Third-tier cities are increasingly the driving force behind growing audience numbers at China’s box office, but our survey suggests that moviegoers across every income group plan to spend more at the cinema this year.
- The growth of the Chinese box office defies the broader narrative of weakening consumer spending as the economy slows: we expect 30 per cent growth this year to reach Rmb55bn, after a 48 per cent increase in 2015.
- Lower city tiers are now driving cinema expansion, but moviegoers across all income strata are willing to spend more at the movies than they did over the past 12 months.
- Mobile internet is supporting growth of moviegoing, with the vast majority of tickets now bought from online platforms engaged in an aggressive price war that shows no sign of abating.
Chinese consumer spending may be weakening as a result of the broader economic slowdown, but someone forgot to tell the country’s movie industry.
Box office take grew 48 per cent in 2015 to Rmb44.1bn ($6.8bn) and we forecast it will grow a further 30 per cent this year to hit Rmb55bn. This past Chinese New Year holiday week broke records, with box office receipts surging to Rmb3bn.
China now accounts for 17.8 per cent of global box office revenue and is the second biggest market in the world behind the US, according to EntGroup, an industry research firm (see chart).
Movie visits hit a record high 1.26bn in China in 2015, five times more than in 2010.
The lure of the silver screen
Our survey of 1,000 households across China found increased appetite for visiting the movies, and a willingness to spend more in the cinema in the coming months. This trend is being driven by an increase in disposable income, which has expanded in urban areas at a compound annual growth rate (CAGR) of roughly 11 per cent over the past five years, accompanied by the aggressive buildout of screens across city tiers.
Our proprietary survey of urban residents found respondents made an average 10 visits to the cinema over the past 12 months. By total population, Chinese people made 1.4 visits/person to the movies, according to the National Bureau of Statistics – the equivalent for the US and Canada combined was 3.7 in 2014, according to the Motion Picture Association of America.
The 25-29 age cohort visited most frequently, at 12 times over the past 12 months, the same frequency as for first-tier cities overall. Moviegoers with annual household income above Rmb300,000 visited the cinema most frequently, going 19 times over the past 12 months. In contrast, respondents from second-tier cities had gone 10 times, while those in third-tier cities and below had been only eight times. Respondents with less than Rmb100,000 in annual household income had only visited the cinema seven times over the previous 12 months.
Domestic movies are benefiting from industry growth, accounting for an increasing share of domestic box office take, thanks in part to improved quality, marketing and distribution. Seven of the 10 highest-grossing films in China last year were domestically produced (see chart).
Box office revenue for domestic movies increased 67 per cent year-on-year to Rmb27.1bn in 2015, accounting for over 60 per cent of total box office income. In contrast, foreign movies – which are still subject to import quotas and other distribution constraints – grossed only 38.5 per cent of total box office take, with revenue up 28 per cent to Rmb17bn (see chart).
Nonetheless, international movies remain highly popular among Chinese audiences, with 74 per cent of 333 third-tier city residents – and 70 per cent of first-tier ones – saying they would rather watch these in the cinema than homegrown products.
Smaller cities driving cinema growth as first-tier cities saturate
Cinema operators are meeting growing demand through an aggressive buildout of capacity and facilities. By the end of 2015, the total number of movie screens had reached 29,800, up from just 6,256 five years previously at a stellar CAGR of roughly 26 per cent. The growth in the number of screens has been sharpest in lower-tier cities (third-tier and below) (see chart), though per-capita cinema penetration remains much lower. Of the 1,234 new cinemas added in 2014, 803 were in second- and third-tier cities, accounting for 65 per cent of new additions.
This growth partly reflects trends in commercial real estate development in lower-tier cities, where shopping centre operators are prioritising cinema chains as tenants in order to boost footfall.
But smaller cities still have significant capacity to boost cinema numbers. We estimate that nationwide there is one screen per 180,000-200,000 people, but this ratio is as low as 1:40,000 in first- and second-tier cities, highlighting that major cities are increasingly saturated. Indeed, first-tier cities accounted for just 10 per cent of new cinema openings in 2014.
This situation is reflected in the fact that cities either third tier or below accounted for 56 per cent of revenue in 2015, up from 44 per cent in 2011, according to EntGroup, while the share of first-tier cities fell to 21 per cent.
Spending more on each visit to the movies
As well as visiting more frequently, Chinese consumers are spending more at the cinema. Our survey found respondents spent an average Rmb65/visit, while 76 per cent of respondents said as much as 30 per cent of their per-visit spending was at the concessions stand or on movie-related merchandise. Unsurprisingly, respondents from first-tier cities spent more on average (Rmb74) than those in third-tier cities (Rmb62.4).
The increased penetration of mobile ticketing apps means moviegoing has become more affordable, providing opportunity for cinemas to grow non-box office business. Movie ticket prices in China average Rmb35, suggesting that moviegoers spend about Rmb30 at the concessions stand or on other purchases. For respondents with annual household incomes above Rmb300,000, average per-visit spending was Rmb83, while among our least-wealthy cohort (with less than Rmb100,000 in annual household income) it was just Rmb59.
As cinema facilities improve, along with the moviegoing experience, so consumers are willing to spend more.
Among our survey respondents who had visited the cinema at least once in the previous 12 months, we found across-the-board willingness to increase per-visit spending this year:
- First-tier city respondents were willing to increase their total average spend on moviegoing from Rmb1,036 in 2015 by 10-25 per cent;
- Second-tier city respondents indicated a willingness to increase their annual spend 5-17 per cent from an average Rmb644;
- Third-tier city respondents said they were prepared to boost spending 4-13 per cent from Rmb599;
- Wealthier consumers, with annual household income of more than Rmb300,000, said they plan to increase their spending by 14-24 per cent from Rmb1,830;
- In contrast, low income households, with annual household income of less than Rmb100,000, said their spend will only rise 4-12 per cent from an average Rmb481 over the next 12 months.
China’s internet giants fight to sell tickets
The rapid penetration of mobile internet will help drive box office growth. Over 89 per cent of Chinese cinemas sell movie tickets online, while 52.9 per cent of survey respondents said they buy their tickets through online platforms, compared with just 17.8 per cent who buy at the ticket booth. In the US, in comparison, just 13 per cent of tickets are bought online.
Online ticketing was used heavily among younger survey respondents: 67.6 per cent of respondents aged 18 to 24 said they often purchase e-tickets.
Chinese internet companies have increased investment in this segment to broaden their portfolios and advance their online-to-offline (O2O) strategies. These companies view online movie ticketing as gateways to the entertainment industry. At the end of 3Q15, the five movie-ticketing apps backed by Baidu, Tencent, and Alibaba, made up about 68 per cent of the market for online ticketing, according to Analysis Group, a consultancy.
Our survey results indicate that Maoyan Movie, the movie seat selection app which had been co-owned by Tencent and Alibaba, is dominant, with 36.5 per cent of respondents saying they often use it to make purchases. Maoyan has emerged as number one following a price war that started in 2014 with the offer of subsidised tickets. Among traditional O2O platforms, Taobao was chosen by 15.5 per cent, Dianping by 13.6 per cent and Baidu Nuomi by 12.2 per cent of respondents.
Surprisingly, the popularity of Weipiao, the ticket-selling part of the ubiquitous WeChat mobile messaging platform, was weak. Only 4 per cent of respondents said they frequently use it to buy tickets. Tencent has begun to restructure Weipiao through the acquisition of Gewara, a top-three-ranked movie seating selection app, in December 2015. Weipiao also recently closed a Rmb1.5bn round of funding to fund both acquisitions and ticket subsidies, suggesting that the price war will continue.
|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 and on-the-ground research to provide predictive analysis for investors.|