Why a Chinese Company Wants to Own Your Local Movie Theater

By purchasing America's second largest cinema chain, Dalian Wanda Group is hoping to launch a global entertainment takeover

615_AMC_Merger.jpgA model stands in front of a video presentation before the start of an official signing ceremony between Wanda Group and AMC Entertainment in Beijing (Reuters)

Assuming the deal gets a pass from government regulators, there's good chance that your local movie theater will soon be owned by a large, Chinese conglomerate. This weekend, Dalian Wanda Group announced that it would pay $2.6 billion to purchase AMC Entertainment, America's second largest cinema chain. It would be the most expensive foreign takeover yet by a private Chinese company, a summer blockbuster for the M&A world.  

For those prone to anti-China hysteria, this all might sound vaguely menacing (First they came for our factories, then they came for our Kevin James vehicles...). To others, it might simply sound a bit backwards. After all, China's domestic box office earnings are on the upswing, growing faster than Hollywood's catalog of comic book sequels. In the United States, theater revenues have essentially been stagnant for a decade as attendance has steadily dropped. From a strictly financial point of view, there isn't much reason for a Chinese company to start snapping up American multiplexes.  

But Dalian Wanda isn't buying itself higher profits, at least in the short run. Rather, it's buying an education. China plans to massively expand its own film industry in the coming years. But even more importantly, it would like to expand its cultural influence by becoming as good at producing and exporting entertainment as it is computers and phones. Much as the country's manufacturers evolved by co-opting technology and techniques from abroad, its movie business is apparently looking to leap forward with some aid from America. 

A PREVIEW OF MOVIES' FUTURE

In some ways, American and Chinese box office stats are near perfect distillation of their places in the global economy -- the idling giant, and the surging upstart. Last year, U.S. and Canadian ticket sales totaled $10.2 billion, making it by far the largest movie market in the world. Unfortunately, growth is flat. As shown in the graph below from an annual report by the Motion Picture Association of America, box office receipts were $9.1 billion a decade ago. Adjusted for inflation, the industry's domestic revenue has actually fallen. Overall ticket sales are down 4 percent since 2002. Per person, they've fallen 5 percent.     

Box_Office_Detailed.PNG

That doesn't mean that the movie business is necessarily dying in the U.S. It just isn't naturally growing, which makes it a tough time to run a theater chain. For the big operators, turning a profit means convincing fewer customers to pay higher ticket prices, ideally for expensive 3D and Imax showings. They also have to pray for Hollywood to churn out a decent product. So far this year, box office receipts are up 17 percent, powered in part by hits like "The Avengers." Where they'll be in 2013, nobody knows.

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Jordan Weissmann is a senior associate editor at The Atlantic.

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