The huge movie piracy problem which sees quality DVD copies available for less than $1 just days after theatrical release, means getting into the cinema business in China can easily be a money-losing proposition.
But little-known New Zealand success story Vista Entertainment Solutions says the potential rewards are too great to ignore.
Only about 3 per cent of China's population went to the cinema in 2004, according to Dodona Research, but Auckland-based Vista, which makes online ticketing software, figures even an incremental increase will spell huge dividends.
"It doesn't take much imagination to see what they would do if they even got to 0.5 [visits a year per person], which is still one-eighth of the cinema-going rate to here and in the United States," said Vista chief executive Murray Holdaway.
Piracy is a major problem. The Motion Picture Association of America says the major studios lose more than US$3.5 billion ($4.9 billion), or about 18 per cent of last year's revenue, annually to bootleggers. According to an April report by the US trade representative in China, at least 90 per cent of virtually every type of copyrighted work sold there is counterfeit.
Along with rising admission prices - the average cost of Chinese cinema ticket in 2004 was 27 yuan ($4.60), while the price to see Star Wars: Revenge of the Sith in Beijing runs to 80 yuan - piracy has helped prevent movie-going from catching on.
But, although the percentage is low, the total number of cinema visits in China - 41 million in 2004, according to Dodona, is still staggering. The average New Zealander, in comparison, visited the cinema 4.3 times in 2004, a total of only 17.6 million visits. If China could work up to 0.5 visits per person, as Holdaway hopes, that's a whopping 655 million tickets sold.
The Chinese Government is also relaxing limits on how many foreign films per year can be shown, which should lead to increased visits.
With that kind of potential, it's easy to see why some cinema companies are clamouring to get into China despite the piracy problem.
Warner Brothers is one example. The US company last year opened its first majority-owned cinema in Nanjing, and plans to have 40 by 2008.
Vista was well positioned to grab a piece of the pie, Holdaway said.
The company had footholds in Taiwan and Hong Kong, with 10 and five cinemas respectively, using its software. That had resulted, Holdaway said, in Vista's developing a Chinese-language version.
The company was working with New Zealand Trade and Enterprise to identify Chinese partners, and Holdaway said he'd be visiting China in a few weeks to scout opportunities.
The cinema market was still in its infancy, but that meant it was a key time to get in.
"China's going to be an investment market, pretty much like India was for a while for us," he said, " but it's important to be there early."
Although Vista services about half of New Zealand's 300 screens through chains Village Skycity, Rialto and Berkeley, most of its business is international. Holdaway said the company makes only about 10 per cent of its revenue here.
Canada will soon be the company's biggest market. Vista had been servicing the country's largest chain, Cineplex Galaxy, and was in the process of signing a deal with its rival Famous Players.
But Cineplex said last week that it was buying Famous, which would result in Vista servicing over a 100 cinemas or 60 per cent of the market.
