Two Years Ago These Movie-Ticketing Platforms Set Out to Disrupt the Business. Now They Admit They're Just "Service Providers"

They failed to destroy the industry, and they won't save it either. They are simply part of the film business.

Two years ago, on September 22, Meituan CEO Wang Xing announced that Maoyan Movies, Meituan's ticketing arm, had become a co-producer of director Ning Hao's new film Breakup Buddies, and its only online pre-sale platform. In the week starting September 15, Maoyan sold a million tickets to the film. By October 3 the film had passed 360 million yuan at the box office, 160 million of it sold through Maoyan.

"Maoyan Movies is going to disrupt the traditional film industry." Lines like that were not hard to find in the press at the time — so common that eight months later Wang Xing went out of his way to say: we are not disrupting film, we are still serving film. But he also granted that Maoyan was changing film, and that "this change is an enormous fact."

Maoyan held 70% of the online ticketing market then.

A year after that, Maoyan had been spun out of Meituan, and its controlling shareholder was Enlight Media — one of the traditional film companies Maoyan had meant to change so enormously.

At an internal briefing for reporters this month, Taopiaopiao compared its own position to that of its big brother inside Alibaba, Taobao: "What Taobao thinks about is taking care of its merchants first, thinking about their profits, making the pie bigger and better, and only then thinking about earning money for itself... If you haven't made the pie bigger, there is no point doing any of this." It was in that spirit that Taopiaopiao president Yuan Yuan said: "Turning a profit is shameful."

This may be the weakest online ticketing platforms have ever been.

Taopiaopiao was losing money, and losing a lot of it.

On August 26, Alibaba Pictures reported revenue of 257.3 million yuan for the half year and a loss of 465.7 million yuan. An earlier profit warning had blamed the loss mainly on "Taopiaopiao's marketing spending." By Alibaba's accounts, Alibaba Pictures spent 520 million yuan on marketing in total.

Yuan Yuan did not deny the losses, but he corrected the framing: Taopiaopiao had not spent the 520 million on its own. The figure covered "all of Alibaba's operating subsidiaries, including Alibaba Pictures' own resources, Yulebao, merchandise and so on." Taopiaopiao merely "accounts for a large share" of it, and "the films Taopiaopiao invested in during the first half of the year, The Monkey King 2 and Chongqing Hot Pot, are both inside that number."

The Monkey King 2 took 1.2 billion yuan at the box office, and Chongqing Hot Pot became one of the best-reviewed domestic commercial films of the year. Yuan Yuan's point was plain enough: the money was not wasted.

By results, it was not. Alibaba Pictures says Taopiaopiao now holds more than 20% of the market, second in online ticketing only to Maoyan. By May this year Taopiaopiao had more than 25 million monthly active users, 17 times the 1.47 million it had in January 2015. In January 2015 its best single day sold 30,000 tickets; in 2016 its best single day sold 3 million — a hundredfold rise in a little over a year.

The whole online ticketing market grew fast in 2015. About 30% of tickets were bought online in 2014; in 2015 the share reached 54.8%. On the first day of the 2016 Lunar New Year, online sales hit 83% of that day's tickets.

Money burned earlier went on ticket subsidies, to keep pulling in new users. That money now has a different job.

Growth across the film industry slowed in 2016. Since April, "negative box-office growth" has come up again and again. Online ticketing platforms may reach 80% of the market this year, but that is close to saturation, and hard to push past. A ticketing platform at this point can only take share from rivals while holding on to its own. Yuan Yuan admitted it: "Every internet vertical trends toward consolidation, and for all of them it is really only a matter of time." Even the four still standing — Maoyan, Taopiaopiao, Wepiao and Nuomi Movies — will probably consolidate further.

So building higher walls around the market became the choice everyone made at once.

The bricks in a film-market wall are, naturally, films. Since the start of the year every ticketing platform has moved faster upstream. Before it was spun out, Maoyan Movies announced loudly that it had turned some degree of profit; once Enlight took control, it also worked on marketing and distribution for a string of Enlight projects. Weiying kept buying into box-office-guarantee distribution deals — people inside Weiying say its guarantees rarely shortchanged the production companies, though Weiying itself earned very little from them. Taopiaopiao, besides The Monkey King 2 and Chongqing Hot Pot, handled marketing and distribution for summer releases including Now You See Me 2 and Cold War 2. Of the 20 highest-grossing domestic films of the first half of 2016, 16 were distributed by one platform or by several platforms together.

Nearly every internet platform advertised a weapon the traditional companies lacked: "big data," which even now has not moved past the concept stage.

Ideally, an e-commerce platform gathers data through its various products, from what users buy, spend and do in different settings, and builds pictures of them from several angles. Then it uses that data to tell cinemas how many screenings to schedule and when, perhaps even to shape what films get made, and to push consumer behavior more precisely.

All of which, as noted, remains only ideal. In practice, though the big platforms keep talking up their "big-data advantage" — Maoyan Movies once hired data scientists to lead that work — there is still no decent end-to-end platform or product running through the whole chain. All they can do is raise efficiency at separate points along it, which amounts to handing the work of collecting public sentiment over to machines.

High technology is still some way from reality, so ticketing platforms keep reaching for more traditional methods. Beyond putting capital into box-office guarantees, they still use the weapon they have long since mastered: ticket subsidies.

Subsidies used to be about taking users. By one estimate, around 2014 it cost roughly 30 yuan to win a new user through Maoyan, while Meituan's own cost of winning a new user could run to 100 yuan — a large part of why Meituan spent so freely promoting Maoyan. Today's subsidies, in Yuan Yuan's words, "have become a routine tool of marketing and distribution."

"Subsidy policy is worked out with the production side. Some films open with wonderful word of mouth. Some fan-driven films need no heavy subsidies early on, but once they fall off later the studio wants subsidies to stir the market. And some films have good content but a different marketing approach. The strategy is different for every film," Yuan Yuan said.

Which is to say the days when platforms and studios each fought their own war are over. Winning new users for the platform is no longer the first purpose of a subsidy: "Whatever the production side thinks, the model where you go off and drive the box office yourself is gone."

E-commerce platforms were once treated as enemies of the traditional film industry rather than friends, on the view that they would upset its order. Today they are part of the film industry.

The sharper grudge against them comes from earlier, when e-commerce's conflict with the cinema chains ran far hotter than its conflict with the studios. Before the platforms arrived, cinemas generally priced tickets on two tiers, regular and membership, with some distinction between membership levels. Group-buying tickets came with restrictions — they could not be used for certain screenings, or cost a surcharge — and group buying also lifted popcorn sales, so cinemas could live with it as an addition. But once the platforms poured money into subsidies, "see a blockbuster for 9.9 yuan" became normal for a while, and that nearly destroyed the cinemas' membership systems. At this year's Shanghai International Film Festival, Zeng Maojun and other heads of Chinese cinema chains used a forum to denounce the damage e-commerce had done to the industry.

The platforms would like to turn cinemas from enemies into friends.

Taopiaopiao vice president Wan Li put it this way: "What ticketing platforms mostly do is use internet capability to help cinemas climb another step."

Using internet capability to remake every industry is the internet's ambition. When internet companies marched into film, "remake" was the word heard most. E-commerce had originally hoped to "disrupt" the cinema chains' business model, but ran into too much resistance.

As Taopiaopiao sees it, the internet can help cinemas across the board: "If we can bring the internet into this industry, we may be able to help cinemas raise their operating capability in a lighter way. Because we will have a lot of tools to hand them, and cinemas will be able to see the whole picture of their users." In the scene they imagine, a cinema gets population layout, moviegoing patterns, preferences and the rest from the platform, and with them holds on to — the Taopiaopiao vice president reached for a piece of internet vocabulary here — its users.

Maoyan has already tried this. It once released software for cinemas that could guide a chain on scheduling and screening times. The system never really spread; some chains said they did not want to depend too heavily on Maoyan's channel, and did not want to hand Maoyan their operating data.

Data may well be where the platforms eventually make money. Once a platform reaches deep enough into every part of the film business and can offer a wider range of services, it can gather enough data — and then sell data solutions built on it for each of those services.

That is also why ticketing platforms are doing things on their platforms besides selling tickets.

Once growth from simply selling tickets to acquire users had settled into a flat line, media and community became another route. Yuan Yuan said: "Taopiaopiao is slowly moving in the direction of being a media outlet." Maoyan Movies has been strengthening its own media character since last autumn, and Wepiao quietly added a "Discover" button filled with news about upcoming releases.

Read film news on Mtime, buy the ticket on a ticketing site, rate the film on Douban. That is the moviegoing habit many people have settled into, and ticketing sites now want all three on their own platform. A user sees news about a new release there, then comes back to rate the film after watching it. Maoyan even recruited a group of professional critics, copying the American review site Rotten Tomatoes, to produce professional scores as a guide for moviegoers, and through that to gain influence in the industry. Taopiaopiao plans to open livestreaming on its platform, for things like film press conferences.

But when the market as a whole goes bad, every one of these strategies may hit trouble.

One film this summer had subsidies prepared in advance, but performed so far below expectations that the subsidy money could not be spent before the film was nearly out of theaters.

A bad market comes down to bad content, above all to films with the power to set off the market drawing reviews too poor to do it, which cools the whole box office. In a market like that, a little more or a little less of "see a blockbuster for 9.9 yuan" makes almost no difference.

Against a market like that, ticketing platforms can do almost nothing. Online distribution, once treated as a kind of magic, has run through a series of failures. Take MBA Partners, co-distributed by Maoyan and Weiying: the box office was miserable anyway, and the core reason was simple — the film was unwatchable.

For now, ticketing platforms cannot solve the problem of a film being unwatchable. They cannot remake the market.

Treat the film market as a relatively stable system, and the outside forces that might change it are technology, new markets and capital. The "disruption" the ticketing sites once imagined rested on the belief that new internet technology could bring the film industry a new market.

Where there is no cinema, not even a free screening draws an audience. A channel raises how far a film reaches; content decides whether people go. The technology ticketing platforms rely on, and the market they bring, only uncover a latent market faster. They do not widen the market of consumers and they do not make new content. As channels, they are channels for tickets, not for content. At bottom a ticketing platform is one link in the film industry's chain, and a link that holds no irreplaceable resource.

Today's e-commerce sites are falling in with this market more and more. Taking part in box-office-guarantee distribution, negotiating subsidy strategy, building media, gathering data, providing services — they are certainly no longer the ambitious "disruptors" they once were. They have become "service providers."