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MillimeterWelcome to the Chinaplex
May 1, 2008 10:02 AM, By S. D. Katz
Building a nationwide cinema system.
Illustration by Shengchuang. Art Direction by S. D. Katz
China, the most populated country in the world, has a shortage of movie theaters. While U.S. exhibitors struggle to justify replacing all those new film projectors they bought in the 1990s with even newer (and far more costly) digital projectors, China is poised to build a nationwide digital system from the ground up.
Here are the facts: The United States has approximately 38,000 movie screens at 5,900 cinema sites. In China, there are 3,527 screens in 1,427 theaters. That's one-tenth the number of screens for a population four times larger than that of the United States. Despite an obviously underserved audience, China's film industry is locked into a chicken-and-egg loop. There are not enough theaters, but neither are there enough popular local movies or reasonable ticket prices. The availability of cheap DVDs is also a concern to exhibitors, but new players in China — such as Lumiere Cinemas — are willing to gamble that once showplace cinemas are accessible in every major city, the lines will be forming around the block. Jimmy Wu, a leading figure in China's motion-picture industry, took time to speak to millimeter and give his perspective on how to turn China into a nation of moviegoers. Wu is the founder, chairman, and CEO of Lumiere Cinemas and former chief representative and general manager of UCI (a joint venture of Paramount and Universal) for Greater China (China, Taiwan, and Hong Kong). Wu is also the producer of Curiosity Kills the Cat. The interview took place in Beijing in June 2008.
millimeter: What do you see as the future of exhibition in the next three, five, and 10 years?
Wu: About 100 new multiplexes to be built each year. That's 10,000 screens in five years and 15,000 screens in 10 years.
What is the government's mission in building the movie industry and theater chains? How are they involved in private industry?
The government has no involvement in building cinemas. Almost all of the new multiplex cinemas are built by private companies. However, most of the current cinema chains are owned by the government. They were the local film-distribution branches owned by the former China Film Distribution company. The current government, SARFT [State Administration of Radio, Film and Television], has no clear mission to build a strong film industry; they are in dilemma whether to treat the film industry as a communist propaganda facility or as a market-driven entertainment industry.
Why have some U.S. studios lowered their expectations for building theaters in China? Is that situation permanent?
SARFT had once allowed [Warner Bros. International Cinemas] and foreign companies to own up to 75-percent shares in a cinema. However, this was overturned by Central Propaganda [the formal name is the China Communist Party's Central Promotion Department], due to the stupid mistake made by Warner's Nanjing Cinema Manager by not showing a movie about the Japanese Nanjing Massacre during WWII so as not to offend Japanese clients. However, this situation is not permanent. It may change any time soon.
What are the challenges that exhibitors face?
Distribution companies are too fragmented. For a new startup cinema, unless it opens a certain number of cinemas [currently eight], it has to obtain films from current cinema circuits. It means a new company will have to obtain movies from different chains in different provinces.
How important is 3D to the new theater business? Have there been successful 3D pictures in China recently?
There are no 3D cinemas [conforming to the Digital Cinema Initiative's stereoscopic standard] yet in China. Lumiere Cinemas will be the first of its kind to install 3D projectors in each of its cinemas.
Many people in Hollywood believe China will remain closed to foreign ownership or any significant role investing in the local movie industry. Will the quota on films be raised? What is the situation today?
Since 1996, the import quota has lifted from 10 to today's 40. This is split between 20 box-office-sharing movies and 20 flat-fee-purchase movies. Box-office sharing is capped at 12 percent. The number of imports will definitely lift to a higher number in the future. However, the current local film industry is not strong enough to compete with imported movies. The current bottleneck in the film industry is too few cinemas/screens. The movie business here, as elsewhere, is a market-driven business. Until the Chinese government recognizes this, commercial movies will not be favored.
What can be done about ticket prices in China? What are average prices now? What is the magic achievable ticket price, in your estimation, that will get people into the theater?
Ticket prices are market-driven decisions and not influenced by government agencies. Current average ticket prices in larger cities are about 25 yuan to 30 yuan; better multiplex cinemas sell higher prices. At the counter, prices can be 60 yuan to 100 yuan for imported movies and 50 yuan to 70 yuan for domestic movies. In smaller cities, the achievable ticket price can be 20 yuan to 25 yuan; at the counter can be around 50 yuan. Price is the least sensitive issue to get people into the theater. Atmosphere and entertainment destination will lead people to cinemas. This is especially true in China.
What about blackout dates? Is this still something that can happen randomly?
The Chinese government never realized there are blackout dates. However, normally October is the month when China does not show any Hollywood movies. This also depends on Sino-USA trade negotiations. Last year, the blackout period was from October 2007 to this February 2008 due to unpleasant trade negotiations. It provided a great boost to domestic movie sales. Chinese movies such as Assembly did great box office during the blackout period.
How many theaters will Lumiere Cinemas be building and in what cities? What is the future of the moviegoing experience — not just in China but in other modern countries?
Within three years, Lumiere will build more than 55 cinemas in China. They will all be in first- and second-tier cities. So far, we have signed deals for cinemas in Beijing, Shanghai, Chongqing, Chengdu, Nanjing, and Hangzhou.
