Date
22 September 2017
Wanda Cinema owns 89 of the 173 IMAX screens across China. Photo: BTV
Wanda Cinema owns 89 of the 173 IMAX screens across China. Photo: BTV

Wanda Cinema promises a blockbuster IPO, but the plot thickens

Wanda Cinema Line Corp. is confident of a blockbuster market showing after the securities watchdog last month included the theater chain operator in its list of candidates for the resumption of initial public offerings.

Two rivals – state-owned Shanghai Film Group and Guangzhou-based Jinyi Cinemas — have also made it to the lineup of IPO hopefuls, but it’s obvious that Wanda will enjoy the top billing. Wanda owns 37 of China’s top 100 cinemas as measured by box office revenue, and 89 of the 173 IMAX screens.

The upbeat preview for Wanda’s market debut is all about a strategy that syncs well with the rapidly-expanding commercial property empire of its parent.  It pays its parent 222 million yuan (US$35.59 million) a year for the lease of commercial space totaling 551,000 square meters in 85 Wanda Plazas across the country. That’s just 11 percent of its net revenue, compared with around 20 percent for other theater operators.

Wanda’s 142 wholly-owned cinemas attracted more than 77.8 million visitors last year. According to Xinhua, the box-office revenue is shared among the film producers, distributors, theater chain operators and individual cinemas. They don’t get equal shares of the pie, however. Film producers and distributors — usually the same company — get around 40 percent of the money, theater chain operators 10 percent and individual cinemas 50 percent. Since Wanda Cinema owns all of its theaters, the firm gets to keep up to 60 percent of the aggregate box office revenue.

It should come as no surprise then that five of Wanda Cinema’s 91 subsidiaries reported a net profit of at least 30 million yuan each last year. Shanghai Film Group, which runs more cinemas than Wanda, only had two units that earned more than that.

Wanda Group chairman Wang Jianlin has prepared a gripping script for the cinema chain operator’s development, including doubling the number of theaters to 260 with 2,300 screens by 2016. This translates to almost 40 new cinemas a year in the next three years.

No one doubts that this is a thrilling scenario, but one wrinkle in the plot is that the construction of Wanda Plazas may not be able to keep up with the pace of Wanda Cinema’s breakneck expansion. Around 20 such commercial establishments can be built a year at most. This means Wanda Cinema will have to rent third-party properties to meet the target, and in such a scenario, it may not able to land rental deals that are as cheap as those granted by its parent.

One example was its cinema in Mianyang, the second largest city in southwestern China’s Sichuan province. The Economic Observer reports that the cinema was housed in a property not owned by Wanda, and because of the high rent and less than ideal location compared with its competitors, the cinema struggled with low seat occupancy rates of 8 to 10 percent, until it closed its curtains last year. Business insiders say a cinema can’t break even with an occupancy rate below 22 percent.

Wanda Cinema has 59 such theaters operating outside its parent’s plazas.

Another worry is that the firm’s average investment for a new theater has surged to no less than 20 million yuan. Hefty investment means it can offer premium environment for the audience, although it has to charge more than its rivals. But as moviegoers are already grumbling about the steep price of a film ticket at 150 yuan or more, Wanda Cinema’s high-end offerings may strike a discordant note.

– Contact the writer at [email protected]

CG

EJ Insight writer

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