Huayi Brothers Media Group, one of China's leading private film production companies, said on Tuesday that it had acquired a 9 percent stake in digital cinema equipment and solution provider GDC Technology Ltd for $20.92 million.
The deal was sealed with the signing of a share purchase agreement between Huayi Brothers International Investment Ltd, the heavyweight filmmaker's wholly owned subsidiary, and CAG Digital Investment Holdings Ltd, the former owner of the stake in GDC.
"This deal will lay a sound foundation for Huayi's theater business in terms of technology, as GDC Technology is a leading provider of digital film screening solutions in the industry," said Cai Ling, a cultural industry consultant with the Shenzhen-based CIC Industry Research Center.
As a major player in the film industry, Huayi Brothers is known for its quality productions. It entered the movie theater sector in 2010, with its first cinema opening in Chongqing, and it currently has 12 cinemas across the nation.
In the first three quarters of 2012, Huayi Brothers reported total revenue of 707.8 million yuan ($113.6 million), up 47.06 percent year-on-year.
Its cinema arm accounted for 11.86 percent of the revenue, and its production sector contributed 33.26 percent, according to the company's financial report.
"In recent years, the number of cinemas has increased rapidly, intensifying competition in the sector. Huayi Brothers, as a latecomer to the movie theater business, has the potential to develop better than its cinema rivals with GDC's technological support," Cai said.
The number of cinemas in China grew from 1,545 in 2008 to 3,293 this year, according to the State Administration of Radio, Film and Television.
"GDC Technology's core advantage lies in its technologies for digital screening, which are generally applied in 3D film screening," said Cai.
According to SARFT, in the first nine months of 2012 China had 11,835 cinema screens, with digital screens accounting for 90 percent of the total, and more than 8,565 digital screens able to show 3D films.
The number of 3D screens in China rose from 2,020 in 2010 to 5,355 last year, according to EntGroup Consulting, a Beijing-based entertainment consultancy.
The deal will also boost Huayi's film production business, because technologies used in the screening of films will always require a corresponding improvement in filmmaking technologies, said Huang Qunfei, general manager of Beijing New Film Association Co Ltd, one of China's largest theater chains.
Huayi's latest move is regarded by industry insiders as a further step in building its full film industry chain amid the current situation in which the costs of filmmaking are soaring, especially for those with special effects and a star-studded cast.
More film production and distribution companies are branching into the cinema business, including Nasdaq-listed Bona Film Group, which started as a film distributor, and Beijing Galloping Horse Film & TV Production Co Ltd, which is known for its film and TV productions.
The ongoing fight for box-office revenue between film production and distribution companies and movie theaters has come to a head with five major film production and distribution companies calling for their share of box office receipts to be increased from 43 to 45 percent, right before the busiest season of the year, which usually lasts from November to the end of the Spring Festival.
So far, 13 theater chains have released a joint statement objecting to the claim, saying that they are under financial pressure from rising property costs and investment to upgrade their technology.