Whether Times Cinema's IPO failed, how can the "third echelon" cinema break through

Whether the third-tier theater companies can seize the dividends of theater integration under the market downturn depends on the expansion speed of their theater businesses by listed companies such as Wanda, China Film, Yingdian, Nanhai Holdings, and Perfect World.

Original title: IPOs have been blocked, losses have expanded, and consolidation has begun: The dilemma of "third tier" theaters and the breakthrough.

Theater companies in the third tier are experiencing the dual obstacles of slowing box office growth and tightening capital markets.

According to the review results of the Main Board's IEC announced on May 31 by the official website of the China Securities Regulatory Commission, the initial application for Times Cinema was rejected. The reasons for the obstruction of the issuance and examination of Times Cinema are as follows: its sub-account proportion, attendance rate, average profit contribution of cinemas and other indicators tend to decline, the overall loss of holding cinemas and the expansion of loss area of participating cinemas, the film screening income and distribution income in 2016 decreased year-on-year, and the net profit of deduction of non-profit in 2016 decreased significantly year-on-year.

The overall decline in the performance of old cinemas, the overall losses of newly built cinemas, the low and thin accounts of franchised cinemas, and the uncertainty of expansion despite the slowing growth of the film market have all become obstacles to the listing of this leading theater in Zhejiang. Many obstacles.

The losses of nearly half of self-operated cinemas have become the biggest resistance to listing?

The profitability of some self-operated cinemas Times

Cinema is a theater company with Zhejiang as its main operating region, with a super luxurious state-owned shareholder camp behind it. The controlling shareholder is Donghai Group, which is 100% controlled by the Zhejiang Province Department of Finance; at the same time, more than 5% shareholders also include Zhejiang Publishing, China Cultural Industry Fund and China International Television Corporation. Among them, Zhejiang Publishing is 100% owned by the People's Government of Zhejiang Province.

Times Cinema ranks ninth in the domestic cinema market in the box office. As of the end of 2016, Times Cinema had 219 cinemas, of which 50 were holding or participating shares, 169 were affiliated, and the number of screens was 1422. In 2016, Times Theater's box office was 1.45 billion yuan, accounting for 3.19% of the country's total box office.

However, Times Cinema's operating situation in the past three years has been very bleak

. The prospectus shows that of the 33 theaters controlled by Times Cinema, more than half of the theaters are at a loss. Among them, 18 cinemas had negative net profits in 2016, and 13 cinemas had negative net assets. Two cinemas, including Lutong Times Golden Globe and Kaihua Times, have been losing money continuously for five years since they opened.

Most of the newly built theaters of Times Cinema are at a loss.

Wanda Cinema relies on commercial real estate to manufacture and consume centers, which in turn drives the expansion logic of self-built theaters, largely avoiding performance fluctuations caused by uncertainties such as site selection. In contrast, cinema companies such as Times Cinema that lack commercial real estate genes are greatly affected by factors such as site selection and competitive environment. More than 5 cinemas have been in operation for ten years and are too aging, which limits their profitability to some extent.

Take Zhejiang Cuiyuan Cinema, which is controlled by Times Cinema, as an example. The cinema's net profit in 2016 was 200,000, the lowest profit in nearly 10 years. This theater opened in 2002 and is located in the central Urban area of Hangzhou City. Since 2013, its net profit has been in an overall downward trend. According to the reporter's understanding, there are many old communities around the theater. The shopping mall where it is located is mostly retail and wholesale, and the elevators are outdated. In 2016, Cuiyuan upgraded some movie halls.

Under the influence of these factors, the gross profit margin of Times Cinema has shown a downward trend year by year. 2014-2016 During 2000, its gross profit margin was 33.94%, 32.72%, and 30.12%, and its net profit margin was 11.34%, 11.22%, and 8.31%. Times Cinema explained that some of the block-up cinemas were affected by competition from surrounding cinemas, and the revenue from the projection business declined. In addition, some cinemas were affected by decoration, newly opened or equipment updates, and the revenue was not fully released, while fixed costs such as rent, depreciation and amortization continued to be accrued. In 2016, Times Cinema's net profit fell by more than 30%.

Although box office revenue ranks ninth in the country, Times Cinema is mainly contracted cinemas, supplemented by self-operated cinemas, with more than 77% of its contracted cinemas. For contracted theaters, theaters mainly charge a certain percentage of box office management service fees by providing them with broadcast rights. This seriously limits the profit margin of the company's theater business and restricts the company's profitability.

In 2016, Times Cinema received box office revenue of 1.455 billion yuan, with revenue of approximately 400 million yuan, but its net profit was only 33.66 million yuan, of which 14.5 million was government subsidies.

Excessive reliance on government subsidies has become another major risk for Times Cinema. In 2014, 2015 and 2016, the government subsidies received by Times Cinema accounted for 36.89%, 24.72% and 28.84% of the company's total profits for the year respectively. In other words, government subsidies have a certain impact on the company's profitability. From 20 million yuan in 2014 to 14.5 million yuan in 2016, the scale of government subsidies continues to decline, posing more challenges to the profitability of Times Cinema.

The greater limitation lies in the difficulty for theater companies to manage franchised theaters and the resulting limited profitability. Among the 326 "box office theft" theaters reported by the National Film Market Special Governance Office on March 21, 2017, a total of 8 purely franchise-type theaters under Times Cinema were punished.

Because the ranking is relatively low and the brand influence is relatively small, as the competition from theater companies to attract theaters to join is becoming increasingly fierce, the average share ratio of Times Cinema in 2016 dropped to less than 2%, and the share ratio of Times Cinema in 2014 - 2016 is lower than the industry average.

Times Cinema has a lower debt-sharing ratio than its peers.

Therefore, Times Cinema, which is in urgent need of capitalization, wants to do more in its own cinemas. The prospectus shows that Times Cinema plans to raise a total of 298 million yuan in this IPO, of which 211 million yuan, 27.0219 million yuan, and 60 million yuan are planned to be invested in the new cinema project, e-commerce platform upgrade project, and supplementary working capital respectively. The company plans to build 11 new cinemas inside and outside Zhejiang Province through the implementation of this raised funds.

Times Cinema expects that after the completion of the new cinema project, the company will increase operating income by nearly 200 million yuan and increase net profit by 26 million yuan every year.

Behind the self-built cinema is the attempt of Zhejiang's state-owned cultural assets to seek industrial synergy effects such as upstream content production + downstream film projection. The controlling shareholder of Times Cinema is Donghai Group, a state-owned enterprise in Zhejiang Province, which is mainly engaged in film and television production and investment business. In the past three years, Donghai Group has hosted the Zhejiang Youth Film Festival, released the "Youth Director Support Plan" at the 2016 Film Festival, and established the "Donghai Film Industry Fund" with Wu Xiaobo's leader, which will jointly develop, invest and produce a number of films with Wanda Film, Shanghai Film New Wave, Pale Film and Television, and Wanpai Culture.

But in fact, after shrinking ticket subsidies, declining demographic dividends and market bubbles squeeze out, the survival of new cinemas is getting harder. In 2016, the overall growth rate of domestic movie box office slowed down, with single-screen output falling from 1.39 million yuan in 2015 to 1.11 million yuan, while the single-screen output of new theaters was only 840,000 yuan.

As the China Securities Regulatory Commission pointed out, despite the overall slowdown in box office growth in the film market, how Times Cinema can maintain sustained and stable growth in its performance and whether there is a risk of a significant decline in operating results in 2017 are difficult for Times Cinema to determine.

How much time does the third echelon theater line under the double attack?

Wanda Group is actively expanding in the overseas cinema market. The operating difficulties of Times Cinema actually reflect the operating difficulties of cinema companies including Hengdian Cinema and Jinyi Zhujiang in the third echelon of the domestic cinema market.

Among the cinema industry in China, Wanda Cinema has an absolute advantage in the relatively scattered cinema industry with its 13.8% box office share. Most of the theaters owned by Wanda Cinema are self-owned theaters, which means that Wanda has the dual channel advantages of theater and terminal screenings. The development method of asset-connected theaters allows Wanda theaters to enjoy greater autonomy in film layout and management.

Relying on this advantage, Wanda Theater has more channels for non-box office revenue. Since 2015, Wanda Cinema has successively acquired Muwei Fashion, PromodaGEM, Shiguang and Mutual Love Interactive, and has developed integrated film marketing, derivatives and game distribution. In 2016, Wanda Theater's revenue was 11.1 billion yuan, a year-on-year increase of nearly 40%, of which non-box office revenue was 5 billion yuan, accounting for 45%.

Previously, Bona and Wanda joined forces in theaters and film production, forming a "structural monopoly" from the strongest production and distribution to the strongest terminal and even the strongest derivatives.

The second echelon includes Dadi Cinema, Shanghai United and China Film Department theaters. Among them, China Film Corporation has mastered three theaters including China Film Corporation Xingmei with some of its own theaters and most affiliated theaters. In 2016, the annual box office reached nearly 10 billion yuan, accounting for more than 20%; Shanghai Film Corporation's Shanghai United Theater Line accounted for 7.8%.

However, the signing and franchising model also restricts its resource integration capabilities and profitability. The private enterprise Dadi Theater, which ranks second in the theater line, has the largest number of theaters and screens in the country, but it lags far behind Wanda Theater in terms of attendance, ticket prices and average number of visitors per game.

In contrast, Dadi Cinema has more say and relies on expansion mergers and acquisitions to create a pattern that endangers this franchise relationship. In February 2017, Nanhai Holdings, the parent company of Dadi Cinema, acquired Orange Sky Jiahe Studios (China) for RMB 3.39 billion. The latter owns 76 cinemas and 531 screens in the mainland. These cinemas have joined Deep Shadow Orange Sky Cinema, in which Orange Sky Jiahe holds a 49% stake. In other words, Nanhai Holdings has its own theater line, and its franchise relationship with Dadi Theater no longer seems to become unbreakable.

Most of the Orange Sky Jiahe Studios acquired by Nanhai Holdings are located in first-and second-tier cities, while its Dadi Cinema is concentrated in third-and fourth-tier cities.

Since last year, after listing, China Film Corporation, Shanghai Film Corporation and Dadi Cinema, which received 80 million yuan financing from Huayi Brothers, have been active in acquiring and building their own theaters. In the past two months alone, Dadi Cinema has invested and established more than 5 subsidiaries to develop cinema investment business.

In other words, cinema giants and second-tier cinema companies have begun a new round of mergers and acquisitions, integrated expansion with the help of capital strength. Zeng Maojun, president of Wanda Cinema, earlier expressed this view,"When the (film) market changes from ultra-high speed to normal speed development, we see more opportunities. Whoever has stronger integration capabilities and stronger profitability will become stronger after the crisis."

The third-tier theater companies that are still lingering outside the gate of the capital market are suffering from multiple oppressions from the slowdown in the film market, capital operation difficulties and the continued expansion of giants. However, these theater companies cannot rely on the capital market to resolve their operating and expansion plans in the short term.

Jinyi Zhujiang launched its IPO plan as early as 2014. However, because it was pointed out by the government department that there was a serious misrepresentation of the letter and submitted it to the China Securities Regulatory Commission for investigation, Jinyi Film and Television missed out on the "No. 1 share of the theater". Jinyi, which missed the listing opportunity, has a growing gap with Wanda Theater. Today, Jinyi Film and Television is still in the queue, but Yien system data shows that its theaters 'proportion and ranking are declining year by year.

After the IPO of Times Cinema was rejected, it is unlikely that it will enter A shares in the short term due to the operating difficulties of more than half of its subsidiaries losing money and declining overall profits; Hengdian Film and Television, which belongs to Hengdian Cinema, is currently ranked 144th in the IPO and plans to raise 3 billion yuan, of which 2.5 billion yuan will be used for theater construction. It is difficult for these two companies to make great achievements in capitalized operations and large-scale expansion in the short term.

What is even more serious is that the theater companies outside the third echelon are coming aggressively. Previously, Perfect World acquired 100% equity in Jindian Cinema, 100% equity in Jindian Culture, 100% equity in Jindian Cinema, and the target creditor's rights held by the counterparties and their related entities against the target company and its subsidiaries for approximately 1.353 billion yuan. China Jindian, ranked 15th, successfully leveraged the capital market; Poly Wanhe acquired 21 studios owned by Star Culture for 680 million yuan (including 10 joint venture studios with South Korea's CJCGV Co., Ltd.), 4 studios under construction, and 12 studios that have been contracted but not opened.

Whether the third-tier theater companies can seize the dividends of theater integration under the market downturn depends on the expansion speed of their theater businesses by listed companies such as Wanda, China Film, Yingdian, Nanhai Holdings, and Perfect World.

Editor: jessica