China's Weiying-Maoyan Merger Creates Monster Movie Ticketing Service

China Power list: Wang Changtian -Getty-P 2016
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The new Tencent-backed service will control as much as 50 percent of online ticket sales in China, where more than 85 percent of all movie tickets are already bought over the internet.

And then there were two...

The battle for dominance in China's wildly competitive online movie-ticketing market reached a fever pitch Friday when rival Tencent-supported platforms Maoyan and Weiying revealed that they would merge.

The combined Maoyan-Weiying entity will now take on Alibaba's Tao Piao Piao ticketing platform head-to-head, with both companies controlling an unprecedentedly huge share of ticket sales in the world's second-largest movie market.

Analysts estimate that more than 85 percent of all movie tickets are sold online in China. The sector has seen a wave of mergers, acquisitions and startup failures in recent years as deep-pocketed tech giants spent heavily on subsidizing prices to corral market share, driving out smaller competitors (Alibaba's film studio, for example, blamed a $140 million loss in 2016 on marketing expenses at its ticketing service). The field narrowed further in February when search giant Baidu dropped out, suspending all subsidies on its underperforming Nuomi platform.

That left Alibaba's Tao Piao Piao, Tencent's Weiying and Maoyan, majority owned by film studio Beijing Enlight (but also supported by Tencent).

Tencent is understood to have orchestrated Friday's mega-merger, which had been under discussion for over a year. Recent shifts in the market underline Tencent's motivations for finalizing the tie-up.

During China's summer holiday in July and August — the country's peak moviegoing period — Alibaba's Tao Piao Piao climbed into the lead with 31 percent of the market, topping Maoyan's 30 percent and Weiying's 22 percent, according to research firm Analysys (the remaining slice is split between an array of cinema chain apps and smaller operators). Yu Yongfu, Alibaba's new tech-focused executive overseeing the firm's entertainment and media division, has said he aspires for the company to become "the infrastructure" of the Chinese entertainment industry, adding that he would set no limit on the the marketing spending necessary to secure Tao Piao Piao's position.

Tencent and Alibaba view O2O services like mobile ticketing as an important facet of their vast suite of online consumer services, which variously span e-commerce, gaming, content creation, streaming video, messaging and more. The two tech rivals' strong positions in the ticketing sector also give them near-exclusive access to online point-of-sale marketing opportunities related to moviegoing, as well as vast troves of data on the filmgoing habits of Chinese consumers. Usefully leveraging this data across their vast tangle of services and online entertainment offerings is the greatest challenge facing the two firms, analysts say.

Chinese media sources estimate that Maoyan Weiying will control well above 40 percent, and as much as 50 percent, of the online ticketing market following the merger. The company's combined value is believed to be more than $2 billion (13 billion yuan).

Under the terms of Friday's deal, Weiying will initially inject a major portion of its ticketing operations — valued at about 4 billion yuan — into Maoyan and receive a 27.6 percent stake in return. Tencent, Weiying's top shareholder, also agreed to invest $13.6 million (897 million yuan) for an additional 6.6 percent stake in the new company. Crucially, Maoyan Weiying's services will be integrated with Tencent's WeChat, China's preeminent mobile messaging service with some 800 million users.

Enlight Media, best known as the lead film studio behind Stephen Chow's 2015 box-office smash The Mermaid ($528 million), will continue to hold the largest stake in Maoyan Weiying at 50.7 percent, followed by Weiying, Meituan Dianping and Tencent.

Wang Changtian, head of Enlight Media, is set to serve as the new company’s chairman, while Lin Ning, Weiying's chairman, and Zheng Zhihao, Maoyan’s CEO, will assume the positions of vice chair and CEO, respectively.

Weiying was founded in 2014 by Tencent, Dalian Wanda Group and other investors. In 2015, it merged with Gewara, an earlier rival ticketing platform, before raising further funds from Tencent, Wanda, GGV Capital and other venture capital firms.

According to local reports, Weiying will inject its remaining ticketing business into the new company in two to three tranches, which will lift the new company’s value to as much as $3 billion (20 billion yuan). Sources say Tencent intends to continually increase its stake in Maoyan Weiying.