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Movio View: What's Behind China's Booming Box Office?

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I'm Lawrence Wang and I've been based in Shanghai for 16 months working as Vista Group's Regional Manager. During this time I’ve gained some great insights into the industry here in China. I will be writing a regular opinion piece on the Movio blog for the Movio View series to highlight some key trends in the Chinese cinema space.

The media has talked a lot recently about the growth of the Chinese box office. The Guardian reported that the global box office rose by just 1% in 2014. However, China embraced both Hollywood and Asian films with revenues hitting a record high of $4.8bn, a 34% increase on 2013. So what has driven this huge year on year growth? Well, one big factor is third party ticket sales.

1. Why have cinema ticket sales moved away from the exhibitor?

In the western market moviegoers go to the official cinema site to buy tickets. In China this is not the case, around 35% tickets are purchased via third-party ticketing services selling tickets at really low prices, often with at least a 50% subsidy. A lot of online ticketing companies are derived from BAT, which are really huge conglomerates - Baidu, Alibaba, and Tencent. These companies buy a bulk of tickets ahead of time directly from the cinemas, which gives the cinema security with the guarantee of sold seats. However, this has inevitably resulted in a drop in profit for Chinese exhibitors.

There are a few reasons for this shift. Firstly, in general cinemas’ IT infrastructure has been limited, and they haven’t had the resources to promote their own official website in order to encourage people to purchase tickets there. Secondly, the third-party companies can offer great ticket deals for the customers. For example, if you go directly to the cinema to buy tickets it’ll cost you between 40 to 100 yuan. However, an online ticketing company can sell those tickets for around 10 yuan as a promotion. What’s really interesting is that the third party gets the wholesale ticket from cinema at around 25 yuan. They are selling at a loss!

2. What do third party sellers get from selling tickets at a loss?

Third party ticketing services are willing to invest that 15 yuan per ticket just to get a bigger market share. Why do they do this? Their motivation to get into the cinema industry is to collect the data, because cinema visits  show people’s tastes and preferences. This behavioural data can in turn be used to perform cross-industry marketing, using the cinema data to sell to other industries. I think that's the main reason these third-party companies are willing to spend money just to get that large market share.

Also, if the subsidised deal can attract people to purchase online instead of offline, it will benefit their other online business like electronic payment methods and online shopping etc. After they’ve got that share they can leverage it to get a part of the film distributors budget. Distributors want their film tickets to be sold by the biggest market share seller. Secondly third parties also have the power to influence what films play in the cinema. They will say, ‘if you play this film we will guarantee you 50% or 60 %occupancy’. This way they can also guarantee a good box office return to the distributor. Therefore, the film producers are willing to invest their promotional budget to third party companies to guarantee the box offices return.

3. What can China’s exhibitors do to get their customers back purchasing tickets from them?

I think one opportunity for Chinese exhibitors is to update their loyalty program ideas to be focused on the customer experience, not just on a discounted price. They need new ways to leverage their loyalty programs. Their programs are not providing personalised offers and use discounts as their main loyalty driver. A top five cinema chain once told me their active loyalty members base shrinks 15% each year. Cinema loyalty is dying in China partly due to the exhibitors inexperience of running programs.

This means they are not very dynamic, and relying on price incentives  to attract their members. For example, if you top up 2000 yuan into your account then you will enjoy a 50% discount. As the third-party company can now offer movie ticket for as little as 10 yuan the loyalty member price is no longer an incentive.. They need a really attractive program to win their customers back.  We need to ask ‘why do people go to the cinema?’ It’s for the experience, it’s something you can’t get at home - people want the 3D, 4D, and IMAX. The cinema industry in China need to understand the customer, know what they want, and give them the right information. Right now that’s the challenge.

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