While Chinese money and moviegoers reshape Hollywood, China’s box-office growth is slowing down, knocking the country off its stride toward overtaking the U.S. as the world’s biggest movie market.
The first six months of the year has seen a deceleration in Chinese box-office sales as the economy cools, a change that can partly be explained by the rarity of sharply discounted movie tickets that were common a year ago.
Deep ticket discounts by online platforms fighting for a foothold helped drive up growth in box-office receipts last year to a staggering 50%, compared with the previous year. But the frenzy has wound down this year as some major players have established relatively stable market share.
"The subsidy carnival has passed,” said Xu Yongming, general manager of Nuomi Pictures, the film arm of internet search company Baidu Inc.
The price wars drew new segments of Chinese society into theaters over the past two years. It wasn’t uncommon to find tickets online for under $2 for blockbusters such as the 2014 installment of Paramount Pictures’ “Transformers” and even less for domestic films.
"The discounts got some people used to the idea that a ticket shouldn’t cost more than 10 yuan ($1.50),” said Lou Xiaoqing, who runs eight cinemas in Shangrao, a small city in southern China’s Jiangxi province.
But this summer online-ticketing companies cut back on discount offers and fewer tickets were priced less than $7, giving some potential moviegoers pause.
"Now the discounts are gone and these people simply don’t come any more,” said Mr. Lou, who leads an alliance formed by about 80 small theaters nationwide. He added that the ticketing sites’ sales campaigns had “overdrawn the market,” prompting people to spring for tickets before the discounts ended.
Chinese theaters’ receipts still rose 20% in the first half of the year to nearly 24.6 billion yuan, or about $3.7 billion, compared with the year-earlier period, according to official government statistics earlier this month. That, however, was the slowest pace in five years, and compared with approximately $5.56 billion in the U.S. for the same period, according to Box Office Mojo, an online movie database site.
China’s slowdown came despite a record-setting Lunar New Year period in box-office receipts. In February, Chinese theaters broke the $1 billion barrier with a monthly total that surpassed North America’s monthly ticket sales for the first time.
Some of the battle to attract audiences has instead turned to content. There is little doubt in the industry that China is firmly on the way to lead the global box-office contest. Passing that milestone, however, might depend on the quality and marketing of movies hitting the market.
China has eased its policy of imposing a summer blackout on Hollywood movies to maximize audiences for domestic titles. Paramount Pictures’ newest installment of its “Teenage Mutant Ninja Turtles” franchise and Warner Bros.’ “The Legend of Tarzan” have been given prime summer slots.
Some Hollywood studios have gained an advantage in China by inviting Chinese investors to help boost movie-project marketing. Legendary Entertainment’s "Warcraft” has raked in more than $210 million from Chinese moviegoers thanks in part to a slate of well-known local partners.
Chinese companies are also looking to buy Hollywood assets to feed the demand for quality, a move led by conglomerates such as Dalian Wanda Group Co., which is in talks with Viacom Inc. to buy a 49% stake in Paramount Pictures, according to people familiar with the matter.
The major internet companies, which had been scrambling to buy or ramp up online-ticket platforms, are also looking to move up the industry chain to invest and produce films as well as sell tickets. Baidu’s Nuomi Pictures last month set up a two-billion-yuan fund to invest in at least 30 film titles.
As the discounting ends, another factor that appears to be slowing China’s film-market momentum is that a rapid buildup of movie theaters is reaching saturation.
A survey released last month by Fanink, a Beijing-based film research firm, shows that cinemas have now covered most populous areas nationwide. Box-office receipts from new theaters built this year are expected to account for 20% of the total rise in box-office receipts for 2016, down from 33% in 2013, according to Beijing-based film research agency EntGroup.
Most of the new theaters were built in less-developed areas, supported by government subsidies. Battered by a slower economy, households in these regions are spending less on entertainment.
"It is not uncommon to see parents to only pay for their kids to watch a film while they wait outside just to save money,” said Mr. Lou.
With China’s box office aiming for $9 billion in receipts this year, those in the industry say hitting that target depends on whether there will be enough quality films released at the right time.
"Many Chinese filmmakers still lack a good sense of what kind of film to produce and how to market it,” said James Li, co-founder of Fanink. “It adds more uncertainties to the industry.”
"The key for the next phase of growth is the quality of film itself,” he said.