Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

China is just a year away from overtaking the U.S. to become the world's biggest box-office market, by some estimates. Why would the country's richest man be going on an overseas cinema-buying spree?

Catching Up
The U.S. and Canada made up 29 percent of global box-office receipts in 2015, followed by China
Source: Motion Picture Association of America

Stop reading here if you don't like spoilers. The answer is that showing movies in the West remains a better business in terms of revenue generated per customer.

AMC Entertainment, owned by billionaire Wang Jianlin’s Dalian Wanda Group, is said to be preparing an offer for Odeon & UCI Cinemas that would value the company at as much as $1.3 billion. The London-based firm operates 243 theaters and 2,238 screens across Europe.

Odeon & UCI would add to a global empire that already includes Hoyts, operator of Australia's second-largest cinema chain, and Carmike Cinemas, acquired for $1.1 billion in March in a deal that made AMC the largest U.S. movie-theater company. Wanda, needless to say, is already China's dominant operator.

The average movie ticket in China costs about 36 yuan ($5.60). Customers often pay less. The prevalence of online ticket sales through apps owned by Alibaba and Tencent has led to widespread discounting. While theaters and studios set minimum prices, the technology giants are buying up tickets in bulk and then discounting to win market share.

Cheap Seats
Average movie ticket prices in the U.K. are almost twice as high as in China
Sources: Jefferies, MPAA, Film Distributors’ Association, SAPPRFT, MPPA Japan.
Footnote: Average Chinese ticket prices are for urban areas.

Compare that with the U.S., where the average ticket price last year was $8.43, according to the National Association of Theatre Owners. That was a 26-cent increase from 2014. In the U.K., the average was even higher at the equivalent of about $11.

Granted, showing films in China as opposed to making them does have its advantages. Theaters generally split box-office revenue 50-50 with film studios in Western markets. By contrast, studios in China derive only 25 percent of their revenue from box-office takings. Additional revenue sources such as DVD sales and television rights are significantly undermined in China by piracy. That gives cinema chains more bargaining power.

In Wanda's case, the company has consolidated its market position in China with a spate of recent acquisitions, by placing cinemas in its shopping malls, and by investing in its own movie-ticketing apps. The company had a market-leading 14 percent share last year, according to Morgan Stanley,

Still, overseas screens provide a more stable revenue stream, if less fast and furious growth. The purchase of closely held Odeon & UCI could even pay for itself if Wang follows the same template he did with AMC and sells shares publicly in the company. Wanda raised $332 million from floating a fifth of AMC in December 2013, less than two years after buying the U.S. chain.

If nothing else, European box-office takings provide a hedge against a more opaque and sometimes less reliable home market. In March, China started investigating the distributor of Ip Man 3, a martial arts movie starring former heavyweight boxing champion Mike Tyson, after it was found to have bought tickets for ``ghost screenings'' that inflated box-office receipts. That's the kind of plot twist Wang could do without.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net