China's Film Regulator to Ban Movie Ticket Subsidies

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The crackdown would put an end to one of the most controversial marketing practices in the Chinese film business.

Beijing regulators are preparing to ban companies from subsidizing online movie-ticket sales in China, ending one of the more controversial marketing practices to emerge in the country's film business in recent years.

Last week, authorities met with executives from China's largest cinema chains, such as Dalian Wanda Group and state-owned China Film Group, to brief them on planned policy changes, including the prohibition of film ticket subsidies, according to a report from Caixin, China's leading business news source.

As mobile ticketing services exploded in popularity over recent years — over 90 percent of all movie tickets sales are transacted online in China today — so too did a popular new marketing tactic: steep price discounts. In some regions of China, during a major film's opening weekend, it's not uncommon to find tickets available for less than 10 RMB ($1.46). 

The practice was first introduced by the startup ticketing services themselves, back when they were flush with venture capital and desperate to secure market share. Naturally, the best means of luring consumers to their platforms proved to be steep price discounting. Over time, however, subsidizing also became a common practice among film producers and distributors. Splashing out on discounts became a reliable means of juicing opening-weekend box-office numbers — either as a marketing tactic, by creating the appearance of a must-see hit, or as a means of pleasing investors (or even, in some shady cases, to inflate share prices on China's notoriously volatile stock exchanges).

The practice of subsidies is believed to have turbo-charged China's top-line box-office growth (see 2015, when annual ticket revenue surged 47 percent), but it could also create damaging market distortions (see 2016, when growth plummeted to 4 percent).

By now, the once wildly competitive online ticketing landscape has consolidated into two dominant players: Tao Piao Piao, owned by Alibaba Group; and Maoyan, backed by Tencent. During Chinese New Year in February, the two platforms combined were responsible for 90 percent market share, according to Beijing-based BigData Research. Earlier this month, Maoyan filed initial paperwork for a $1 billion IPO in Hong Kong.

Most of China's top film studios long ago soured on subsidies too. Today, Beijing studio heads can regularly be heard grumbling about the pernicious impact of discounting. Subsidies, they say, had become a costly but unavoidable part of film marketing, and the long-term collective gains of the practice are far from clear — other than securing the middle-man position of the ticketing platforms.

The regulators' planned policy overhaul could pose a threat to that position. Other changes planned by the authorities, according to Caixin, include a fixed cap on the service charges levied by ticketing services to just two yuan per admission.