Chinese investment company Nan Hai Corp, the owner of Dadi Cinema, is to purchase all the Orange Sky Golden Harvest’s (OSGH) cinemas operating in mainland China for RMB 328.6 million ($47.8 million). As one of the leading cinema investors in the market, OSGH currently operates 76 multiplexes with a total of 531 screens across mainland China. In 2016, OSGH cinemas collected a total of 80.8 million yuan ($11.7) box office. After the purchase, Dadi will have a total of 2,442 screens across the country, or around 3,919 screens if count those in associated membership as well.
Based in Hong Kong, OSGH operates cinemas in 4 territories across Asia: Hong Kong has 24 screens under Golden Harvest brand; Mainland China has 531 screens under OSGH Cinemas; Taiwan has 136 screens under Vieshow (owns 35.7% share), and Singapore has 91 screens under Golden Village (owns 50% share).
It is the largest acquisition in the Chinese exhibition market so far. The deal further strengthens Dadi’s position in China (in terms of screen count) and enhances its competitiveness with the market leader Wanda Cinema. Wanda operates approximately 3,000 screens at end of 2016, while Dadi comes in second with 2,442 screens after the deal (membership cinemas not included here). As one of the top 10 cinema investors in the market, OSGH cinemas are mainly located in tier 1 and tier 2 cities, which is a good complement to Dadi’s tier 3 and tier 4 locations.
The level of market concentration in China is comparatively low. The top five exhibitors have a combined market share of 37.4% (in terms of screen count) in 2015, while USA is 52.1%, and UK is over 70%. China has a total of 48 official circuits in the market, and none of them has over 10% market share. In terms of box office, Wanda Cinema was the only circuit with over 10% (13.3% in 2015) market share. Cinema screens have been growing rapidly in China with approximately 17 new screens added per day in the past five years. While key exhibitors or cinema investors were busy building new cinemas across the country, merger and acquisition has not been a priority for them when there is room for organic growth. However, the cinema infrastructure market in China will approach maturity in the next few years and the growth in admissions slowed significantly last year. The screen growth rate will slow down from 2017 onwards, according to IHS Markit forecast. Then, M&A will be an effective option for ambitious exhibitors to expand.
Market consolidation is happening already in the Chinese exhibition industry. Wanda Cinema started with a few small purchases in 2015, while the deal with cinema investor Shimao, at a price of RMB 100 million ($14.5 million), was the most key one with 15 multiplexes. In 2016, Media company Perfect World acquired Antaeus circuit for RMB 135.3 million ($19.7 million). Antaeus operates 217 cinemas in China, of which 86 of them were wholly owned. One month after the deal, China Film spent RMB 55.3 million ($8 million) purchasing a 70% share from Dalian Huacheng, who owns 15 cinemas in China. Now, in the beginning of 2017, Dadi acquired OSGH, which is the largest acquisition among them.
So, market consolidation is happening but still in an early stage, and has not made any major impact in the market structure yet. The top five exhibitors have a combined share of 37.5% (in terms of screen count), up from 37.4% in 2015, and 36.9% in 2014. A small increase, but not solely due to the acquisitions, more comes from new cinema expansion. There were 9,552 new screens added in 2016, and 8,121 in 2015. The expanding speed of new cinemas was much quicker and larger than the acquisitions. Thus, even the Dadi acquisition with 531 screens has not made any major impact in the market structure.
Market consolidation will more likely to happen among cinema investors instead of official circuits. This is due to China’s unique situation where most official circuits were not the direct owner of all the cinemas under them. Part of their cinemas (or most of them) were privately owned and joined only for management. Cinema investors were the real driver behind the screen growth in China. There are some independent cinema investors like CJ CGV and OSGH, who are not an official circuit defined by the state but own a large number of cinemas with their own brand, and they are more powerful financially. Some official circuits also have an investment arm. Taking Dadi as an example, Dadi Cinemas is an official circuit, but Dadi Group also has another company Dadi Cinema Investment which has the real purchasing power.