Alibaba Pictures, the filmmaking arm of Jack Ma's e-commerce giant Alibaba Group, is warning investors to brace themselves for a revelation of major losses.
The company issued a profit warning to the Hong Kong Stock Exchange late last week saying that losses for the full calendar year of 2016 could reach as much as RMB950 million to RMB1 billion ($137 million to $140 million).
It blamed the losses on marketing expenses for its mobile ticketing service Tao Piao Piao.
Boosted by a stock offering, Alibaba Pictures reported its first full-year profit of RMB466 million ($71.7 million) in 2015. But the first half of 2016 brought a return to the red, with profits sinking RMB465 million. The Beijing-based studio shook up its executive ranks in December, ousting industry veteran Zhang Qiang and naming 40-year-old tech entrepreneur Yu Yongfu as CEO.
Describing Tao Piao Piao as "a key operating asset," Alibaba Pictures said it "continued to utilize financial resources to implement marketing strategies in order to grow [Tao Piao Piao's] business, and has further enhanced its user experience and strengthened its market position by the end of 2016."
More than 70 percent of all movie tickets are sold online in China, compared to an estimated 20 percent in the U.S. China's internet giants are locked in a fierce battle over market share, with the leading services spending heavily on discounts and other incentives to lure users. The outflows have been at such volume that many analysts blamed price distortions caused by mobile ticketers as one of the causes of the downturn at China's box office last year.
Ranking market share in the sector is currently difficult, but other major players include: Maoyan, which counts leading Beijing film studio Enlight Media as a backer; Weying Technology, which is integrated with Tencent's WeChat, China's top messaging app; Nuomi, from Chinese search giant Baidu; and Mtime, currently in the process of integrating with the ticketing app of Dalian Wanda Group, which purchased Mtime for $350 million last year.
Since its founding in late 2014, Alibaba Pictures has invested in several films from Paramount, including 2015's Mission: Impossible – Rogue Nation and last year's Teenage Mutant Ninja Turtles: Out of the Shadows and Star Trek Beyond. In October, the company took a strategic minority stake in Steven Spielberg's Amblin Entertainment. And in December, the studio finally released its first internally developed and produced film, the romantic comedy See You Tomorrow, produced by Wong Kar Wai and starring Tony Leung and Angelababy. The film earned $70 million in China.