Cinemas facing steep losses as audiences dwindle

The novel coronavirus outbreak dealt another blow to Chinese cinemas with the cancellation of 15 films scheduled for release on the Valentine's Day, which fell on Feb 14.

This happened after all seven films scheduled to debut during the Spring Festival were pulled from cinemas in response to the epidemic prevention.

Spring Festival and Valentine's Day are big contributors to the whole year box office revenue of the cinema industry. In 2019, the combined box office exceeded 5.9 billion yuan ($840 million) during Spring Festival (Jan 1-Jan 6) and Valentine's Day, contributing nearly 10 percent of last year's total 64.1 billion yuan receipts, box office tracker Maoyan said.

This year, cinemas in China had higher expectations on box office returns from films scheduled for Spring Festival release. Those included several sequels of hit films such as Detective Chinatown 3 and Jiang Ziya.

Bona Film Group's chairman Yu Dong said the total box office during this year's Spring Festival could have exceeded 12 billion yuan.

"Now with the novel coronavirus outbreak, cinemas in China are facing mandatory shutdowns to prevent the virus from spreading further. This posed great challenges to their cash flows with no revenue coming in but they still have to pay for rental, equipment, raw materials for food and beverages, and human resources," said Zhou Xuan, director of the Chinese Film and Television Industry Research Center at the University of International Business and Economics in Beijing.

"Such a situation was more severe for cinemas in third-and fourth-tier cities, as Spring Festival box office intake is rising to become a major contributor for their whole year revenue," Zhou said.

A report from Maoyan showed the Spring Festival is the most important and the highest peak movie-going season for third-and fourth-tier cities. The report said that the box office of films screened during the Spring Festival 2019 accounted for 31.4 percent of the total box office in fourth-tier cities in 2018.

Wang Zheng, general manager of Mianyang Zhonghuan Culture Communications, a company that owns eight cinemas and manages 22 others across China, said he had expected that combined box office from this year's Spring Festival and Valentine's Day release could make up about 20-25 percent of the box office revenue of this year's total.

"Most of the cinemas we operate, including those we own and those we manage, are located in third-and fourth-tier cities where watching movies is higher than in first-and second-tier cities, with young people returning home from cities they work inviting families to spend time in the cinemas," Wang said.

"We were betting a bit on the Spring Festival but the epidemic has caused great losses to us," Wang said.

"Speaking of the eight cinemas we own, we estimated to our losses to be about 10 million yuan due to mandatory shutdowns in January. There is another 1.8 million yuan lost in sales of food, beverages, and film derivative products, and roughly 1.2 million yuan in losses from advertisements," Wang said.

"But for the same month (January), based on our estimates, we had to pay about 600,000 yuan in house/room rent, about 700,000 yuan in human resources, about 400,000 yuan for power and water, and about 100,000 yuan for laser lights,"Wang said.

Many cinema owners and operators in third-and fourth-tier cities are facing a similar situation to Zhonghuan, Wang said. Several cinema operators started to sell their snack packages online as some food and beverages will soon be out of date.

Suning Cinema, for instance, reportedly sold three kinds of snack packages at 99 yuan, 129 yuan, and 159 yuan respectively. It also offered online orders and delivery services.

"Such an effort might help with the current situation but the influence remains limited," said Wang.

Despite the difficulties cinemas have been facing, they are receiving support from suppliers.

Coca Cola, for instance, started to receive return orders for syrups. Real estate companies like Wanda have announced waivers or a cut in rental fees for cinemas.

Wang said he also expects supportive policies from the government, such as a waiver in movie special funds, a fee charging cinemas in China at about 5 percent of their box office intake and given to related departments under the National Radio and Television Administration.

"We also hope for lower-interest-loans from banks and a tax waiver," Wang said.