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Cover Stories Series 2013> Chinese Movies Threatened by Hollywood> Archive
UPDATED: June 4, 2012 NO. 23 JUNE 7, 2012
Lights, Camera, Purchase!
Chinese cinema chain set to buy American-based AMC
By Zhou Xiaoyan

The total revenue from the cultural industry in Wanda is expected to reach 20 billion yuan ($3.16 billion) in 2012. And in the next five years, the number will double to 40 billion yuan ($6.32 billion), making the company the top 50 in the global cultural industry.

In China, its net profit rate for cinemas is 17 percent, even higher than the real estatesector.

Wanda's status as the biggest cinema chain operator after the deal will have more power to negotiate with movie producers in Hollywood and help the promotion of Chinese movies in the North American market.

Currently, "a major obstacle of Chinese movies entering the international market is the lack of local cinema chain channels willing to show foreign films," said Yu Dong, CEO of Bona Film Group.

After Wanda's AMC deal, this is bound to change. The Chinese will have a larger say in U.S. movie industry, said the Los Angeles Times.

Although Wanda's deal excludes film distribution activities, Wang still promised to help good-quality Chinese movies reach international audiences.

"If great Chinese movies are produced, Wanda will help their promotion and distribution in the international movie market," said Wang.

Wanda's AMC acquisition is conducive to the overseas distribution of Chinese movies.  From this aspect, Wanda is making a strategic investment and is making preparations for its initial public offering (IPO), said Gao Shouzhi, President of EntGroup, a leading research center of Chinese entertainment industry.

Worth the price?

"The transaction for the acquisition is about the total box office for the past two years in China," said Gao Jun, Deputy General Manager of Beijing New Film Association. "I don't know where the money comes from. After that, how should Wanda realize a return on its investment?"

AMC is facing critical losses. Its total loss in 2011 stood at $82.7 million. "AMC has shrinking attendance and its profit has been  to squeezed by the private equity that owns AMC," according to an article in the Wall Street Journal.

Theaters in America are experiencing record low attendance as more people choose to watch movies on portable digital devices instead of at theaters.

In 2011, North American movie theaters sold 1.28 billion tickets, a 4.4-percent year-onyear decline and a 16-year low. The total box office in North America was $10.2 billion, a 4-percent decline year on year. Due to the sluggish cinema chain industry, AMC failed twice in its IPO during the past four years.

"Operating a cinema chain in China is a highly profitable business, while the situation is totally different in the United States, where the cinema chain industry in the United States is a sunset industry and a declining industry," said Xue Jianxiong, Director of Research at the China Real Estate Information Corp. "The profit margin of the cinema chain industry in the United States is extremely low," he said.

Besides the market environment difference between China and North America, another worry is what Wanda generally does in China may not apply in foreign lands.

In China, Wanda usually opens the Wanda Cinema Line inside its own commercial property—Wanda Plaza. Therefore, it can have a lower operation cost than other domestic cinema chain operators, resulting in a higher profit rate. After acquiring the AMC, if Wanda can't do enough in cost control, it can hardly solve the profitability issue of AMC in the sluggish North American market. "I don't think Wanda has enough understanding of the cinema chain industry in the United States. Neither has it conducted enough evaluation of the risks of the acquisition," said Xue.

AMC Entertainment

- Theaters: 346

- Screens: 5,028

- IMAX screens: 120

- Box office (2011): $2.5 billion

- Market Environment: The total box office in North America was $10.2 billion, a 4-percent decline year on year.

Wanda Cinema Line

- Theaters: 86

- Screens: 730

- IMAX screens: 47

- Box office (2011): 1.79 billion yuan ($282.64 million)

- Market Environment: The total box office in China stood at 13.1 billion yuan ($2.07 billion)

Email us at: zhouxiaoyan@bjreview.com

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