China’s Movie Theater Experiments: A Knee-Jerk to a Slowing China Box-Office

Smart Cinema & iQiyi’s Yuke On Demand Private Cinemas Highlight Box-Office Plateau & Not Start-Up Disruption.

By Ryan Carroll, Editor-at-Large

June 2018.

Variety’s Patrick Frater brought something to our attention that I had previously overlooked, “Why are there so many ‘disruptive’ companies coming from ‘established’ insiders?”

One view may be that, Chinese industry insiders are seeing a plateau at the growth potential of the China box-office. While Hollywood eyes it to become the World’s Biggest Box-Office.

Three companies launch new ventures that were highlighted in the above Variety article:

  • Smart Cinema – the 2K start-up that brings the box-office directly to your smart device.
  • iQiyi‘s Yuke – an on demand private cinema experience.
  • Nationwide Alliance of Arthouse Cinemas – a public-private art house cinema distribution system.

Let us examine the one venture that is adding real growth to the box-office industry. That being the Alliance of Arthouse Cinemas, a public-private JV to bring more options to cinema goers than just the standard – Hollywood tentpoles, Bollywood / Tollywood Indian blockbusters, and the standard Chinese popular cinema hits.

Though John Krasinski’s A Quiet Place is a Hollywood backed sci-fi horror film its $17.7MMUSD opening weekend Silenced the competition to take second place behind Marvel juggernaut Avengers: Infinity War. Before going on to land in third place over its second week in China nearly Deafening the release of Lucasfilm’s Solo: A Star Wars Story. Taking in $10.3MM for the entire week, compared to Solo‘s $10.1MMUSD opening weekend.

The reason why this matters is because A Quiet Place, like Get Out, is not your standard Hollywood blockbuster horror film, and for movie that has less-than 4 minutes of actual dialogue. Is an experiment in the world of cinema itself.

A Quiet Place follows a trend of Hollywood “art house” releases in China from; Guillermo Del Toro’s The Shape of Water ($16.7MM), Dennis Villeneuve’s Arrival ($17MM) and Blade Runner 2049 ($11.7MM), Alex Garland’s Annihilation($10.4MM), – all hits!

All of these films may be sci-fi or sci-fi horror, but it highlights a growing trend of Chinese audiences. Especially those in the first tiered cities, venturing out beyond the next Marvel Cinematic Universe release or Fast and the Furious franchise, and to movies that are closer to what is “pure cinema” than the “Beyhem” that is the Transformers movie series.

Chinese audiences are taking more risks in their cinema going experiences, and this is a trend that should continue. Honest, it will not provide substantial growth to the China box-office, but it will provide a healthy maturation to the cinema chain industry.

The other two ventures may appear at face value to be apart of this trend of healthy rise in the China box-office, but in a reality they are a reflection of the only growth sector left for the Chinese cinema industry; third & fourth tiered cities.

Recently I had written about China’s Smart Cinema Start-Up and how it Bridges the Gap Between Box-Office & Digital Release Windows. This start-up is not going to provide a major boost to the overall box-office growth, but it will provide the potential of reaching those more rural audiences who save their money for either; watching movies together as a family over the Chinese New Year / Chun jie long holiday, or “must see” Chinese films such as the growing Red Liberation Action Film Genre.

The Jack Gao headed Smart Cinema App is to provide a source, with 2K resolution, for those outside of the major urban markets to view recently released films on their smart devices, at a (slightly) lower cost. With the start-up sharing profits with the cinema chains, contributing to box-office revenues than VOD earnings.

A system that has been fought against by the major movie theater chains here in the U.S. for quite some time, and if this is successful in China. It could represent a model, though it would need to be adapted for American viewing tastes, for a future box-office / VOD shared release platform.

There are many issues that Smart Cinema that will make it difficult to contribute to the overall box-office growth in China. Though, it could turn into being a disruptive revenue stream for its owners, its impact on the overall year-end numbers in terms of growth is questionable. It could cause issues with theater chain owners due to their loss of concession revenue streams from Smart Cinema App taking away foot traffic, while keeping eyeballs on the screens.

Another issue the Smart Cinema App may create is the opportunity for those across China to view local films that are currently in their run at the movie theaters, to watch at home. Potentially, with others, even an entire family or group of friends, if the smart device is hooked up to a projector. Thus, decreasing the number of box-office being sold in the end.

Meaning that the box-office revenue / ticket that is being purchased via Smart Cinemas, could potentially take multiple movie ticket purchases. Transforming them into a single purchased ticket.

If you consider that this disruptive venture could put an end to repeat viewings by many moviegoers, with them opting to pay for a slightly lower cost to watch it at their own convenience. Further impacting other cinema chain sales – ie. concessions.

What the Smart Cinema App does to the non-ticket revenues that movie theater chains rely on, such as concessions, with the audience staying at home. The cinemas may receive a piece of the ticket pie, in the overall box-office shared revenues, but all of their other revenues will fall to the wayside. Hurting the industry’s bottom line.

The third and final venture is not even technically a part of the box-office, as iQiyi’s library of content is, post theatrical, movies from the U.S. and other areas that were never released in the cinemas in China, series, or original content.

Placing Yuke on-demand cinemas somewhere between the box-office, VOD, and streaming platforms. Proposing a potential conflict with studios and producers behind the films being viewed at a premium cost, that may have not been as apart of the licensing deal to stream said movies.

Along with, cinemas, and the regulation bureaus of China, also having issues with Yuke on-demand cinemas disruptive place between the box-office and iQiyi’s streaming platform.

This mini-theater is tapping into iQiyi’s 60M subscribers (both Tencent Video and Alibaba’s Youku have similar paid numbers), and could be more of a gimmick to raise their stock prices. Since iQiyi’s listing on the NASDAQ just occurred a few weeks back, to less fanfare than expected, but has grown since then. Due to American Millennial investors taking a liking to this streaming platform.

But, unbeknownst to most American Millennial and investors, iQiyi is not a sure bet to dominate the streaming industry in China. Though it is the first one to enter into a lucrative IPO.

iQiyi’s Yuke mini-theaters could be similar to Xiaomi’s upcoming HK IPO in that the company is doing everything possible to reach their $100BnUSD valuation. A far cry from iQiyi’s $10-15BnUSD valuation, but one that increases its chances to grown in its post IPO NASDAQ listing.

UPDATE: Xiaomi’s IPO came in under expectations with the company only being valued at $54-56BnUSD, after raising $4.7BnUSD.

Out of all three of these ventures the National Alliance of Arthouse Cinemas is the one that will truly have a lasting effect on China’s overall box-office, but it would not in the long run contribute to China overtaking the North American yearly box-office. While the other two disruptive ventures, may end up disrupting the future growth to the country’s box-office in ways that are not expected; negatively.

iQiyi’s Yuke, on its face, appears to be more gimmicky than the Jack Gao led Smart Cinema App, which does have a place in China the growing trends that are the China box-office. It is still undetermined if Chinese audiences will take to these disruptive industries, in a way that will change the landscape of the China box-office forever.

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About the Author
Born and raised in the Missouri-Ozarks Ryan studied Film Production, and East Asian Culture, at the University of Kansas where he was a UGRA recipient that led him on a seven-year long, Journey From the West, to China. Where he worked with Warner Brothers, the China Film Group Corp. and the National Bureau of Statistics of China. Before returning to the States, where he specializes in Chinese Anime & Comics, China’s Box-Office, and Chinese entertainment-tech industries. He has a dog in China, Abigail, and a dog in the Arkansas-Ozarks, King Blue, who help ease his anxiety of suffering from the “Two-Dimensional Complex” that is trying to understand the Culture Industry landscapes of the Middle Kingdom.

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