In 2007 the South Korean conglomerate Orion Group opened its first multiplex cinema - Megabox theater - in the country with its partner, the Beijing-based New Film Association Co, one of China's eight largest cinema chains.

The eight-hall, 1,600-seat cinema is located in Zhongguancun in Beijing. It was the first Sino-foreign joint venture cinema in the city. Orion Group now operates three theaters and 24 screens nationwide, with two in Beijing and one in Shenyang, in Northeast China's Liaoning province, which opened in late 2011.

Different foreign theater operators have different development strategies while expanding their businesses in the fastest-growing cinema market in the world.

CJ CGV, which started in the theater business in South Korea in 1995, now intends to push its cinema expansion in China, given its more than seven years of Chinese market knowledge.

Initially all of its theaters were located in core commercial areas but now CJ CGV has made its presence known across first- to third-tier cities.

Li from CJ CGV revealed that so far more than 60 new theater projects have been confirmed through the signing of venue rental agreements with commercial property developers. The network covers a wide range of areas across the nation, from Harbin in Northeast China's Heilongjiang province to Kunming in Southwest China's Yunnan province, as well as Changsha in Central China's Hunan province.

Within CJ CGV, the investment size for an average individual cineplex is between 20 and 30 million yuan. Those with special effect auditoriums featuring seats that can be made to shake at appropriate moments can cost 40 or 50 million yuan, Li said.

Unlike CJ CGV, APEX remains focused on first- and second-tier cities. "Because many commercial real estate developers lack experience in cooperating with cinema operators and rental costs remain high, all of our efforts are concentrated on cinema projects that are already under contract," said Liu from APEX.

Although Orion Group was among the first overseas cinema companies to enter China, the number of its sites is just three.

"Unlike domestic rivals, which have big expansion plans, we put a priority on the profitability of a single theater," said Zeng Yan, marketing department director at Beijing Megabox Zhongguan Cineplex Co.

Last year the Megabox cinema located in Zhongguancun generated 37 million yuan in box office receipts while the one in Sanlitun raked in 46 million yuan, both double the figure of the first year, said Steve Lee.

He forecast that the combined ticket sales of the three Megabox cinemas will exceed 100 million yuan this year, based on the boom in China's film sector.

In 2011, national box office receipts amounted to 13.12 billion yuan, up 28.93 percent year-on-year, statistics from SARFT showed.

By the end of 2011, the number of screens nationwide increased to 9,296 from 6,266 a year earlier, up 48.4 percent year-on-year. An average of 8.3 screens were added each day that year, according to the SARFT data.

Hurdles come along with opportunities, as ever.

For these foreign cinema operators, the investment recovery period has extended compared with years ago amid surging rental costs and growing competition in the sector.

"Our first two Megabox cinemas in Beijing began to make profits three-and-a-half years after their opening, much earlier than previously expected, but for the third one in Shenyang, it might take about six years to recoup the investment," said Zeng Yan. "Both the rising commercial rental cost and the lower box office capacity are responsible."

She said that the rental cost in Beijing has soared by about 30 percent compared with five years ago.

"The earning power of theaters is shrinking due to competition. It is very difficult for cinemas to implement differentiated operations because there is no difference in the screen's content," Liu from APEX said.

In spite of their advantages over domestic cinemas, foreign firms also have their deficiencies. "Foreign-capital theaters have performed slowly in the localization process and have failed to get an in-depth understanding of the market in China," said Cai Ling, a culture industry consultant with the Shenzhen-based CIC Industry Research Center.

On the other hand, in general, ticket prices in these cinemas are higher than that in domestic-funded theaters and are only affordable by a small proportion of moviegoers, Cai added.

There is unlikely to be large-scale foreign investment in China's culture industry in the short term mainly because of policy restrictions such as the limit on foreign investors' stakes in joint ventures, said Yang from EntGroup. He added that intense competition and the uncertainty of China's property market also make potential foreign investors cautious.

huangying@chinadaily.com.cn