Small cities play growing role in film market

Theaters being run in third- and fourth-tier cities put their priority on the competitiveness of their ticket prices rather that the sophistication of their projection equipment — normally the opposite of those operated in first- and second-tier cities, said Shen from CIC Industry Research Center.

Group buying and discounts are critical to third- and fourth-tier cinemas, where consumers have less purchasing power than in the bigger cities, he said.

"People in first- and second-tier cities go to the cinema regularly, but in third- and fourth-tier cities, people show up at our cinemas only when there's an extremely popular film being shown," said Yi of CJ CGV China, which runs cinemas in first-tier to fourth-tier cities.

"For example, all of our cinemas were packed when we were showing Lost in Thailand, but when Les Miserables was on, things were different," Yi added.

Theaters themselves tend to be very different, too, in their furnishings and size, depending on where they are, said Zhang Zhao, CEO of Le Vision Pictures (Beijing) Co Ltd, one of China's leading private film companies.

Yang said it's hard to predict when and which Chinese cities will hit saturation point.

"For example, based on the per capita number of screens, Shanghai still enjoys growth potential," said Yang, "while other large cities might be there already."

But he agrees, the greatest domestic potential exists in third- and fourth-tier cities.

"It's expected that theater expansion in the domestic market will continue for another five to 10 years," he added.