Ticket Subsidies Burned Too Much Cash: Maoyan and Weiying Merge, and Movie Ticketing Loses Another Player

The e-commerce platforms' attempts to change the film industry either came to nothing, or worked only through one device: ticket subsidies.

After repeated denials and long silences, Weiying Technology and Maoyan Movies have finally become one company. On September 21, Enlight Media issued an announcement formally confirming the merger.

Maoyan Movies leads the new company. An affiliate of Enlight Media, Maoyan's largest shareholder, holds most of the new company's shares. Enlight chairman Wang Changtian also serves as chairman of the new company, and Zheng Zhihao, formerly CEO of Maoyan Movies, stays on as CEO. Lin Ning, the founder of Weiying Technology, becomes vice chairman.

Weiying Technology did not fold all of its businesses into the new company. It kept its original investment arm, Weiying Capital; its film investment and distribution company, Yuyue Culture; and its sports ticketing company, Weisai Times. The rest — movie ticketing, IP, and merchandise development — went into the new company at a valuation of nearly 4 billion yuan. Back in November 2015, when Weiying Technology was still mainly a ticketing business, its Series C valuation had already come close to $2 billion.

Weiying Technology came out of this merger the loser. Media reports in August said that the company had begun a large round of layoffs, and that the jobs overlapping with Maoyan's business — product development, data analytics — were hit hardest. Tencent was the force that pushed the two sides together.

The details of the deal differ slightly from what the media reported earlier, but the motive behind it has not changed. For the past few years, the competition among online movie ticketing platforms — Weiying Technology, Maoyan, Taopiaopiao, Gewara and the rest, referred to below as the e-commerce platforms — has amounted to burning cash. They subsidized movie tickets heavily, hoping to buy a bigger share of the market and more say over the whole industry chain.

In 2015, at the peak of the ticket-subsidy war, tickets priced at 9.9 yuan or 19.9 yuan were everywhere. By one industry insider's estimate, given to QDaily, 3 billion to 5 billion yuan went into subsidizing movie tickets that year. Across all of 2016, the service fees the e-commerce platforms collected on ticket sales came to only 3.5 billion yuan.

Subsidies shrank sharply in 2017, but the head of one marketing company told QDaily that the market still spends an average of about 10 million yuan per film on ticket subsidies for a reasonably good project. On that basis he put the year's total subsidy spending at around 1 billion yuan. For any one of these platforms, that is an enormous cost.

So merging — killing off a competitor, cutting subsidy costs, and finally making money — became the best option available. At the end of 2015, Gewara, the first company into the online ticketing market, ran short of money and was absorbed by Weiying Technology. The Weiying-Maoyan merger simply continues that trend.

History repeats itself. Burn cash, grab market share, end up merging with your rival: the script has run so many times in the past few years that it hardly surprises anyone. But the story of companies like Gewara could have ended differently.

Back in 2015, when the subsidy war was still young, every major platform was announcing plans to move upstream into the film industry. They hoped the data they held could help films do better in marketing and distribution. Several even set up investment or production units and became producers themselves.

In theory this was a sound strategy. Income from marketing and distributing films would provide steady cash flow to offset what the platforms lost on ticket subsidies. It would also loosen their dependence on ticket sales: even without a large share of the ticketing market, they would still hold a place in the film industry.

And in the platforms' own view, these moves were more than a competitive tactic. "Personally, I think online platforms can disrupt the whole traditional industry, from marketing and distribution all the way to production," a former executive at one e-commerce platform told QDaily.

Yet the merger of Weiying Technology and Maoyan Movies shows that competition among these platforms always ends up back at a price war. They wanted to disrupt the entire film industry — or, put more modestly, to make it more efficient — but the shape of their own competition never changed.

As for their attempts to change the film industry, those either came to nothing, or worked only through one device: ticket subsidies.

A Marketing Illusion

Open Maoyan or Gewara and you can see what theaters will be showing over the next few days. This was once thought to be a new channel for film marketing.

The platforms were happy to talk up the part they played. At the Shanghai International Film Festival this June, Yu Yongfu, by then chairman of Alibaba Pictures for a little over half a year, pointed to what Taopiaopiao did for A Dog's Purpose. Their analysis split the film's audience into three groups: pet lovers, young women, and parents with children. They then promoted the film to those segments one layer at a time, and it ended up taking more than 600 million yuan at the box office.

But in interviews with QDaily, many people in the industry doubted the platforms did what they claimed. "Right now there isn't a single good case of film marketing done online," one film-marketing professional said. As he sees it, online film marketing today is about exposure and nothing else, no different in substance from buying an ad in a subway station. The platforms' listings are one more channel, not a new tool.

One person who knows how the platforms handle film marketing went further: the "big data" they all say gives them an edge is a gimmick, and the most direct use of that data is helping people in the industry set KPIs for a marketing campaign. Cases where big data really makes a difference are "very, very rare, and even then it's hard to measure what it did."

Most people in the business now accept a basic truth: by the time someone opens one of these apps, they have very likely already decided to see a movie. The harder job of film marketing is to interest people who know nothing about a film and get them into a theater. So marketers still count on social media more than on the platforms.

"Weibo topics, WeChat, seeding viral material, WeChat official accounts, sponsored articles, hashtags, and some tone-setting pieces," said the marketing-company head quoted earlier, running through the tactics they use, before summing up: "Mainly Weibo and WeChat."

What Did Presales Actually Change?

The first time an e-commerce platform caught the film industry's attention in marketing and distribution was with Ning Hao's 2014 comedy Breakup Buddies. The film took 1.17 billion yuan over that year's National Day holiday, second only to Transformers: Age of Extinction for the year, and it was also the first showing of what Maoyan Movies could do in online distribution.

According to a report by Yiyu Guancha, Maoyan Movies and the film's producers picked 500 theaters out of the country's 1,000 highest-grossing ones and set out to persuade them to give Breakup Buddies 30% to 40% of their screenings on September 30 and October 1, evening prime-time slots included.

To do it, Maoyan stressed on one hand what online presales could do for box office, and warned theaters not to fall behind their competitors. What excited theater managers more was that Maoyan Movies and the Breakup Buddies producers each put up 10 million yuan in ticket subsidies, pushing the ticket price down to 9.3 yuan. That was a low-price promotion, and it guaranteed seats would be filled, so managers were naturally more willing to hand the film their screenings. In the end, 400 of the 500 theaters Maoyan had picked signed with Maoyan Movies.

Using ticket subsidies to lock in a film's opening-week screenings made its name with Breakup Buddies, and became the standard model for how e-commerce platforms take part in online film marketing and distribution.

But that is as far as it goes. "When platforms do online distribution, it still mostly comes down to ticket subsidies," the marketing-company head said. "I lock in some screenings, buy some tickets — even out of the platform's own pocket — leave the seats empty, and the box-office numbers at the terminal still look good."

Beyond subsidies, there is not much the platforms can do. They all stress the value of big data — they hold the user data, they know how much buzz a film has before it opens, so they can steer screening decisions more precisely — but the reality may not bear that out.

"The data the platforms give us is mostly just a reference," one theater manager told QDaily. In deciding how to schedule screenings, they lean more on data the theater itself has built up, such as attendance for similar films in the past. "Every theater has its own situation, and the neighborhood matters too, so we have more room to decide for ourselves."

A more serious problem for the platforms is that over the past two years this model — presales plus screening allocation — has come under growing strain.

In theory, allocating screenings on the basis of presales and subsidies makes sense. Price gets people to buy tickets, presales reveal demand for a film, and demand guides scheduling. But the model can also be gamed, which means subsidies and presale numbers do not always show what audiences as a whole actually want.

In 2016, the producers of Ip Man 3 bought up their own box office, trying to profit in the capital markets. In 2017, fans of Yang Yang and Liu Yifei bought presale tickets for screenings of Once Upon a Time to keep theaters from cancelling them. Attendance for the film turned out to be poor, and some theaters blamed equipment failures to drop Once Upon a Time and show Wolf Warrior 2 instead.

None of which means the platforms are useless to distribution. The theater manager quoted earlier noted that without them, theaters had no clear picture of the market as a whole. Now the overall trend is much easier to read. After Paths of the Soul opened on June 20 and its attendance rate kept climbing, he added screenings at his own theater.

Rather than big data guiding scheduling, what has really happened is that open, transparent data has made theater scheduling more accurate. Scheduling used to be easily swayed by the personal ties between distribution staff and theater staff; quiet rebates and kickbacks really could move screenings around.

"Once the data became transparent, some of the gray areas disappeared," the marketing-company head said, and that has pushed theater scheduling in a more market-driven direction. The gray areas have not all gone, but distribution has grown somewhat more efficient. There is one exception: when a political assignment arrives, like 2015's The Hundred Regiments Offensive, no e-commerce platform can change that on its own.

Ticket Subsidies, Ticket Subsidies, Ticket Subsidies

Asked whether theaters as a whole would be left weaker if Maoyan and Weiying Technology really merged, a theater manager who asked not to be named answered: "There's still Taopiaopiao. A and T aren't going to merge."

A former executive at one of the platforms put it this way: "Movie tickets are a gateway product for O2O, so of course every player has to fight for them. Low prices are the most direct and fastest way to take market share."

The cost of those low prices left the platforms struggling. Gewara was the first company to sell tickets online, and as early as 2014 it had proposed helping films with marketing and distribution. In 2015 it launched a brand called "New Screening" and set out to become China's Miramax — the American company that invests in, produces and distributes quality films, known for titles such as Quentin Tarantino's Pulp Fiction.

In the end, Weiying Technology absorbed Gewara at the end of 2015. This May, Wangpiaowang, which Enlight had bought two years earlier, merged with Maoyan, which Enlight had bought the year after that. Add Baidu Nuomi's exit, and the market has fewer and fewer players.

The platforms' constant subsidies have also wrecked theaters' own pricing. One theater manager complained to QDaily: "Everyone's used to 9.9 yuan now. It's too cheap — sometimes we can't even run our own pricing strategy."

He is also worried about the platforms consolidating. At some small theaters, he said, a single platform may account for more than 90% of ticket sales, which leaves the theater little leverage in negotiations over pricing or promotional material, and makes it easier to "push around."

Ticket subsidies became everyone's fate.

What complicates matters in practice is that besides the money the platforms put in themselves, producers also set aside part of their marketing budget specifically for subsidies. Getting more of that budget means spending a little less of your own.

A person with knowledge of the matter told QDaily that when Taopiaopiao and Maoyan jointly handled marketing and distribution for Wolf Warrior 2, the subsidy budgets they received were not equal, so one of them had to cover part of the subsidy itself. Which platform a producer picks depends on how much exposure and traffic each can give the film — Taopiaopiao can be reached straight from Alipay, for instance, while WeChat left an entry point for Weiying Technology.

As a shareholder in both Maoyan Movies and Weiying Technology, Tencent may have felt that pressure, which is why it pushed so hard for the merger. And in this deal, Weiying Technology, which swallowed Gewara two years ago, was swallowed itself.

While the two companies' merger was still a rumor, several outlets reported that Weiying Technology had failed to raise a Series D. Not long before that, AI Finance reported that Weiying Technology had fallen behind on ticket payments owed to theaters in Hunan, Jiangxi, Henan and elsewhere. The report quoted Manager Zhang of Yuemu Cinema in Nanchang, Jiangxi, saying Weiying Technology had gone four months without settling accounts, and that if the arrears were not cleared the theater would consider shutting off Weiying Technology's terminal on its premises.

Maoyan was already profitable, but it was also the most conservative of the platforms on subsidies. Enlight Media, the shareholder behind it, clearly lacked the money to keep funding Maoyan's cash burn.

And Taopiaopiao remained a threat to both Weiying Technology and Maoyan Movies. By some reports, Taopiaopiao's market share this summer passed 40%, taking the top spot from Maoyan Movies.

Past experience says whoever is willing to spend more on ticket subsidies wins, for a while. In the end this is still a war about money.