Warners' China screens falling to state-run CFG

Move follows studio's exhibition exit

State-run China Film Group will take over three cinemas designed and built in China by Warner Bros. International Cinemas, the companies said Thursday in a statement from Shanghai.

The takeover follows WBIC's divestment from the Chinese exhibition business after four years due to changes in Beijing's regulations governing foreign ownership.

In November, WBIC, which has run China's top-grossing cinema for the past three years, abandoned plans to expand on the seven cinemas it began to open across China in 2002. That expansion had been spur-red at the time by a policy that allowed foreign cinema operators 75% ownership in select cities (HR 11/9).

But a 2005 change in Beijing policy required WBIC and other overseas theater builders trying to invest in China to cede control to domestic partners.

Under the deal announced Thursday, CFG will take over the WBIC cinemas in Chong-qing, a municipality of more than 30 million people in southwest China; in Changsha, the capital of central China's Hunan Province; and Nanchang, the capital of south China's Jiangxi Province.

Before the signing of the deal, local media reported in early January that Beijing developer Shidai Jindian would take a majority stake in a new cinema circuit formed by CFG's takeover of the three WBIC theaters (HR 1/9).

China has 36 cinema circuits that operate about 3,000 cinemas with a total screen count less than one-tenth the number serving America, where the population is one-fifth as large. Additionally, many of China's cinemas are in need of renovation.

"We are extremely proud of what our international cinema business has accomplished in just four years in China and proud to have been a catalyst in turning around a market that has since seen an explosion of new multiplex cinemas across the country," WBIC president Millard Ochs said in the statement.

The three cinemas being handed over were built by WBIC and the Shenzhen International Trust and Investment Co. Ltd., the south China government-run developer founded in 2003 that has partnered with Wal-Mart, U.S. commercial real estate giant Simon Property Group, Singapore developer CapitaLand and U.S. investment bank Morgan Stanley to build shopping centers across China.

The agreement to transfer ownership of the cinemas to China Film Group was inked Jan. 19 and, pending approval of the Chinese government, is expected to be complete by the second half of March.

"We believe that, as a leading player in China's film industry, China Film Group's experience in cinema operation will help to achieve a smooth hand-over and ensure that the cinemas keep their service standards and continue to provide improved consumer movie experience," Ochs said.

CFG general manager Han Xiaoli said last month: "WBIC has achieved good results in the past years. By taking over the Warner-SZITIC cinemas, China Film Group has shown our commitment and confidence to continue developing the Chinese cinema market."

After the hand-over, all Warner Bros. intellectual property, logos and the Warner Bros. name will be removed from the cinemas.
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