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Bona Film extends exhibition links in China
July 15, 2011 Bona Film Group, listed in the US on Nasdaq in December 2010 and active in Chinese film distribution, has acquired full ownership of Beijing Bona Starlight Cineplex Management for RMB200m ($31.0m). Bona Film was previously affiliated to the cinema group and its CEO held a majority share of the company. Bona Film is involved in the full film value chain, from talent representation, film production, and distribution to cinema exhibition. Beijing Bona Starlight owns and operates four cinemas, two in Beijing and one in Chongqing and Tianjin, with seven more currently under construction with openings expected this year. The outright acquisition has two purposes for Bona: firstly, the cinemas will provide new and guaranteed outlets for Bona Film's distribution slate in key cities and secondly, Bona Starlight's cinema managers will act as local distribution managers, ensuring physical distribution (including trailers and advertising) is as smooth as possible. There are a few vertically integrated film groups operating in the cinema exhibition sector, especially larger groups like China Film, but at the level that Bona is operating, it is relatively unusual for distributors to be linked with cinemas. Bona Film took control of a group of cinemas in April 2010, five of which they have 100 per cent control and one of which a majority control. The Bona Starlight acquisition will complement these other sites. Bona also intends to acquire other cinemas from third parties, building up to circuit level of between 30 and 40 cinemas, over time, and further differentiating the company from other film distributors. At the last count, the company's revenues were structured as follows: distribution (50 per cent), production (30 per cent), cinema management (20 per cent) and agent services (one per cent) and while the company expects this breakdown to be maintained in the short term, the five year plan forecasts that distribution will make up 70 per cent, exhibition 20 per cent and Movie investment/talent will be 10 per cent. Therefore, the strategy keeps distribution at the core of the business, with the two other sides being used to feed the distribution operation and cinemas acting as an outlet for their slate. In this way, cinema operation actually becomes a less important contributor to overall revenues. Bona is distributing 17 titles this year (invested in 12 of them and main investor in half of those), operating in a range of genres and audience demographics but with a recent shift towards the second half of the year, which has more holiday periods and has traditionally provided the majority share of gross annual box office. The mainland Chinese market is the primary target for the company, even though the company acquires other rights to its invested films and will continue to grow the overseas business. Bona also distributes films to Europe, Greater China, Korea, Southeast Asia and the United States. The distribution and exhibition of films makes up about 80 per cent of Bona's profits, a relatively stable figure over past three years, while film production is more volatile and its contribution to profits dropped from 31.3 per cent to 20.8 per cent between 2007 and 2010. In a way, the stability of the former acts as a buffer for the volatility of the latter. The local distribution sector is broken down into Chinese films, foreign revenue share productions (20 per year), and foreign licensed films (previously known as the flat fee system and numbering 30 titles). The Chinese films can also be divided into two categories: Top 20 Blockbusters and the rest (there were 260 Chinese films distributed in 2010). The Chinese Top 20 and foreign revenue share films make up 42 per cent and 37 per cent of the market respectively, while other Chinese films make up 15 per cent and foreign licensed films make up six per cent. While some larger producers such as Huayi self-distribute solely their own films, a distributor like Bona can invest in a few productions but also pick up a range of other Chinese and foreign titles, and exploit the margins in the 'lower 21 per cent' of the market, especially the licensed films which can be bought for relatively low amounts and can make good box office. However, licensing rights are on the increase as this area finally adjusts more to the current market reality of China being the fifth largest box office market in the world and margins may therefore become less interesting. Tags:
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