May 8 (NBD) -- While gearing up for expansion, Chinese theater chains are struggling to cope with falling single-cinema and single-screen yields, which are caused by rising costs and homogenous competition. 

Data shows as of the end of last year, China has had 48 theater chains, with the top 10 accounting for more than 70 percent of the whole market. 

Last year, theater chains accelerated pace to open new cinemas, especially in third-tier or smaller cities. 

According to statistics from EntGroup, a Beijing-based film data company, box office revenues in China's first- and second-tier cities grew by less than 10 percent year over year in 2017. This is in a sharp contrast to the growth of over 20 percent in third-tier or smaller cities. Young people leaving in towns are growing into powerful contributors to box office revenues.   

Eyeing the huge potential in second- and third-tier cities, cinema operator SMI Holdings Group Limited carried out a strategic plan with a theme of "one county one theater" last year, aiming to build at least one cinema at every county in China. 

Cash-rich Wanda Film increased its number of directly-operated cinemas by three-digit numbers in the past year. 

Guangdong Dadi Cinema Line Co., Ltd. expanded its footprint aggressively through the franchise model. In 2017, it opened 223 new cinemas, having become the largest theater operator in China in terms of the number of cinemas and screens. 

However, almost all theater chains reported a decline in single-cinema yield. At the same time, the new cinema openings pushed up their marketing expenses. For example, Hengdian World Studios spent nearly 60 percent more in marketing in 2017 as compared to the previous year, while Shanghai Film Co and Wanda Film saw an increase of nearly 40 percent in this respect. 

Plus rising costs in rent, labor, and utilities, theater chains all posted a reduction in gross margin of the film projection business. 

Amid the huge survival pressure, theater chains began seeking new growth drivers beyond the ticketing business. Non-ticketing services like merchants sales and advertisements seem to be their new chances. 

Wanda Film did the best in these new sectors, with revenue from item sales and advertising accounting for more than 30 percent of its total in 2017. But things didn't work out so well for other companies. For Hengdian World Studios and Omnijoi Media Corporation, the non-ticketing business contributed to just around 16-17 percent of their total income from film projection and derivatives. 

Fu Yalong, research director of EntGroup, told NBD that on the whole, non-ticketing services haven't yet grown into a strong revenue driver to theater chains, and the companies need more innovations to take advantage of film projection to develop more business formats so as to create a diversified revenue system.  

 

Email: lansuying@nbd.com.cn

Editor: Lan Suying