Tencent-Backed Weying Has Bought Independent Gewara, and Online Movie Ticketing Is Now an Oligopoly

The competitors and the shareholders have changed, but the rules of the online ticketing game have not.

Behind every movie ticket stands a Pony.

When he spoke to QDaily on October 29, Lin Ning, founder of Weying Technology, kept bringing up Pony. Weying was still celebrating its National Day holiday results: one in every four movie tickets had been sold through it.

Less than two years old, Weying had already overtaken Gewara, Taobao Movies and Baidu Nuomi, and had quietly caught up with the industry leader, Meituan Maoyan Movies.

The Pony Lin Ning means is Tencent CEO Pony Ma. When WeChat movie tickets first launched, Pony Ma brought in Lin Ning, who had worked in group buying, to run the business. "Later, Pony felt O2O wasn't something in Tencent's DNA, so he used this structure of letting me out to do it," is how Lin Ning describes the tie between Tencent and Weying.

In less than two months, the market has become unrecognizable. On the evening of December 16, Weying announced a merger with Gewara. The word was "merger," but in the joint press release Lin Ning welcomed Gewara into the Weying family. That makes the substance of the deal plain: Weying has bought Gewara.

This is not Pony's only deal in this market. A little over two weeks earlier, Tencent put US$1 billion into the first funding round of the newly merged Meituan and Dianping, while Alibaba announced it would sell the Meituan shares it had bought years before. Just like that, Meituan Maoyan, once seen as Alibaba's counter to Tencent in online movie ticketing, also became Pony's business.

In just two months, Pony's Tencent has gone from a single WeChat movie-ticket service to four online ticketing apps: Weying, Gewara, Meituan Maoyan and Dianping. If not for Baidu Nuomi and Taobao Movies, it really would be true that "behind every movie ticket stands a Pony."

Gewara was short of money and Weying wanted growth, so they merged

The merger is no surprise. Didi and Kuaidi, 58 and Ganji, Meituan and Dianping, Trip.com Group and Qunar: China's capital markets have seen plenty of mergers like this one this year.

Most of them happened because the companies no longer wanted to burn cash. Subsidies win users in large numbers, but they put enormous strain on a company's finances.

The same is true of this merger, except that Gewara was the weaker party.

Last July, Gewara raised a 200-million-yuan Series C+ round. That money carried it through the ticket-subsidy wars of the 2014 year-end holiday season and the 2015 Spring Festival season. "Then, after Ever Since We Love in the first half of this year, Gewara was completely out of money," a former insider who left Gewara this year told QDaily.

Because it had no money, Gewara lost to Alibaba the ticketing rights for the Shanghai International Film Festival's screening section, which it had run for years. At this year's festival, Taobao Movies was the only place to buy tickets, and it will stay that way for the next three years.

Again because it had no money, Gewara could not join the ticket-subsidy war, and its market share kept sliding. Meituan Maoyan, Taobao Movies and Baidu Nuomi seized the chance to eat into Gewara's share at the cinema chains, until Gewara said, resignedly: "If Gewara can run a community of more than 40 million users well right now ... we feel we will have done our job."

So Gewara had no choice but to set itself apart by serving arthouse tastes and people who love film. It started "new screenings," promoting and distributing good but less popular films to get them into cinemas. It also held a VR film festival, hoping to become a platform linking VR technology vendors with film companies.

Gewara VR Film Festival

None of this solved the problem. To survive in online ticketing, you still need huge traffic and transaction volume, and the simplest, most effective way to get them is still ticket subsidies. Gewara was back where it started: out of money.

Gewara tried to raise funds, but failed. Unable to raise money on its own, it had only one road left: being acquired. In the end, Weying made its move.

Weying is not as short of money as Gewara. It recently closed a 1.5-billion-yuan Series C round. That may not be enough to pay for the blueprint Lin Ning has drawn, which he says will cover the whole film industry chain and extend into live performance and sports, but at least in the short term Weying will not be troubled by funding.

What troubles Weying is how to grow its market share further. Early on, it grew by connecting more cinemas to its system. Lin Ning says Weying spent its entire first year connecting cinemas. By this November that work was largely done: Weying had connected 4,500 cinemas, nearly 80% of all the cinemas in China. Connecting the remaining 20% would hardly bring back its old growth rate.

On top of that, online purchases have reached as much as 80% of tickets in first-tier cities over the past six months, while in lower-tier cities, where there are more users, strong cinema chains such as Wanda and Dadi hold sway. Online ticketing's share of total box office will struggle to rise quickly.

So what can Weying rely on to grow further?

Differentiated service is unlikely to work. With no real technological barriers, ticketing apps copy one another all the time.

Ticket subsidies would do the job, but because they put more pressure on the company's finances, Weying will use them with great care.

Buying a mature ticketing app with a sizable user base is a more direct and effective method. Gewara has no big-company backer for now, but it has built a reputation in the market, and the community it promotes fits Lin Ning's idea of making Weying richer. By any measure, it is a good choice.

Both companies have hit bottlenecks over the past two years. One lacks money; the other needs more growth to lift its valuation. Joining forces to expand market share and gain bargaining power became the most realistic choice for both.

Gewara has resources, Weying has money and traffic, but integration will not be easy

According to the joint announcement, after the merger Wepiao and Gewara will operate independently as two brands, with their team structures unchanged, while sharing each other's strongest resources.

Gewara's offering includes the community-building skill it is proudest of. In the words of Gewara founder Zhang Xuejing, a film community helps Gewara better serve people for whom movies are a way of life. Narrowed down further, that means mainly young moviegoers in first-tier cities, with Shanghai as the base.

This is the same group Weying wants to win. In Lin Ning's vision, the standalone Wepiao app is to become a place for consuming content and socializing; in other words, a community like Gewara.

Gewara's other strength is its relationship with IMAX. IMAX blockbusters are more popular than ordinary films, and winning exclusive presale or distribution rights for IMAX films helps a ticketing app sell more tickets. Gewara and IMAX share an investor, China Media Capital, and that tie makes it easier for Gewara to work on IMAX films.

Interstellar was a marketing campaign Gewara was proud of

What Weying can offer is more direct. It can open its two gateways, WeChat and QQ, to Gewara, bringing it more traffic and users.

More important still is money. Whether to keep Gewara running day to day or to join the ticket subsidies, what cash-starved Gewara needs most right now is an injection of capital.

Once merged, the two will also have more bargaining power when they jointly negotiate promotion and distribution deals with film studios. Gewara's users can help build a film's word of mouth, and Weying's promotional reach can then spread it among the large number of users it touches. The effect could be very good.

That depends on the two sides integrating smoothly. "Of all the players, Wepiao and Gewara overlap the most. How to reorganize the business and the staff after the merger is a big problem," a person with knowledge of the matter told QDaily. "A more pessimistic scenario is that the whole business line, upstream and downstream, has to be reorganized."

Wang Ran, CEO of CEC Capital, which advised on the deal, said: "The complexity of any acquisition lies in the integration afterward: whether operating efficiency can improve, and whether the two sides' useful assets can really be put to good use. In a sense, an acquisition is just manual labor."

The competitors and the shareholders have changed, but the rules of online ticketing will not

The merged Gewara and Weying leave plenty of room for imagination, but the market will not change because of it, nor will any new ways of playing emerge.

Gewara over the past two years may be the best example. It built a "movie buddy" feature that told you where in the mall car park to leave your car to be closest to the cinema. It hid little Easter eggs in seat selection: when you chose seats for Minions, a Minion popped up. It built a community, trying to attract users through social features. None of it had much effect, and Gewara's market share never recovered.

What can change the landscape is still the ticket subsidy. Most moviegoers remain very sensitive to price, so tickets at 9.9 or 19.9 yuan are still the best way to attract users.

After Baidu announced it would pour 20 billion yuan into O2O, Baidu Nuomi at one point claimed second place in the movie-ticket market. And on the recent Double 12 shopping day, a Taobao Movies half-price promotion drew more than 800,000 users to buy 1.5 million tickets, 30% of that day's national box office.

Gewara and Weying cannot change the habits of most moviegoers, so they too must follow the logic of subsidies and use cheap tickets to attract users. Open the Wepiao app now and the splash-screen ad still reads "From 19.9 yuan: Mojin gets stylish." On the main screen, the banner for Surprise scrolling across the middle also promises tickets "from 14.9 yuan."

Both Gewara and Weying have told QDaily that subsidies are no longer their main strategy. But the ghost of the ticket subsidy still haunts the whole online ticketing market and keeps these apps on the defensive: as soon as one player starts subsidizing, the others have to follow.

So for the foreseeable future, online movie ticketing will remain a game of capital. The cash burning will go on, and the contest among these companies comes down to who has the deepest pockets.

On that score, no one seems to have an obvious weakness. Taobao Movies has Alibaba behind it, and Baidu Nuomi has Baidu. Gewara, Weying and Meituan Maoyan have all now attached themselves to Tencent. The BAT war (Baidu, Alibaba, Tencent) has broken out again in online ticketing, and it is a war no one can win.

Every company that sells movie tickets wants to do more than sell movie tickets

Since they cannot win at ticketing, the ticket sellers all want to move upstream in the film industry chain, into promotion, distribution and production.

Gewara founder Zhang Xuejing told QDaily: "Within this year, Gewara will set up a film and TV production fund, and work with other partners in society to promote new talent."

Weying has moved faster. In September, it set up a 2-billion-yuan film fund. On December 1, it joined in founding Shengguang Pictures, the film company of Guangdong Advertising. Weying says some film projects are already in preparation, though it cannot yet give details.

Monkey King: Hero Is Back, in which Weying invested

The other ticketing apps are also moving upstream. The most aggressive is Alibaba. Alibaba Pictures is a year and a half old, and two of its films, See You Tomorrow and Proud and Prejudice, have already started shooting.

Meituan Maoyan and Baidu Nuomi appear to be slightly behind. So far they have only taken part in promoting, distributing and investing in films, and have no plans yet to make films themselves.

The ticketing apps have many reasons to move upstream. One is that competition in ticketing is too fierce: with subsidies, they lose money on almost every ticket they sell, so they have to look upstream for new sources of profit.

Another is that if they help promote or produce a film, they can win exclusive sales rights, which does a lot to lift ticket sales. Last December, for example, Baidu's iQiyi bought up the non-IMAX midnight screenings of Gone with the Bullets and sold 300,000 tickets in a week.

Internet companies love movie tickets because of the bigger game behind them

Tencent, Alibaba and Baidu usually enter the film industry through movie tickets. Ticket sales are the easiest part to move online, and online group buying of movie tickets had been popular for years before these apps launched.

By selling tickets, especially cheap ones, the internet companies have taken customers away from the cinemas. Traditional cinema membership schemes have gradually fallen apart, and internet companies have become the bridge between cinemas and film fans.

But selling tickets is clearly not their final goal. As with every internet business model, what they want is to build up users and then make money from them in whatever each does best.

QQ Speed

Alibaba Pictures wants the user data. With it, Alibaba Pictures can return to what it does best, "buy, buy, buy," and the market it has its eye on is e-commerce and film merchandise, still largely untapped.

Tencent, for its part, wants to turn the many games, novels, animation and comics it owns into films, raising the commercial value it can extract from them. QQ Speed the game brings Tencent a good deal of revenue every month; QQ Speed the film brings in extra box office, and may even push up the number of players.

Wanda also profits from the internet companies' competition

The Gewara-Weying merger also benefits one more company: Wanda, which invested in both Weying's Series B and Series C rounds.

As the operator of China's largest cinema chain, Wanda has a delicate relationship with online ticketing apps, Weying chief among them.

Online ticketing clearly hurts Wanda's business. When moviegoers all buy tickets through these apps, and the money, along with their spending behavior and data, flows through online channels, Wanda seems to be turning into a mere end point that provides the final service, and its importance shrinks.

To deal with this, Wanda is developing its own ticketing app, Wanda Cinema, while also taking a stake in Weying, and through the Weying-Gewara merger it now indirectly holds a stake in Gewara too.

Once it has a hold on moviegoers' spending behavior and data this way, online ticketing always helps Wanda's business. As online ticketing grows, part of the foot traffic flows to Wanda cinemas and Wanda Plazas, and boosts spending in the plazas.

What's more, by taking stakes in ticketing apps, Wanda has built a more complete position along the film industry chain than either traditional film companies or the new internet companies. Wanda Pictures handles production and distribution; Weying and Gewara handle online distribution and ticket sales; Wanda Cinema Line controls the cinemas at the end of the chain.

Owning a cinema chain means that, beyond anything Tencent can do, Wanda can also control screening schedules more directly, giving the films it helps produce and distribute a larger share of screenings and so pushing up their box office.

Companies like Wanda, spanning production, distribution and exhibition, existed in Hollywood up to the 1940s. Through this vertical monopoly, the big studios of that era controlled 90% of first-run theaters and used them to distribute 75% of the films in the country.

The US government held that this monopoly seriously interfered with free competition in the film industry, and in the end Hollywood gave way and divested its theaters.

Wanda's setup looks much like those Hollywood studios, but it is still far from their degree of monopoly. Its own production capacity is not yet strong. Although it made films such as Go Away Mr. Tumor and Jian Bing Man this year, its output is small next to companies such as Huayi Brothers, Enlight and Bona.

And China's film resources are still too scattered. Only Wanda has built a chain running from production and distribution to exhibition, unlike Hollywood back then, when five of the eight major studios had done so.

In short, although Wanda is trying to monopolize the film industry from top to bottom, so far it has only made things a little easier for its own films. And in the end, of course, it will return to its real-estate business.

After a string of investments, Tencent has started to catch up with Alibaba and Wanda

As we said, behind every movie ticket stands a Pony. And Pony has spent a good deal of money to get Weying, Meituan Maoyan, Dianping and Gewara.

Of these ticketing apps, Weying is closest to Tencent. Before Weying was spun out, Tencent gave it resources including gateways in WeChat and QQ. After Weying became independent, Tencent led its Series A and Series B rounds, of several million US dollars and US$105 million respectively, and joined the 1.5-billion-yuan Series C as a follow-on investor.

Tencent's investment in Maoyan Movies comes in two parts. One is Tencent's two rounds of investment in Dianping, last year and this year. Last year, Tencent alone bought 20% of Dianping, reportedly for US$400 million. This year, Tencent took part in a round totaling US$850 million. The other part is the US$1 billion round Tencent led after Dianping and Meituan merged.

Since the main businesses of Meituan and Dianping are still group buying and other O2O services, Tencent's total spending on the online ticketing market is probably no more than US$500 million.

Overall, that is not much. But set against the size of the online ticketing market, US$500 million is still a considerable outlay.

Going by 2014 national box-office data, about 830 million movie tickets were sold that year. If each ticket carries a 3-yuan service fee and 80% are sold online, the entire online ticketing industry takes in only about 2 billion yuan a year.

And since the companies Tencent has stakes in do not cover the whole market, its US$500 million looks a little expensive.

What Tencent's money buys is vertical integration of the film industry

Once you take Tencent's position across the whole film industry into account, its willingness to pay this price is easier to understand.

In September, Tencent set up two film companies at once. The first, Penguin Pictures, is built on Tencent Video and focuses on web series, while also investing in some films, such as the animated Little Door Gods, due out next New Year's Day.

The other, Tencent Pictures, grows out of Tencent's interactive entertainment business. It hopes to turn novels, comics and animation into feature films, take box office in cinemas, and then sell merchandise and other spin-offs. Its slate includes Warcraft, Guo Jingming's Legend of Ravaging Dynasties, QQ Speed and Ze Tian Ji.

Warcraft

Add the distribution and ticketing businesses of Meituan Maoyan, Weying and Gewara, and Tencent's position along the film industry chain is already very complete, much like today's big Hollywood studios: Disney and Warner Bros. also combine production with distribution.

Once this kind of vertical integration reaches a certain market share, it is in effect a monopoly, one that runs from the top of the industry chain to the bottom.

Under such a monopoly, Tencent can do a great deal. With user data from ticket sales, it can analyze which film genres and content users prefer, and develop film and TV projects to match.

Once a film is shot, Tencent can use Moments ads and its ticketing apps to push promotion to the right audiences. Ticketing apps such as Weying can use their own distribution channels to win preview screenings and more screening slots for the film's release.

After the film opens, Tencent can again use WeChat's social features and its media-like platforms to stir up word of mouth and drive box office higher. Meanwhile, the ticketing apps can sell merchandise to extract more value from the film.

Here, the different links of the film industry chain can work together very closely and create more value for the film itself. That is why Tencent has positioned itself in ticketing apps.

Now, with Weying's merger with Gewara, Tencent controls one more ticketing app, and its influence in online ticketing has grown again.

There are no precise figures for how much of the market Tencent's ticketing apps hold, but Tencent clearly now holds more user data. As more data falls into its hands, its say over both promotion and distribution and ticket sales will grow.

One thing is certain: now that Tencent has swallowed Gewara, online movie ticketing has formally become a game for a few big pools of capital.