A local government-backed trust company will form a joint venture with US movie giant Warner Brothers to run eight cinemas in major Chinese cities.
According to the Shenzhen International Trust & Investment Co (SITIC), a framework agreement was signed on February 1.
Warner Brothers International Cinemas plan to have a controlling 51 percent stake in the joint venture, though this is subject to approval from central authorities.
Under the agreement, the first cinema will be operational in May in southwest China's Chongqing Municipality, while a new 10-screen multiplex in Shenzhen is expected to be in service by early 2007.
The remainder will be located in other provincial capitals including Changsha and Zhengzhou, in the central provinces of Hunan and Henan, and Nanchang in the eastern province of Jiangxi.
It is the first attempt by the SITIC, which has a portfolio of investments from real estate to materials and finance, to break into the struggling cinema industry.
The company has total assets of about 3.67 billion yuan (US$443.2 million), dated to the end of 2004, and owns 35 percent in a joint venture with US retailing giant Wal-Mart.
But for Warner Brothers, which has already invested US$17 million in the Chinese market since its official entry in mid-2004, the SITIC is its fourth partner after the Shanghai Film Group Corp, Dalian Wanda Group and Guangzhou Jinyi Film and Television Investment Co.
The SITIC will build the multiplexes, while Warner Brothers will provide technical, operational and managerial services.
Warner Brothers' expected new cinema in Shenzhen and a newly opened cinema by the Hong Kong-based Golden Harvest, a leading Asian entertainment conglomerate, have stirred up the previously quiet big screen market in the affluent southern city.
While lowering ticket prices during quiet periods to attract audience members, New South Movie City -- once the only five-star and dominant cinema in the city -- says the entry of new players will "combine to make the market bigger."
Eugene Yan, general manager of Golden Harvest Shenzhen, a joint venture between Golden Harvest and the Guangzhou-based Zhujiang Film Co, agrees that the market is underdeveloped for a city that has such a huge young population.
"The cinema business here will still be far from saturation point, even with several new players," Yan told China Daily.
"On the contrary, as more operators provide a comfortable environment and superb audio effects, more people will be attracted to theatres rather than watching DVDs at home."
With a controlling 70 percent in the venture, Golden Harvest invested 34 million yuan (US$4.1 million) in the city's most luxurious seven-screen complex, compared to New South Movie City's four screens, which has netted about 4 million yuan (US$483,000) in box office takings since opening on December 9, Yan said. It is expected to take three to four years to break even.
The company is planning the second phase of the multiplex, which will include up to five more screens and an additional 800 seats. It will also invest in another cinema next year.
Meanwhile, the company will probably expand its business into other Pearl River Delta cities such as Guangzhou and Dongguan, according to Yan.
China only had 35 cinema groups with over 1,200 cinemas and about 2,000 screens by the end of last year; one screen for every 650,000 people.
In contrast, the US has more than 30,000 cinemas, or one for less than 10,000 people.
(China Daily February 5, 2005)
