China’s Labour Day holidays, in the first week of May, is traditionally one of the busiest for moviegoing. Last year, Disney and Marvel’s Avengers: Endgame went on to smash box office records, grossing over Rmb1.2 billion ($170 million) over the four-day break. Total box office takings went up 50% to $1.5 billion for the period.
This holiday there was little to celebrate: cinemas were shut as the government tried to keep a lid on a potential second wave of coronavirus. Some of the cinema chains have started to lay off workers. Wanda, China’s largest cinema operator, is said to be making 30% of its workforce redundant. Seoul-based CJ Group, which operates a number of high-end cinemas, has also laid off a third of its workers.
“A lot of small cinemas have cut so many people that the only one left behind is the cinema manager,” one insider told TMT Post.
A few theatre owners have come up with creative ideas to narrow their losses. National Business Daily reports that some cinemas have repurposed as basketball courts, with players taking advantage of the high ceilings. Others are offering to lease out their venues for marriage proposals, wedding photos and even graduation pictures. Dadi Cinema in Xiamen, for instance, is pitching itself as a venue for artistic shoots. For Rmb698, hirers get two hours in the theatre, two cups of fruit tea and a large tub of popcorn. In its promotional material, Dadi tries to make the case that photography sessions in a (temporarily) abandoned cinema are “classy, romantic and sweet”.
Actors, too, have been scrambling for other ways to make a living as studios suspend production. Actress Li Xiaolu became a hot topic on social media after appearing for the first time on Douyin’s e-commerce livestream in late April. As many as 38 million people tuned into the broadcast, during which she sold as much as Rmb48 million worth of merchandise. According to NBD’s calculations, Li was set to make Rmb20 million herself for her four-hour appearance, including commissions on the products sold and virtual gifts from fans she could redeem as cash.
“Since the government has capped the amount actors can make in TV productions, to make such a large amount of money in a short period is very attractive. And besides, now that actors have nothing to do with all filming stopped, livestreaming has become a lucrative income generator for a lot of celebrities,” NBD pointed out.
China’s film studios will be hoping for a return to fuller cinemas in the weeks ahead. Some of them have other problems to deal with, however, including Beijing Culture, the production house behind the nationalistic action flick Wolf Warrior 2, which holds the record for China’s highest grossing film.
The studio has been in the headlines in recent days for alleged financial irregularities. Last week, its former vice-chairman Lou Xiaoxi published a post on weibo accusing the chairman and another senior executive at Beijing Culture of inflating earnings in 2018 and disposing of Century Partners, its TV division, at an artificially low price in a bid to cover losses at another unit. The filmmaker denied the allegations in a statement but the Shenzhen Stock Exchange, where the company is listed, wants a more detailed response on the matter.
According to Beijing Culture’s annual report, revenues were up 15% year-on-year in 2019 to Rmb855 million. The studio, which also produced The Wandering Earth, a sci-fi blockbuster, last year (see WiC440), reported a net loss of Rmb2.3 billion during the same period, compared with a net profit of Rmb326 million a year earlier. It posted another net loss of Rmb19.2 million in the first quarter of this year, according to a Shenzhen Stock Exchange filing.
The losses didn’t prevent the studio from making a major investment outside of filmmaking last October, when it announced the acquisition of Beijing Oriental Resort for Rmb840 million. The newly purchased entity had made no revenue between 2018 and the first seven months of 2019. Its main asset was a 193,000-square metre parcel of land in Beijing’s suburbs, which Beijing Culture claims will be used to develop a culture-tourism project. Beijing Oriental Resort had a book value of just Rmb45.4 million on its balance sheet, but was valued at Rmb343 million.
“It’s a mysterious transaction,” is how Ran Caijing, a financial blog, described the deal.
After Lou’s accusations came to light, the share price of Beijing Culture tumbled by the daily limit to Rmb6.92 last week – its lowest level in six years. Its share price had already fallen 48% since last year, losing over Rmb3 billion in market value. To further complicate the matter, whistleblower Lou fled the country after being investigated by the Beijing police in January for embezzling funds.
The latest round in the scandal came at a time when investors are already spooked from high-profile revelations of financial misconduct against Luckin Coffee, in which the coffee chain is said to have fabricated more than Rmb2.2 billion worth of sales (see WiC490). Commentators say that any validation of Lou’s accusations could deal a deadly blow to Beijing Culture. Stock market regulators would impose strong administrative penalties on the studio, including a ban for the implicated executives, Sina Finance also predicts.
“Prior to Luckin Coffee, the CSRC [the country’s securities regulator] had repeatedly stated that accounting fraud is a ‘tumour’ in the securities market and promised to crack down on all the involved parties. It is also a criminal offence, so those suspected of accounting fraud will be sent to public security [i.e. the police department] for prosecution according to the law,” warned Ran Caijing.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.