industry primer - credit suisse
TRANSCRIPT
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
21 October 2015
Asia Pacific/China&Hong Kong
Equity Research
Advertising / New Media (Media CN (Asia))
China Media and Entertainment Sector
INDUSTRY PRIMER
"Internet + Movie": Online ticketing becoming
the No.1 channel
Figure 1: Online ticketing revenue and % contribution to total movie box office
4.9 13.6
29.038.0
48.7
60.0
71.5
84.3
22%
46%
70% 72%75% 77% 78% 80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
2013 2014 2015F 2016F 2017F 2018F 2019F 2020F
Rmb Bn
Online ticketing revenue % contribution to total movie box office revenue
Source: Company data, Credit Suisse estimates
■ Fast development in online ticketing sector. Fuelled by both the boom in
China's box office and the rise in O2O, the online ticketing sector has
expanded exponentially in the past five years, recording Rmb13.5 bn revenue
in 1H15 and accounting for 66.5% of the total box office revenue. We estimate
the online ticketing market to grow to Rmb84 bn in 2020, contributing 80% of
the total movie box office in China. At the same time, online ticketing growth
also stimulates the expansion of the box office revenue.
■ Fierce competition with heavy price subsidy. Major internet players (Alibaba,
Baidu, and Tencent), along with media players (Wanda, Oriental Pearl) have
entered the online ticketing space by investing in the major players. Subsidy
from the online ticketing O2O platform is estimated to be Rmb2 bn in 2014 or
7% of the box office revenue. We continue to expect Baidu's subsidies to be
Rmb3.8 bn in the next three years. In our view, the battle will continue in the
short term until the market is consolidated with three to five dominant players.
■ Market opportunities to online ticketing O2O platform. Ticket price subsidy
has helped develop customers' movie watching habits, and the O2O platform
has the ability to influence their ticket-purchasing behaviour. When competition
eases and subsidy stops, the O2O platform could charge a service fee.
■ Stock calls. Growth in online ticketing should support the high growth in China's box office revenue, and we believe cinema chains will be the biggest beneficiary. Key beneficiaries in media sector include OSGH (1132 HK). Baidu O2O platform should benefit in the long-term as well.
Research Analysts
David Hao
852 2101 7310
Dick Wei
852 2101 7339
Evan Zhou
852 2101 6745
21 October 2015
China Media and Entertainment Sector 2
Focus charts Figure 2: Online ticketing revenue growth trend Figure 3: Market share of movie ticket channels (2Q15)
4.9
13.6
29.0
38.0
48.7
60.0
71.5
84.3179%
114%
31% 28%23% 19% 18%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
2013 2014 2015F 2016F 2017F 2018F 2019F 2020F
Rmb Bn
Online ticketing revenue y-y
22%
46%
70% 72%75% 77% 78% 80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2013 2014 2015F 2016F 2017F 2018F 2019F 2020F
% contribution to total movie box office revenue
Source: Analysys Group, Credit Suisse estimates Source: Analysys Group, Credit Suisse estimates
Figure 4: Market share of major players (2Q15) Figure 5: Investment from internet and media companies
36%
21%
8%
6%
6%
5%
2%
Maoyan (猫眼), 36%
Gewara (格瓦拉), 22%
Wepiao (微票儿), 8%
Taobao (淘宝电影), 6%
Mtime (时光网), 6%
Wanda (万达电影), 5%
Maizuo (卖座网), 2%
Others (including Baidu Nuomi
百度糯米), 16%
Meituan Dianping
China Media Capital
Tencent
Alibaba
Wanda Cinema Line
Wanda Cinema Line
Huayi Brothers
Tencent
Alibaba
Baidu
Oriental Pearl
Maoyan (猫眼), 36%
Gewara (格瓦拉), 22%
Wepiao (微票儿), 8%
Taobao (淘宝电影), 6%
Mtime (时光网), 6%
Wanda (万达电影), 5%
Maizuo (卖座网), 2%
Others (including Baidu
Nuomi 百度糯米), 16% Source: Analysys Group Source: Credit Suisse Research
Figure 6: Production company and e-commerce subsidy
trend
Figure 7: Potential market size of online ticketing service
fee (assuming 5% take rate)
2
3.7 3.7
3.2
2.3
1.4
0.5
2
4.6 4.6
3.4
2.4
1.4
0.5
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
-
1
1
2
2
3
3
4
4
5
5
2014 2015F 2016F 2017F 2018F 2019F 2020F
Rmb Bn
Production company subsidy e-commerce subsidy
Production company (as % of total box office) e-commerce (as % of online box office)
1.5
1.9
2.4
3.0
3.6
4.2
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2013 2014 2015F 2016F 2017F 2018F
Rmb Bn
Potential Market Size of Online Ticketing Service fee (Rmb Bn) (Assuming 5% take rate)
Source: Credit Suisse estimates Source: Credit Suisse estimates
21 October 2015
China Media and Entertainment Sector 3
"Internet + Movie": Online ticketing becoming the No.1 channel Fast development of online ticketing sector
Fuelled by both the boom in China's movie box office revenue and the rise in the online to
offline (O2O) platform, the online ticketing services sector has expanded exponentially in
the past five years, recording Rmb13.5 bn revenue in 1H15, compared with Rmb13.6 bn in
full-year 2014 and Rmb4.9 bn in 2013—overtaking offline ticket sales as the No.1 channel
with 66.5% share. We estimate online ticketing to continue to grow, reaching Rmb84.3 bn
in 2020, and accounting for 80% of the domestic movie box office.
Fierce competition in online ticketing
As the market expands rapidly, many new players will likely enter the online movie ticket
seating selection space, including vertically focused movie sales websites (such as
Gewara, Mtime and Maizuo), e-commerce and O2O websites (such as Maoyan and
Taobao), social media websites (such as Wechat), and cinema line self-developed
websites (such as Wanda, China Film and Jinyi).
The industry is very segmented—with investment from BAT and other media giants, online
ticketing platforms are in heavy battle for market share with increasing subsidies. We continue
to expect Baidu's subsidies in online ticketing to be Rmb3.8 bn over the next three years.
How do customers choose ticket platforms? Customers normally choose ticket
platforms based on four factors: (1) availability, (2) price, (3) convenience and (4) other
value-added services. There are six major types of online ticketing business models: (1)
Groupbuy, (2) online ticket selection only, (3) e-commerce, (4) social and search platform,
(5) UGC (User Generated Content) and (6) cinema line.
Near-term, subsidies remain high
In our view, subsidies from online ticket platforms are likely to stay in the medium term due
to: (1) market still being fragmented, (2) BAT focusing on the entertainment space and (3)
attractive movie categories to win customers for other O2O categories.
What will be the impact if subsidy stops? In 2014, subsidy from e-commerce and
movie studios totalled ~Rmb4 bn, accounting for 13.5% of China's box office—Rmb2 bn of
that is from online ticketing platforms. In the long run, when the market is consolidated with
3-5 dominant players, subsidy will slow down or stop eventually and the market will grow
organically. We think the impact to China's movie box office and to online ticketing
platforms will be small. Movie watching and purchasing tickets online is becoming a habit
for customers, especially the younger generation, which grew up with the internet and
spend a great portion of their income on online consumption.
Potential market size for online movie ticketing
In mature markets, online ticketing platforms charge a service fee (5-10% of ticket price); we
believe this will be a major revenue stream for ticketing platforms in China in the long run.
Assuming a 5% take rate, the market size for the service charge would be Rmb4 bn by 2018.
Key policy update: On 8 July 2015, China Film Distribution and Exhibition Association
and China Film Producers' Association together issued the "Regulation on Movie Ticket
Sales and Marketing". According to the policy, online ticketing platforms have to pay the
minimum ticket price agreed in distribution agreements in case of a subsidy.
We estimate online ticketing
to continue to grow,
recording Rmb84.3 bn in
2020, and accounting for
80% of the domestic movie
box office
Online ticket platforms are in
fierce competition owing to
heavy ticket price subsidy
Customers choose platforms
based on availability, price,
convenience and other
value-added services
We believe subsidies are
likely to stay in the medium
term and will stop in the long
term; however, we think the
impact to the box office and
ticketing platforms will be
small if subsidies stop
21 October 2015
China Media and Entertainment Sector 4
Valuation summary Figure 8: e-commerce O2O and media comps Name Ticker Ccy Rating Target Mkt Cap Price
Price (US$ bn) (local) 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E
China: eCommerce - O2O Services
Tencent 700 HK HKD O 143.7 172.99 142.6 3.42 4.21 5.36 34.1x 27.7x 21.8x 10.1x 7.5x 5.7x
Baidu BIDU US USD O 1,289.6 50.98 145.02 32.86 39.70 61.52 28.0x 23.2x 15.0x 5.0x 4.1x 3.2x
Alibaba BABA US USD O 671.8 172.20 68.54 13.90 16.34 21.30 31.3x 26.6x 20.4x 7.5x 5.3x 4.3x
58.com WUBA US USD O 66.0 5.85 50.63 (2.85) (1.32) 0.25 -17.8x -38.4x 205.2x 4.0x 5.2x 5.1x
Autohome ATHM US USD U 204.9 3.66 32.91 9.40 10.35 14.57 22.2x 20.2x 14.3x 42.4x 13.8x 11.9x
Bitauto BITA US USD N 235.9 1.87 31.09 5.81 11.61 19.35 34.0x 17.0x 10.2x 1.4x 1.5x 1.4x
51jobs JOBS US USD n.a 1.8 30.35 10.763 12.25 14.45 17.89 15.7x 13.3x 2.9x 2.5x 2.1x 0.1x
Zhaopin ZPIN US USD N 0.7 13.34 4.807 5.30 6.40 17.60 16.0x 13.2x 4.9x 3.8x 2.9x 0.1x
Jiayuan DATE US USD n.a 0.2 6.17 1.984 3.58 n.a 19.73 10.9x n.a n.a n.a n.a 0.0x
SouFun SFUN US USD O 9.1 3.13 7.05 0.07 0.01 0.14 96.6x 650.9x 52.1x 3.6x 4.0x 3.7x
E-House EJ US USD O 8.0 0.91 6.37 0.14 0.13 0.53 46.3x 49.8x 11.9x 1.0x 1.1x 1.0x
Leju LEJU US USD O 10.4 0.96 6.9 0.55 0.79 0.89 12.6x 8.8x 7.8x 2.1x 1.8x 1.6x
Everyday Network 300295 CHRMB n.a 1.1 73.85 2.08 2.89 3.71 37.50 27.0x 21.1x 6.3x 5.2x 4.3x 0.5x
500.com WBAI US USD n.a 0.6 19.03 0.071 0.38 0.41 268.03 50.1x 46.4x 4.1x 3.3x 2.9x 0.3x
Average 6.97 9.01 34.62 28.8x 24.3x 10.9x 7.1x 4.3x 3.0x
A-share: Cable TV/IPTV
Oriental Pearl New Media 600637.SS RMB O 55.0 14.29 34.53 1.08 1.21 1.37 32.0x 28.6x 25.2x 3.2x 2.9x 2.6x
LeTV 300104.SZ RMB n.a n.a 13.47 46.2 0.30 0.47 0.76 127.2x 80.6x 49.7x 20.6x 17.4x 13.8x
Hunan TV & Broadcast Network 000917.SZ RMB n.a n.a 9.58 42.89 0.44 0.67 0.73 96.9x 64.0x 58.4x 5.3x 5.0x 0.0x
Wasu 000156.SZ RMB n.a n.a 6.92 30.63 0.39 0.50 0.64 68.7x 52.9x 41.5x 6.0x 5.4x 4.8x
Dr. Peng 600804.SS RMB n.a n.a 5.60 25.38 0.58 0.79 1.05 39.5x 28.7x 21.7x 5.8x 5.0x 4.2x
Gehua 600037.SS RMB n.a n.a 4.43 24.08 0.66 0.86 1.04 28.4x 21.8x 18.1x 3.2x 2.9x 2.5x
JiShi Media 601929.SS RMB n.a n.a 3.00 6.12 0.31 0.40 0.50 35.3x 26.9x 21.6x 3.4x 3.1x 2.9x
Shenzhen Topway Video Comm 002238.SZ RMB n.a n.a 1.93 23.76 0.49 0.53 0.56 48.1x 45.1x 42.2x 4.7x 4.2x 3.8x
Shanxi Broadcast & TV Network 600831.SS RMB n.a n.a 1.31 14.7 0.22 0.23 0.24 58.6x 55.4x 52.6x 3.8x 3.5x 3.3x
Average 63.41 109.64 181.52 59.4x 44.9x 36.8x 6.2x 5.5x 4.8x
China: Content
Hunan TV & Broadcast Network 000917.SZ RMB n.a n.a 9.58 42.89 0.44 0.67 0.73 96.9x 64.0x 58.4x 5.3x 5.0x 0.0x
Huayi Brothers 300027.SZ RMB n.a n.a 8.66 39.58 0.87 1.11 1.34 45.7x 35.8x 29.6x 7.6x 6.0x 4.9x
Enlight Media 300251.SZ RMB U 19.2 6.17 26.68 0.33 0.48 0.62 81.3x 55.9x 43.0x 5.3x 5.0x 4.6x
Alpha Animation and Culture 002292.SZ RMB n.a n.a 5.92 29.71 0.53 0.75 1.10 49.6x 35.1x 23.9x 10.2x 7.8x 6.0x
Huace 300133.SZ RMB O 35.0 4.12 26.7 0.75 0.89 1.09 35.5x 29.8x 24.4x 4.5x 4.0x 3.5x
Hualu Baina 300291.SZ RMB n.a n.a 3.18 28.51 0.57 0.79 1.04 42.4x 30.7x 23.3x 3.8x 3.4x 3.0x
New Culture Media 300336.SZ RMB N 23.0 2.39 28.16 0.49 0.58 0.67 57.3x 48.2x 42.0x 5.7x 5.2x 4.7x
Perfect World Picture 002624.SZ RMB n.a n.a 1.62 21.03 0.55 0.67 0.85 38.6x 31.4x 24.6x 5.2x 4.6x 0.0x
Talent Television & Film 300426.SZ RMB n.a n.a 1.59 126.5 0.98 1.27 1.55 97.3x 74.8x 61.3x 25.9x 21.0x 17.7x
Great Wall Movie and Television 002071.SZ RMB n.a n.a 1.29 15.56 0.54 0.72 0.92 25.4x 19.0x 15.0x 4.0x 3.0x 2.4x
Average 0.60 0.79 0.99 57.0x 42.5x 34.6x 7.8x 6.5x 5.8x
China: Cinema Chains
Wanda Cinema Line 002739.SZ RMB O 101.5 18.03 102.18 1.25 1.91 2.81 81.8x 53.6x 36.4x 26.5x 18.3x 12.6x
SMI Holdings 0198.HK HKD n.a n.a 1.13 0.69 0.04 0.06 0.08 18.9x 11.7x 8.2x 1.6x 1.4x 1.2x
Nanhai Corp 0680.HK HKD n.a n.a 1.61 0.182 0.00 0.00 0.06 384.5x 72.3x 3.0x 3.8x 3.6x 1.6x
Orange Sky Golden Harvest 1132.HK HKD O 1.10 0.22 0.63 0.01 0.03 0.06 76.7x 18.2x 10.1x 1.0x 0.9x 0.9x
Average 0.49 0.67 0.89 140.5x 39.0x 14.4x 8.2x 6.1x 4.1x
EPS (local ccy) P/E (x) P/B(x)
Source: Company data, Credit Suisse estimates (priced as of 20 October 2015)
21 October 2015
China Media and Entertainment Sector 5
Fast development of online ticketing sector In 2010, the first online seating selection website, Gewara.com, was launched. Fuelled by
both the boom in China's movie box office revenue and the rise in O2O, the online
ticketing services sector has expanded exponentially in the past five years, recording
Rmb13.5 bn revenue in 1H15, compared with Rmb13.6 bn in the full-year 2014 and
Rmb4.9 bn in 2013. In 1H15, online ticketing overtook offline ticket sales as the No.1
channel, with 66.5% of total box office. Its contribution was only 22.3% and 45.8% in 2013
and 2014, respectively. We estimate online ticketing to continue to grow, reaching
Rmb84.3 bn in 2020, and accounting for 80% of the domestic movie box office.
At the same time, growth in the online ticketing sector also stimulates the expansion in
China's movie box office by the following means:
1) Providing convenience to customers in the ticket purchasing process
2) Providing subsidy to ticket prices in order to attract price-sensitive customers
3) Enabling seat selection in advance, which helps both the customer and the
cinemas to lock in the service beforehand
4) Cultivating the movie watching habit, especially among internet users and the
young generation
Online ticketing is of two types:
1) Online ticket selection: customers select the specific movie cinema, movie, time
slot and seats online when they book the ticket. Every ticket is individually priced.
2) Groupbuy: customers buy a coupon for a cinema, but the movie and the time slot
are not specified. Customers will go to the cinema to redeem the coupon. The
availability of the movie and the seating is not guaranteed in advance.
Figure 9: Growth trend of online ticketing market
4.9
13.6
29.0
38.0
48.7
60.0
71.5
84.3179%
114%
31% 28%23% 19% 18%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
2013 2014 2015F 2016F 2017F 2018F 2019F 2020F
Rmb Bn
Online ticketing revenue y-y
Source: Analysys Group, Credit Suisse estimates
Online ticketing overtook
offline ticket sales as the
No.1 channel, with 66.5% of
total box office in 1H15
21 October 2015
China Media and Entertainment Sector 6
Figure 10: % contribution to total movie box office revenue
22%
46%
70% 72%75% 77% 78% 80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2013 2014 2015F 2016F 2017F 2018F 2019F 2020F
% contribution to total movie box office revenue
Source: Analysys Group, Credit Suisse estimates
Figure 11: Market share of movie ticket channels (2Q15)
48%
21%
31%
Online Seat Selection,48%
Online Groupbuy, 21%
Offline, 31%
Source: Analysys Group
Figure 12: Major business models and players
Groupbuy
Online ticket
selection only
E-commerce
Social/search
platform
UGC
Cinema Line
Baidu Nuomi, Dianping
Gewara, Maoyan, Komovie,
Wangpiao, Spider , Maizuo
JD.com, Taobao Movie
Wepiao, Baidu
(map+search+nuomi)
Mtime
Wanda, China Film
Business Model Major players
Source: Credit Suisse
21 October 2015
China Media and Entertainment Sector 7
Figure 13: Front page of Baidu Nuomi movie section
Groupbuy Online seat selection
Source: Company website
Figure 14: Baidu Nuomi mobile app's online selection
page—applies to specific movie and time slot
Figure 15: Baidu Nuomi mobile app's Groupbuy page—
applies to a specific cinema
Online seat selection
Groupbuy
Source: Baidu Nuomi Application Source: Baidu Nuomi Application
21 October 2015
China Media and Entertainment Sector 8
Fierce competition in online ticketing As the market expands rapidly, many new players will enter the online movie ticket seating
selection space, including vertically focused movie sales websites (such as Gewara,
Mtime, and Maizuo), e-commerce and O2O websites (such as Maoyan and Taobao),
social media websites (such as Wechat), and cinema line self-developed websites (such
as Wanda, China Film and Jinyi). The industry is still in the early stage and largely
fragmented; by 2Q15, there are ~40 online movie ticketing websites in China, but less
than 10 of them have total revenue > Rmb300 mn. In the past year, the three biggest
internet players—Baidu, Alibaba and Tencent—have also entered the space. We are
expecting more industry consolidation in the next five years, and three to five major
players as the industry matures.
In order to gain a bigger market share, these movie ticket websites compete by providing
large amounts of subsidies to customers with low ticket prices—at a loss. Typically, movie
ticket websites, as a sales channel, agree on a fixed distribution price that they will pay to
movie cinema lines (~Rmb30-35, depending on the bargaining power of the production
studio, cinema line and movie ticket website). Any amount they charge above or below the
fixed price would be at their own profit or loss. In order to attract customers, many
websites offer ticket prices as low as Rmb1, Rmb9.9 or Rmb19.9. For the same ticket, if
customers purchase on-site at the cinema, it would cost them over Rmb40-100.
Figure 16: Market share of major online movie ticket selection websites (2Q15)
36%
21%
8%
6%
6%
5%
2%
Maoyan (猫眼), 36%
Gewara (格瓦拉), 22%
Wepiao (微票儿), 8%
Taobao (淘宝电影), 6%
Mtime (时光网), 6%
Wanda (万达电影), 5%
Maizuo (卖座网), 2%
Others (including Baidu Nuomi
百度糯米), 16%
Source: Analysys Group
The industry is very
fragmented at the moment;
we believe there will be
consolidation in the next 5
years, and 3-5 major players
as the market matures
Online ticketing platforms
are in fierce competition with
ticket price subsidies
21 October 2015
China Media and Entertainment Sector 9
Competition among BAT (Baidu, Alibaba and
Tencent) and other media giants
The three biggest internet players in China—Baidu, Alibaba, and Tencent, also known as
"BAT"—along with other media giants, such as Wanda Cinema Line, Oriental Pearl and
Huayi Brothers, have all entered the online ticketing sector. We believe the capital support
from these investors will continue to fund the movie ticket subsidy until the market
saturates with three to five dominant players. The involvement of these internet and media
companies will also help online ticketing players to expand along the industry value chain.
1) Maoyan (猫眼): Market share – 36%; cinemas covered – 4,000; cities
covered – 400
Maoyan.com, the biggest online ticketing seat selection website/application, is a
subsidiary of Meituan. Meituan, known as "China's Groupon," is the largest e-
commerce O2O services website offering local deals, and it is backed by Alibaba.
On 8 October 2015, Meituan announced it will be merged with Dianping, "China's
Yelp," which is invested in by Tencent with a 22% stake. As a result, Maoyan
could have support from both Alibaba and Tencent going forward. We expect this
support to include not only capital injection, which will support the continuous
movie ticket subsidy and marketing activities, but also traffic and other resources.
2) Gewara (格瓦拉): Market share – 22%; cinemas covered – 2,000; cities
covered – 300
Gewara.com, the second largest player and the first launched online seating
selection website, has received investment from China Media Capital (CMC),
which is backed by Oriental Pearl Media.
CMC is a private equity mainly focused on media and internet sectors, with
investments in a large number of quality assets in upstream content providers, such
as Time Warner, Oriental Dreamworks, Starry Production, TVB, China Sports Media
and Infront. Oriental Pearl is the largest multi-channel video programming distributor
in China; its parent company is Shanghai Media Group. Oriental Pearl and CMC
have also co-invested in several deals together with Wanda Group, which owns the
largest cinema line in China. CMC and Oriental Pearl will provide both upstream and
downstream resources and connection to Gewara.
3) Baidu Nuomi (百度糯米): Cinemas covered – 4,500; cities covered – 418
Baidu's O2O arm, Nuomi, has made movie ticketing one of its key businesses for
expansion this year. With traffic, technology and investment support from Baidu,
Nuomi's revenue and volume has increased significantly. Nuomi offers both online
seat selection and Groupbuy tickets.
During its promotional event "3/7 Girls Festival" this year, Baidu Nuomi sold over
a million tickets with a promotion price of Rmb3.7; this was six times the tickets
sold on the same day last year and accounted for 15% of total box office in China
on the date. 70% of those transactions were completed with Baidu Wallet. On
"7/7" (China's Valentine's Day) this year, Nuomi sold 1.7 mn tickets, accounting
for 25% of total tickets sold (6.8 mn) nationally on that day.
In April 2015, Baidu issued membership cards together with SMI, Dadi, China
Film, Poly, Bona, CGV, 17.5, Hengdian and other several cinema chains. All of
the 100k cards issued on 1 May were sold out on the same day. The movie
watching frequency of membership cardholders, 12 times per year, is significantly
higher than the average frequency of the Chinese audience, which is 4.8 times
per year.
BAT, and media giants,
such as Wanda and Oriental
Pearl, have all entered the
online ticketing sector
21 October 2015
China Media and Entertainment Sector 10
On 13 June 2015, Baidu established a strategic relationship with SMI Holdings,
the sixth largest cinema line in China. Meanwhile, SMI has also announced it will
stop selling tickets on Maoyan, the largest online ticketing website.
At the end of June, Baidu announced it will invest Rmb20 bn in O2O (Nuomi) over
the next three years. We estimate around 20% (Rmb3.8 bn) of that will be
invested in the movie category.
Baidu Nuomi has also organised other online and offline activities for its members
to boost movie ticket sales. For example, on 21 September 2015, Baidu Nuomi,
together with the "Lost in Hong Kong" movie production team, organised a special
early showing of the movie and received great success.
We believe Nuomi's market share will become one of the top 5 in the category
very shortly. Baidu Nuomi's movie ticket market share has not been separately
published by Analysys Group yet, as Baidu is one of the latecomers in the space.
4) Wepiao (微票儿): Market share – 8%; cinemas covered – 4,100; cities
covered – 420
Weipiao is the third largest player with 8% market share and it is a subsidiary of
Tencent. It is the official application of Wechat and QQ movie. As a result, it receives
all the traffic from Wechat and goes through Wechat Wallet's payment system.
5) Taobao Dianying (淘宝电影): Market share – 6%; cinemas covered –
2,500; cities covered – 244
It is the movie channel of Alibaba's e-commerce website Taobao, which is the
largest C to C (Customer to Customer) website in China.
6) Mtime (时光网): Market share – 6%
Mtime is the largest all-rounded movie content and service platform in China. It
has been invested in by Wanda Cinema Line with a 20% stake.
Compared to other online movie ticket sales websites, Mtime is "effectively
Fandango, IMDb, Rotten Tomatoes and Yahoo Movies rolled into one," as
described by The New York Times. Mtime has ~80 mn monthly active users,
including ~65 mn mobile users.
7) Wanda (万达电影): Market share – 5%
It is Wanda Cinema Line's official online ticket sales website. Wanda Cinema Line
has been the largest cinema line in China for six consecutive years with 14%
market share. In 2014, over 60% of Wanda's box office revenue came through the
online ticketing channels and 30% of that came from its own website/mobile
application. Wanda also has the largest membership system in China with 40 mn
members by end-1H15.
We expect the market share of Wanda's own website/application to continue to
see the rapid growth as its box office and membership grows. The Wanda brand
is creating stronger and stronger customer stickiness.
8) Maizuo (卖座网): Market share – 2%
Maizuo is invested in by Huayi Brothers, with the controlling stake (51%) in June
2014. Huayi is the largest movie production company in China.
21 October 2015
China Media and Entertainment Sector 11
Figure 17: Investment of major internet and media players in online ticketing
Meituan
Dianping
China Media
Capital
Tencent
Alibaba
Wanda Cinema
Line
Wanda Cinema
Line
Huayi Brothers
Tencent
Alibaba
Baidu
Oriental Pearl
36%
21%
8%
6%
6%
5%
2%
Maoyan (猫眼), 36%
Gewara (格瓦拉), 22%
Wepiao (微票儿), 8%
Taobao (淘宝电影), 6%
Mtime (时光网), 6%
Wanda (万达电影), 5%
Maizuo (卖座网), 2%
Others (including Baidu
Nuomi 百度糯米), 16%
Source: Analysys Group, Credit Suisse
How do customers choose ticket platforms?
Consumers normally choose ticket platforms based on four factors, in our view.
1) Availability: The availability of a customer's desired movie and cinema is the first
priority, therefore, the coverage of a ticketing platform is very important, especially
in Tier 3 and 4 cities.
2) Price: Chinese consumers are quite price-sensitive compared to consumers in
mature markets; therefore, we always see huge impact of pricing subsidies,
especially for non-frequent movie watchers.
3) Convenience: the convenience for a customer to finish the transaction is the last
mile to ensure the purchase. The transaction includes two parts—online payment
and offline ticket pick-up. Some of the players, such as Maoyan, have installed
offline ticketing machines in movie cinemas; hence, customers can print tickets
using these machines instead of waiting in lines.
4) Other value-added services, such as offline events (special showing, celebrity
meetings) and movie ratings.
There are six major types of online ticketing platforms as summarised below.
Customers choose ticketing
platforms based on
availability, price,
convenience, and other
value-add services provided
21 October 2015
China Media and Entertainment Sector 12
Figure 18: Summary of online ticketing business models
Business Model Major players Pros and Cons
Groupbuy Baidu Nuomi,
Dianping
These platforms typically offer both Groupbuy and online seat selection; for Groupbuy,
customers can buy tickets in advance without confirming the movie and show time.
With mature O2O and Groupbuy business model, these platforms have established
customer base and offline sales resources; other services offered on their websites can also
bring in movie tickets traffic.
Online ticket
selection only
Gewara, Maoyan,
Komovie, Wangpiao,
Spider, Maizuo
As specialised platforms, these companies are good at online and offline marketing and
promotional events' organisation.
Within the movie watcher community, they enjoy a high level of customer stickiness.
E-commerce Taobao Movie,
JD.com
Movie ticket is one category on these e-commerce platforms, therefore, they get the traffic
from the e-commerce website itself.
Many customers have downloaded their mobile application and registered as users
previously for their e-commerce services.
These platforms also have mature and trustworthy payment systems in place.
However, they might not have as much resources and experience for movie ticket subsidy
and offline collaboration.
Social and search
platform
Wepiao,
Baidu
(Search+Map+Nuomi)
Wepiao gets traffic from two of the largest social applications in China—Wechat and QQ—
both owned by Tencent. Users do not need to download an additional application and can
use Wechat Wallet for payment, which adds to the convenience level.
Baidu Nuomi receives traffic from Baidu map and search, two of the dominant applications in
China in the map and search sectors. In 1Q15, 25% of Nuomi movie ticket transactions
originated from and were completed on Mobile Baidu and maps.
UGC (user
generated
content)
Mtime, Douban Mtime is the largest all-rounded movie content and service platform in China, integrating
movie ticket sales with movie ratings and audience comments.
Users of these websites have a high level of loyalty, stickiness and consumption frequency.
The recommendations on these websites further stimulate users' movie watching behaviour.
Cinema line Wanda Cinema-line-owned ticketing platforms usually only offer tickets of their own cinemas and
provide convenience to members.
However, only the big cinema lines, such as Wanda, have the ability to do so given the
limited number of cinemas such websites can offer.
Source: Credit Suisse
21 October 2015
China Media and Entertainment Sector 13
Near-term, subsidies remain high According to our estimates, the subsidy from e-commerce and movie studios totalled
around Rmb4 bn in 2014; this accounted for 13.5% of the total movie box office in China.
The subsidy from e-commerce platforms alone was around Rmb2 bn, which accounted for
14.7% of the online box office in China.
We estimate the total subsidy to be Rmb8.4 bn, Rmb8.3 bn, and Rmb6.7 bn in 2015, 2016
and 2017, respectively. The total subsidy level will peak in 2015 at 20%, and slow down
going forward. E-commerce subsidy is estimated to be Rmb4.6 bn, Rmb4.6 bn and
Rmb3.4 bn in 2015, 2016 and 2017, with subsidy levels of 16%, 12% and 7% as a
percentage of online box office, respectively.
Subsidy is split between movie production company and O2O platform
Currently, the split is 50-50 between the movie production company (as marketing
expense) and the online ticketing platform. However, for big production movies or well-
known movie studios, the split may be 1:2 or 1:3 depending on their bargaining power.
Some movie studios, which are very confident about their production or have budget
constraints, may even refuse to contribute to the movie subsidy.
The subsidy is usually provided during the first 3 days of a movie's released in order to
boost the popularity of a movie; the box office in this period also significantly impacts the
scheduling in the following days.
For example, "Lost in Hong Kong" (港囧 ), a movie produced by Enlight Media and
released on 25 September 2015, has recorded Rmb1.6 bn in box office so far, out of
which at least Rmb0.1 bn is from the e-commerce subsidy (6% of total box office). The
lowest price for "Lost in Hong Kong" was Rmb9.9 on Maoyan, Rmb9.0 on Wepiao and
Rmb6.6 on Baidu Nuomi, which is at 72%, 74% and 81% discount, respectively, to the
movie's average ticket price of Rmb35.
Figure 19: Production company and e-commerce subsidy trend
2
3.7 3.7
3.2
2.3
1.4
0.5
2
4.6 4.6
3.4
2.4
1.4
0.5
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
-
1
1
2
2
3
3
4
4
5
5
2014 2015F 2016F 2017F 2018F 2019F 2020F
Rmb Bn
Production company subsidy e-commerce subsidy
Production company (as % of total box office) e-commerce (as % of online box office)
Source: Credit Suisse estimates
21 October 2015
China Media and Entertainment Sector 14
Figure 20: Subsidy as % of total box office (2014) Figure 21: E-commerce subsidy as % of e-commerce box
office (2014)
86%
14%
Non-subsidized BoxOffice, Rmb 26Bn
Total Subsidy, Rmb 4Bn
84%
16%
E-commerce BoxOffice, Rmb 11Bn
E-commerce Subsidy,Rmb 2Bn
Source: Credit Suisse Source: Credit Suisse
Subsidies from online ticket platform likely to stay in
the medium term
In our view, subsidies from online ticket platforms are likely to stay in the medium term due
to the following reasons:
1) Market is still fragmented,
2) BAT (Baidu, Alibaba, and Tencent) are focusing on the entertainment space, and
3) Movie is a good category to attract customers for other O2O categories. For example,
customers who purchase movie tickets on Baidu Nuomi will use Baidu Wallet; at the
same time, the user will create a user account and is more likely to use other O2O
services, such as restaurant Groupbuy, or other entertainment services.
What's the impact, if subsidy stops in the long term?
In the long term, when the market is consolidated with 3-5 dominant players, the subsidy
will decrease or stop eventually and the market will grow organically, in our view.
Impact to box office
We believe the impact to the total movie box office revenue in China will be small for the
following reasons:
1) With increasing disposable incomes, movie watching is now an affordable activity
instead of a luxury; customers are becoming less price-sensitive. Movie tickets in
China are still largely cheaper than other regions—the average ticket price in
China is Rmb35 vs Rmb60 in HK, Rmb50 in Singapore, Rmb56 in Taiwan and
Rmb50 in the US.
2) Movie watching has become a major offline entertainment for the younger
generation; frequent movie watchers who have formed the habit will not move
away from watching movies,
3) Some of the customers may move from online ticketing to offline retail, which
won't negatively impact the total box office,
4) The average ticket price will increase as a result.
We believe subsidy will
remain in the medium term
We think the impact to
China's movie box office will
be small if subsidy stops
21 October 2015
China Media and Entertainment Sector 15
Impact on online ticketing platform
We believe the impact on online ticketing platforms will also be marginal.
The online ticketing service not only provides price discounts, more importantly, it provides
convenience to customers by enabling them to purchase tickets and select seats in
advance. It also streamlines the payment process—customers do not have to wait in lines
at the cinema to buy tickets.
The online ticketing service has changed customers' behaviour and cultivated in them a
movie ticket purchasing habit. Once the habit is formed, it will become a new norm,
especially for the younger generation. According to Entgroup, the average age of the
movie-going audience in China is 21.5. In other words, the majority of the audience are
teens and young adults who use internet as an integral part of their life.
The merger between Kuaidi and Didi—two of the biggest car-hailing applications—is
another reference. Before the merger, the two companies were in an intensive battle for
market share by providing subsidies to users. Within two to three years, China taxi app
users exceeded to 150 mn (3Q14). The two companies have reduced subsidy after the
merger; however, users continue to use their application. Similar to online ticketing, taxi
apps also provide convenience and have changed people's lifestyle.
We think the impact to
China's online ticketing
platforms will also be
marginal
21 October 2015
China Media and Entertainment Sector 16
Potential market size for online movie ticketing Service charge opportunities
In mature markets, instead of offering discounts on movie tickets, online ticketing platforms
usually charge a service fee (5-10% of ticket price) on top of the ticket for the seat
selection service they provide:
1. Hong Kong: HK$8 (AMC and the Sky official ticket website)
2. The US: US$2.7 (tickets.fandango.com)
3. The UK: £0.6 (movietickets.com) or £0.75 (booking.myvue.com)
We think this will be the trend in the long term: service charge will be the major revenue
driver for online ticketing platforms. However, in the short term (next 2-3 years), given the
market is still in the development stage, the industry is segmented and Chinese
consumers are highly price sensitive, online ticketing platforms will not charge a service
fee, in our view. With the capital support from their investors—major internet, media
companies and venture capitals—online ticketing platforms will continue the battle with
heavy subsidies.
Figure 22: Potential market size of online ticketing service fee (assuming 5% take rate)
1.5
1.9
2.4
3.0
3.6
4.2
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2013 2014 2015F 2016F 2017F 2018F
Rmb Bn
Potential Market Size of Online Ticketing Service fee (Rmb Bn) (Assuming 5% take rate)
Source: Credit Suisse estimates
Key policy update
On 8 July 2015, China Film Distribution and Exhibition Association and China Film
Producers' Association together issued the "Regulation on Movie Ticket Sales and
Marketing" ("Regulation"). According to the Regulation, e-commerce companies have a
legal agency relationship (instead of a resale relationship) with cinema lines and charge
agency distribution fees. E-commerce companies can conduct sales and marketing
activities. Most importantly, the Regulation specified the following pricing policy:
Movie retail price, price mentioned in promotions (e.g., the original price marketed, but not
the discounted price) and transaction clearing price with cinema lines cannot be lower than
the minimum price specified in the distribution agreement.
■ If the discounted ticket price is lower than the distribution price, e-commerce
companies will provide the subsidy and pay the distribution price to cinema lines;
We think service charge will
be a new revenue stream
for online ticketing platforms
in China in the future
According to the new policy,
e-commerce companies
have legal agency
relationship with cinema
lines and charge agency
distribution fees; in the case
of subsidies, they still have
to pay the agreed minimum
ticket price to cinema lines
21 October 2015
China Media and Entertainment Sector 17
■ If the ticket price is higher than the distribution price, the actual price, excluding
service fee, will be used for transaction clearing with cinema lines.
In other words, any discount below the distribution price will be at the cost of the e-
commerce companies and will not negatively impact cinema lines and cinema chains
directly. However, there is indirect effect to retail tickets, given more customers use the
online channel to purchase tickets at a discount.
21 October 2015
China Media and Entertainment Sector 18
Companies Mentioned (Price as of 20-Oct-2015)
500.Com (WBAI.N, $20.2) 58.com Inc. (WUBA.N, $51.06) Alibaba Group Holding Limited (BABA.N, $72.65) Alpha Animation (002292.SZ, Rmb31.9) Autohome Inc. (ATHM.N, $35.17) BGCTV (600037.SS, Rmb25.63) Baidu Inc (BIDU.OQ, $154.68) Beijing Enlight Media Co. Ltd (300251.SZ, Rmb27.94) Bitauto Holdings Limited (BITA.N, $32.6) CCYS (002071.SZ, Rmb15.75) Dr. Peng (600804.SS, Rmb25.76) E-House China Holdings Ltd (EJ.N, $6.63) Everyday Network (300295.SZ, Rmb97.5) HLBN (300291.SZ, Rmb28.51) Huayi Brothers Media Corp (300027.SZ, Rmb39.58) JiShi Media (601929.SS, Rmb6.32) Jiayuan (DATE.OQ, $6.53) Leju Holdings Limited (LEJU.N, $6.59) Leshi (300104.SZ, Rmb53.14) Mitsui Engineering & Shipbuilding (7003.T, ¥197) Nan Hai Corporation Limited (0680.HK, HK$0.16) Orange Sky Golden Harvest Entertainment (Holdings) (1132.HK, HK$0.64, OUTPERFORM[V], TP HK$1.1) PWPIC (002624.SZ, Rmb21.03) SMI Holdings (0198.HK, HK$0.72) SXBN (600831.SS, Rmb14.78) Shanghai New Culture Media Group Co. Ltd (300336.SZ, Rmb31.52) Shanghai Oriental Pearl Media Co Ltd (600637.SS, Rmb36.31) SouFun (SFUN.N, $7.27) TIK (000917.SZ, Rmb42.89) Talent (300426.SZ, Rmb153.99) Topway (002238.SZ, Rmb23.76) Wanda Cinema Line Co Ltd (002739.SZ, Rmb104.33) Wasu (000156.SZ, Rmb33.0) Zhaopin Limited (ZPIN.N, $14.09) Zhejiang Huace Film & TV Co Ltd (300133.SZ, Rmb27.43)
Disclosure Appendix
Important Global Disclosures
I, David Hao, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Orange Sky Golden Harvest Entertainment (Holdings) (1132.HK)
1132.HK Closing Price Target Price
Date (HK$) (HK$) Rating
24-Sep-15 0.72 1.10 O *
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10 th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total
21 October 2015
China Media and Entertainment Sector 19
return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011.
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Outperform/Buy* 59% (34% banking clients)
Neutral/Hold* 26% (35% banking clients)
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Restricted 2%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
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Price Target: (12 months) for Orange Sky Golden Harvest Entertainment (Holdings) (1132.HK)
Method: We assign Orange Sky Golden Harvest Entertainment (Holdings) a DCF (discounted cash flow)-based target price of HKD1.10, based on 8.3% WACC (weighted average cost of capital) and 2.5% terminal growth; the valuation also implies 32x/18x FY16/17E P/E (price-to-earnings).
Risk: Risks that could impede achivement of our HK$1.10 target price for Orange Sky Golden Harvest Entertainment (Holdings) include: 1) consumption change shifting away from watching movies on silver screen; 2) oversupply in theatres and screens; 3) bad theatre investments.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
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21 October 2015
China Media and Entertainment Sector 20
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Credit Suisse (Hong Kong) Limited ..................................................................................................................... David Hao ; Dick Wei ; Evan Zhou
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21 October 2015
China Media and Entertainment Sector 21
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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
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