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Theater shutdown adds to bleak picture for Chinese cinema

Coronavirus-triggered closures compound problems of overcapacity in sector

A couple walk past the shuttered Megabox cinema in Beijing in February. Moviegoing was virtually halted by the coronavirus outbreak, dealing a big blow to China's film industry.   © AFP/ Jiji

TOKYO -- Weekends and holidays, like the upcoming Golden Week that starts Friday, are typically bustling times for Chinese movie theaters. No longer.

Instead, the country's movie industry has been doing a painful twist on the silent film era, with the doors of China's theaters closed for three months. From China Film, the largest state-owned cinema conglomerate and also a big film producer, to smaller movie houses, the industry  is caught in a severe financial squeeze.

China Film illustrates the industry's woes. The company's nearly 20,000 screens, including those of its affiliates, have not been allowed to show films since Jan 24. And at least three titles the company was involved in producing had their planned releases over the critical Lunar New Year holiday cancelled.

Films screened over that period are usually carefully selected and backed by heavy production and promotional budgets. This year's hoped-for blockbusters included "Leap," the story of the Chinese national women's volleyball team, directed by Hong Kong film director Peter Chan and starring veteran actress Gong Li.

But "Leap" has so far stayed firmly on the floor. And Shanghai-listed China Film said on Friday that its revenue for the January to March quarter dropped 88% on the year to 258.42 million yuan ($36.5 million). It recorded a net loss of 227.18 million yuan for the period, reversing the previous year's net profit of 355.26 million yuan.

The picture was similar at smaller state-owned peer Shanghai Film, which on Friday said that all lines of its business are "in a 'zero-income' status." The company, which has about 4,800 screens, including affiliates, stressed "uncertainty" over when they might reopen. It also turned in a first-quarter loss from revenues that fell 84% on the year.

Foreign players are not immune. Imax China Holding has reported a net loss during the first quarter of between $26 million and $28 million, compared with a net profit of $11 million for the corresponding period last year. The Hong Kong-listed subsidiary of Canada's Imax suffered from the shutdown of its approximately 700 theaters in mainland China and a fall in new theater installations due to the pandemic.

Producers are feeling the heat as well. Hong Kong-listed Global Digital Creations Holdings has said it expects to swing to net loss of up to 8.5 million Hong Kong dollars ($1.09 million) for the first three months of the year, from a net profit a year ago.

The Hong Kong-based computer graphics creator attributed the loss largely to the suspension of an animated film in mid-January, which had been aimed Lunar New Year moviegoers.

Meanwhile a prolonged cinema shutdown could mean further problems for Dalian Wanda Group. Its Shenzhen-listed subsidiary Wanda Film Holding said this month that it expects a net loss of between 550 million and 650 million yuan in the first quarter, following a 4.72 billion yuan annual net loss last year.

Moviegoers watch a 3-D production at  Wanda Group's Oriental Movie Metropolis in the northeastern Chinese city of Qingdao in 2018. The company is suffering a financial hangover from its rapid expansion.   © Reuters

Unlike other big movie companies, the group has been suffering from the aftereffects of its aggressive expansion. Wanda Film's big loss last year was mainly due to goodwill impairment losses, after it opened its 600th cinema complex in Guangzhou in December. And its U.S. strategy has brought a further headache. AMC Entertainment, which Wanda Group bought in 2012, has closed all its cinemas in the U.S. since mid-March for up to 12 weeks.

Signs of stress were apparent in the Chinese movie industry, even before the theater closures. Alibaba Pictures Group, the Hong Kong-listed cinema unit of Alibaba Group Holding, said this month that its expected wider loss for this financial year was due not only to the coronavirus-triggered closures but "primarily due to the complicated difficulties in pursuing profitable operation faced by the entertainment industry in mainland China since 2019."

The group anticipates a net loss of 1.1 billion to 1.2 billion yuan for the financial year ended in March, increasing its loss from 254 million yuan a year ago, according to its April 9 disclosure.

While China's box office revenue grew 5.4% in 2019, that was slower than the overall growth rate of the economy -- which was itself losing steam. At the same time, the number of theaters and screens increased by 13% and 16%, respectively, last year.

Shanghai Film pointed to the continued fall in average revenue per theater or screen and a "further increase in bankruptcies of theaters" already seen last year, according to its annual report published with its quarterly results on Friday.

"Given the evolving pandemic situation outside China, we believe authorities will remain on guard. As such, we expect further pushback on the reopening timeline of entertainment facilities, especially cinemas," John Choi, an analyst who covers Imax China for Daiwa Capital Markets in Hong Kong, wrote on Friday.

"Currently, there is no visibility on when cinemas will reopen, and we expect authorities to remain tight-lipped on the timeline before the NPC & CPPCC in May," he added, pointing to the possibility that reopenings might hinge on two crucial political events: the National People's Congress and the Chinese People's Political Consultative Conference.

Both were postponed in early March. It is has been reported they may now convene in May.

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