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

the profit of some self-operated cinemas in Times Cinema

Times Cinema is a cinema company with Zhejiang as its main business region, with a super luxurious state-owned shareholder camp behind it. The controlling shareholder is Donghai Group, which is 100% controlled by the Department of Finance of Zhejiang Province, while more than 5% of the 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 at the box office in the domestic cinema market. By the end of 2016, Times Cinema had 219 cinemas, including 50 holding and shareholding companies, 169franchises and 1422 screens. In 2016, time Cinema grossed $1.45 billion, accounting for 3.19% of the country's total box office.

but the operation of time Cinema in the past three years is very bleak

the prospectus shows that of the 33 cinemas controlled by time Cinema, more than half of them are in a state of loss. Among them, the net profit of 18 cinemas in 2016 was negative, and the net assets of 13 cinemas were negative. Two cinemas, including the Golden Globe of Lu Tong era and Kaihua era, were in a state of continuous losses for five years.

era are in a state of loss

Wanda cinema line relies on commercial real estate to create consumer centers, which drives the expansion logic of self-built cinemas and largely avoids the performance fluctuations caused by uncertain factors such as location. In contrast, cinema companies that lack commercial real estate genes, such as time Cinema Line, are greatly affected by location, competitive environment and other factors. More than five cinemas have been open for a decade and are too old, which limits their profitability to some extent.

take Zhejiang Cuiyuan Cinema, which is controlled by time Cinema Line, as an example, the net profit of cinemas in 2016 was 200000, the lowest in nearly 10 years. The cinema, which opened in 2002, is located in downtown Hangzhou, and its net profit has been on an overall downward trend since 2013. According to the reporter's understanding, there are many old communities around the cinema, where the shopping malls are retail and wholesale, and the elevators are obsolete. In 2016, Cuiyuan upgraded some of the cinema.

under the influence of these factors, the gross profit margin of Times Cinema is decreasing year by year. During the period 2014-2016, the gross profit margin was 33.94%, 32.72% and 30.12%, and the net profit rate was 11.34%, 11.22% and 8.31%. Time Cinema Line explained that due to the competition of surrounding cinemas, the projection business income of some cinemas has declined, coupled with the fact that the income of individual cinemas has not been fully released due to the impact of decoration, opening, or equipment renewal, while fixed costs such as rent, depreciation and amortization continue to be calculated, and the net profit of the cinema line fell by more than 30% in 2016.

although box office revenue ranks ninth in the country, the Times Cinema chain mainly signs up for cinemas, supplemented by self-run cinemas, with more than 77% of its signed-in cinemas. For signing up to join the cinema, the cinema line mainly charges a certain proportion of the management service fee by providing it with broadcast rights, which seriously limits the profit space of the company's cinema business and restricts the company's profitability.

in 2016, Times Cinema earned 1.455 billion yuan at the box office and 400 million yuan in revenue, but its net profit was only 33.66 million, of which 14.5 million was government subsidies.

relying too much on government subsidies has become another risk for time cinemas. In 2014, 2015 and 2016, the government subsidies received by time Cinema accounted for 36.89%, 24.72% and 28.84% of the company's total profits, respectively. In other words, government subsidies have a certain impact on the profitability of companies, from 20 million in 2014 to 14.5 million in 2016. The declining scale of government subsidies poses more challenges to the profitability of time Cinema.

the greater restriction lies in the difficulty for cinema line companies to join cinema management and the resulting limited profitability. Of the 326 "box office stealing" cinemas announced by the National Film Market Special Governance Office on March 21, 2017, a total of eight pure franchise cinemas under the Times Cinema chain were punished.

because the ranking is relatively low and the brand influence is relatively small, under the increasingly fierce competition among cinema companies to attract cinemas to join, the average sharing ratio of time Cinema has dropped to less than 2% in 2016, and the sharing ratio has decreased year by year, and the sharing ratio of time Cinema from 2014 to 2016 is lower than the industry average.

< strong > the share ratio of era cinema lines is lower than that of their peers < / strong >

therefore, the era cinema lines that urgently need to be capitalized want to do more in self-operated cinemas. According to the prospectus, time Cinema plans to raise a total of 298 million yuan in this IPO, of which the new cinema project, e-commerce platform upgrade project and supplementary working capital plan to raise 211 million yuan, 27.0219 million yuan and 60 million yuan respectively. Through the implementation of this fund-raising, the company plans to build 11 new cinemas inside and outside Zhejiang Province.

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

behind the self-built cinema is the attempt of the state-owned cultural assets of Zhejiang Province to seek industrial synergy such as upstream content production and downstream film projection. The controlling shareholder of time 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, and released the "support Program for Young Directors" at the 2016 Film Festival, and jointly established the "Donghai Film Industry Fund" with the head of Wu Xiaobo. Will join hands with Wanda Film and Television, Shanghai Film New Wave, Pole Film and Television, Wanpai Culture and other joint development, investment, production of a number of films.

but in fact, the survival of new cinemas has become more and more difficult after the ticket replacement scale has shrunk, the demographic dividend has fallen and the market bubble has squeezed out. The overall growth rate of the domestic box office slowed in 2016, with single-screen output falling to 1.11 million yuan from 1.39 million yuan in 2015, while the single-screen output of the new cinema was only 840000 yuan.

as pointed out by the CSRC, under the circumstances of the overall slowdown in the box office growth of the film market, it is difficult for time Cinema to determine how to maintain sustained and steady growth in its performance and whether there is a risk of a sharp decline in its business performance in 2017.

< strong > how much time is left for the third echelon cinema line under the double attack? < / strong >

Wanda Group is expanding actively in overseas cinema markets. The operating difficulties of Times Cinema actually reflect the operational difficulties of cinema companies in the third echelon of the domestic cinema market, including Hengdian Cinema and Jin Yizhujiang.

in China's cinema industry, Wanda Cinema has an absolute advantage in the relatively scattered cinema industry with a 13.8% share of the box office. Most of the cinemas under Wanda cinema chain are self-owned cinemas, which means that Wanda has the dual channel advantage of cinema line and terminal projection. The development mode of the asset-linked cinema line allows Wanda cinema chain to enjoy greater autonomy in film production and management.

relying on this advantage, Wanda Cinema has more channels for non-box office revenue. Since 2015, Wanda Cinema has acquired Muwei Fashion, PropagandaGEM, time Network and Mutual Love interaction one after another, and developed film integrated marketing, derivatives and game distribution. Wanda cinema had revenue of 11.1 billion yuan in 2016, an increase of nearly 40 percent over the same period last year, of which non-box office revenue was 5 billion, accounting for 45 percent.

previously, Boehner and Wanda joined forces in cinema and film production to form a "structural monopoly" ranging from the strongest production, the strongest distribution to the strongest terminals, and even the strongest derivatives.

the second echelon includes Earth Cinema, Shanghai Union and China Film Department. Among them, with some of its own cinemas and most of them joining cinemas, China Film has mastered three cinemas, including China Film Xingmei, and its annual box office in 2016 reached nearly 10 billion, accounting for more than 20 percent. Shanghai United Cinema, owned by Shanghai Film, accounted for 7.8 percent of the box office.

but the signing mode also restricts its resource integration ability and profitability. The number of cinemas and screens owned by Dadi Cinema, a private enterprise firmly second in cinema line, has the largest number of cinemas and screens in the country, but there is a big gap between it and Wanda cinema line in terms of attendance, ticket price and average attendance.

by contrast, Earth Cinema has more say, and relying on expansion mergers and acquisitions is forming a pattern that endangers this franchise relationship. In February 2017, Nanhai Holdings 3.39 billion, the parent company of Earth Cinema, acquired Orange Sky Golden Harvest Cinema (China), which owns 76 cinemas and 531 screens in the mainland, all of which have joined the Deep Shadow Orange Sky Cinema chain, in which Orange Sky Golden Harvest has a 49 per cent stake. In other words, Nanhai Holdings has its own cinema chain, and the relationship between Nanhai Holdings and Earth Cinema Line no longer seems unbreakable.

most of the Orange Sky Golden Harvest Cinemas acquired by Nanhai Holdings are located in first-and second-tier cities, while its Earth Cinema is concentrated in third-and fourth-tier cities.

since last year, China Film, Shanghai Film and Earth Cinema, which have received 80 million financing from Huayi Brothers, have been active in acquiring and building their own cinemas. In the past two months, Dadi Cinema has successively invested and set up more than 5 subsidiaries to develop cinema investment business.

that is to say, cinema giants and second-tier cinema companies have begun a new round of M & An integration expansion with the help of capital strength. Zeng Maojun, president of Wanda Cinema, expressed this view earlier: "when the (film) market changes from ultra-high speed to normal speed, we see more opportunities." Whoever has stronger integration ability and stronger profitability will become stronger after the crisis. "

the third-tier cinema companies, which are still hovering outside the capital market, are suffering from multiple oppressions from the slowdown of the film market, the dilemma of capital operation and the continuous expansion of giants. However, these cinema companies cannot rely on the capital market to solve their operation and expansion plans in the short term.

Jin Yi Zhujiang launched the IPO program as early as 2014, but because the government pointed out that the letter was seriously inaccurate and submitted to the CSRC for investigation, Jin Yi Film and Television missed the "first share of the cinema line". As a result, Jin Yi, who missed the opportunity to go public, has a growing gap with Wanda cinema. Today, Jinyi Film and Television is still in line, but the data of Yien system show that the proportion and ranking of its cinema line are declining year by year.

Times cinema line IPO was rejected, because of the operating difficulties of more than half of its subsidiaries losing money and declining overall profits, it is unlikely to enter A shares in the short term. Hengdian Film and Television, which belongs to Hengdian Cinema chain, currently ranks 144th in IPO and plans to raise 3 billion funds, of which 2.5 billion will be used for cinema construction. It is difficult for these two companies to make great achievements in capitalization operation and large-scale expansion in the short term.

what is even more serious is that cinema companies outside the third echelon are coming. Prior to this, Perfect World paid about 1.353 billion yuan to acquire 100% equity in Jindian Cinema, 100% equity in Jindian Culture, 100% equity in Jindian Cinema and the target claims held by the other party and its affiliated entities on the target company and its subordinate companies. Huaxia Jindian, which ranked 15th, successfully borrowed the capital market. Poly Wan and 680 million have acquired 21 studios owned by Star Culture (including 10 joint venture studios with South Korea's CJCGV Co., Ltd.), 4 studios under construction, and 12 unopened studios.

whether cinema companies in the third echelon can seize the dividend of cinema integration under the low tide of the market depends on the speed of expansion of their cinema business by listed companies such as Wanda, China Film, release, Nanhai Holdings, and Perfect World.

Edit: jessica