Meituan-Dianping – Market leader under pressure as chased-up rivals move in
The merger of Meituan and Dianping in October was the latest twist in the high-value scramble for market share in China’s online-to-offline market.
The two companies, which started in group-buying and user-generated reviews of services, hold about half of the market for online movie ticket sales in China, where nearly 53 per cent of movie tickets are bought online, according to FT Confidential Research’s survey of moviegoers.
The popularity of Meituan’s Maoyan Movie subsidiary among cinema audiences is easily explained: the company runs aggressive discount ticket offers, such as the Rmb1/ticket promotion it ran in summer 2014 – at a cost estimated by domestic media at Rmb200m ($30.8m) – and a Rmb15 discount it offers on tickets for new members. It is also building a large, nationwide network through aggressive, on-the-ground courtship of local merchants, particularly in lower-tier cities. Of the frequent moviegoers we surveyed, 13.6 per cent said they book movie tickets online with Dianping, while 38.7 per cent used Meituan.
In its latest financing round, the newly merged entity managed to raise a hefty $3.3bn, despite a tough fundraising environment. The company, which will continue to operate as two separate entities for now, has formidable cash reserves, giving it more bargaining power with merchants and possibly allowing it to invest in upstream production or distribution.
But it will need all the help it can get to maintain its market footing. Meituan-Dianping’s margins will remain under pressure as rivals compete for market share, particularly now that China’s deep-pocketed internet giants are ramping up their investments.
Alibaba Group this year sold its minority stake in Meituan-Dianping to focus on Koubei, which is a rival to Meituan-Dianping’s food-delivery services. Baidu is aggressively expanding movie ticketing via its Nuomi site, with big discounts and closer cooperation with domestic movie production houses on distribution. 12.2 per cent of respondents said they used Nuomi to purchase movie tickets, while this proportion rises to 14.1 per cent among frequent moviegoers.
Tencent’s Weipiao has not won a following to match that of its Weixin platform, largely because it has not offered the deals of its rivals. Just 4.0 per cent of respondents who said they use apps to buy tickets selected the platform. However, parent Tencent, which is also a part owner of Meituan-Dianping, is now addressing its low market share. It recently acquired Gewara, another popular movie ticketing site. With a brand popularity reading of 8.4 per cent and direct access to sell movie tickets directly on WeChat, China’s most popular mobile messaging app, Weipiao may yet challenge Meituan-Dianping’s dominance.
Wanda Cinema Line – Breaking free of the chain
Wanda Cinema Line – China’s biggest cinema chain – is set to grow strongly in coming years. We expect its core business to expand its market share to 20 per cent in five years, from 14 per cent at present. This will be accomplished through:
- Organic buildout via its parent’s commercial ventures, with 55 new Wanda Plaza (owned by Dalian Wanda Commercial Properties real estate projects planned for second- and third-tier cities; and
- A partnership with Dolby Laboratories to open Dolby cinemas in China, following on from a similar partnership with IMAX in 2013, which will enhance the cinema experience.
But Wanda wants to be more than a traditional owner-operator of cinema chains.
It paid $3.5bn cash for Legendary Entertainment, producers of the Batman and Superman movies, among others. The deal broadens the scope of Wanda’s movie business to include production, exhibition and distribution, making Wanda Film Holdings – the broad holding company for the group’s film interests – the largest film company worldwide by revenue generation. Group CEO Wang Jianlin is now talking about taking it public this year.
We expect more than 65 per cent of group revenues to come from non-real estate businesses, including cultural, financial and retail, by the end of next year.
However, success is by no means assured. Wanda’s purchase carried echoes of Sony’s acquisition of Columbia Pictures in 1989, a deal similarly intended to integrate production with distribution but one that never delivered. While diversification makes sense given the slowdown of China’s traditional economic drivers, Wanda’s strategy appears scattergun: it recently purchased the operator of Ironman Triathlons and a stake in Atletico Madrid.
Furthermore, the Wanda Group’s fortunes remain strongly tied to the Chinese real estate sector, which continues to struggle. Fitch Ratings, along with Standard & Poor’s, downgraded Dalian Wanda Commercial Properties this month, citing concerns about falling sales, particularly given its exposure to third- and fourth-tier cities, and rising debt.
Alibaba Pictures – Moving upstream will be Mission: Challenging
Alibaba Group has been trying to expand its presence in the movie business since buying a controlling stake in ChinaVision Media in mid-2014. After restructuring Alibaba Pictures last year to absorb its Taobao Movie online ticketing service and Yulebao, its entertainment crowdfunding product, it is now positioning the firm for aggressive expansion into film and TV.
In the short run, its downstream movie ticketing development is more promising than its upstream production business. Alibaba Pictures’ ticketing service channel, which is run on the company’s Taobao e-commerce platform, was a distant second in our proprietary consumer survey, cited by 11.9 per cent of respondents, far less than the aggregate 38.6 per cent who said they used the combined Meituan-Dianping. On the other hand, with nearly 300m active users on Taobao’s mobile platform, the market leader should not get complacent.
Alibaba has multiple potentially beneficial entertainment interests, including stakes in Chinese online video giant Youku Tudou, Internet TV group Wasu Media and smaller holdings in two major film production companies, Huayi Brothers and Beijing Enlight Media.
It also recently spent Rmb830m to acquire Guangdong Yueke Software, which provides cinema-ticketing supply systems for over 1,000 cinemas, offering cinemas the ability to look at user profiles.
Furthermore, Alibaba co-financed the latest in the Mission: Impossible series, which was a global box office hit, and it has two movies and two TV series in the pipeline. Indeed, its production business contributes around 50 per cent of total revenues. It is still losing money, though that is because most of its films have yet to enter production.
We expect Alibaba to continue building a comprehensive presence in the film and television industry. However, we also expect expansion to bring risks, as competition for popular properties and talent intensifies, partly fuelled by funds raised from the A-share market.
While traditional movie producers like Huayi Brothers, Enlight and Bona Film will continue their scrap for market leadership, TV drama and show producers like Perfect World Pictures and Huace are also looking to enter into the movie production market. Furthermore, competitors such as Tencent are looking to get involved, making for a crowded field and rendering Alibaba’s gamble on moving upstream considerably more challenging than its moves downstream.
FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.