The Business Herald’s markets and banking reporter.

China Business: Vista finds a role in films

Innovative Auckland software company, Vista Group, is making the most of the upsurge in movie-going in China, writes Christopher Adams.
Brian Cadzow says Vista has a strong position in China, but there are regulatory risks. Photo / Natalie Slade
Brian Cadzow says Vista has a strong position in China, but there are regulatory risks. Photo / Natalie Slade

China's booming cinema market is expanding by leaps and bounds. The statistics are eye-popping.

There were 2000 cinema complexes in China in 2010, according to a report by Credit Suisse.

Driven by growth in the middle class and urbanisation in smaller cities, that figure had almost tripled to 5812 by 2014, with 9600 cinemas expected to be running across the Asian superpower by 2017.

Credit Suisse reckons China's box office will overtake North America's in 2017 to become the world's biggest, and reach US$16.1 billion by 2020.

All this growth has been a boon for New Zealand cinema software developer Vista Group.

Since 2009, the Auckland-based company has ramped up its presence in China to the point where it now has a 6-8 per cent share of the country's large circuit market (exhibitors with 20 or more screens).

Its technology - used for applications including online ticket booking, analytics, food and beverage sales and staff rostering - has been installed in more than 400 sites across China, from the wilds of Yunnan province to the mega-cities of the eastern seaboard.

The company, which has an 18-strong office in Shanghai, rolled out its technology in 230 sites run by Chinese cinema operator Dadi in just six weeks during 2014.

"For the people doing that job it was tough," says Vista executive director Brian Cadzow. "That was in something like 70 cities across China in some pretty far-flung places."

In its latest Chinese development, the company announced a partnership in March with China's WePiao, the operator of a smartphone movie ticketing app. The tie-up is expected to generate more than $30 million for NZX-listed Vista in the first year.

 Lumiere is one of Vista‘s Chinese clients.
Lumiere is one of Vista‘s Chinese clients.

WePiao's investors include Tencent - the parent of Chinese online messaging giant WeChat - the China Cultural Investment Fund, and some of the biggest Chinese cinema chains.

Its ticketing app is embedded in WeChat, which has more than 600 million monthly active users, mostly in China.

The deal will see WePiao take a 2 per cent stake in Vista and establish a joint venture between the two companies that will receive distribution rights to all of the New Zealand firm's technology, including its Veezi software targeted at smaller, independent cinema operators and its Movio film marketing software.

Given its software systems are used for collecting tax and government reporting in China, Vista had to meet many regulatory requirements to gain the certifications required to operate in the country.

All of its competitors in China are domestic players.

"We're still the only international company to have a licence to sell cinema software in China," says Cadzow. "And at this stage, from what we can tell, they're not going to issue any other licences to any other international players."

He says Vista has a strong position in China, but there are regulatory risks. The WePiao joint venture should give Vista added protection against that risk, Cadzow says.

"It's all very well to change the rules and affect a foreign company, but to do this to a large, local company would be different."

Cadzow says the WePiao partnership may also help Vista scale up and get a more meaningful share of the Chinese cinema market.

"They're seeing it as an opportunity to tie-up with someone like Vista, who has relationships with operators, which can help them market cinema tickets into their 600 million [WeChat] users."

Cadzow thinks long and hard before describing how concerned he is about China's economic outlook.

"Clearly you can't ignore the overall financial situation in China and what impact that might have," says Cadzow, one of the co-founders of Vista, which was established in 1996.

"But at the moment this industry seems to still be growing and there's still a lot of investment going into it."

China's so-called economic miracle has been on shaky ground lately.

Question marks hang over the Chinese Government's ability to manage a transition away from the investment and export-led growth of the past in favour of domestic consumption-driven expansion.

GDP growth fell to 6.7 per cent in the first quarter of this year, according to official figures, the slowest rate since the depths of the global financial crisis in 2009.

Cadzow says the cinema market has proven relatively resilient in the face of economic downturn in many developed economies.

"When times are tough, cinemas can actually do quite well," he says. "What tends to happen is people who would normally go away for the weekend can't afford to so they go to the movies instead."

So would China's booming cinema industry be insulated from a hard landing for the Chinese economy?

"Clearly it depends on how hard the landing is," Cadzow says. "If there's a depression-type hard landing that's going to have an impact because it'll slow down builds ... shopping malls will stop being built and basically almost every shopping mall that gets built has a cinema in it."

For now, Vista - whose software is used on more than 60 countries - is upbeat on its prospects for further Chinese growth.

"We want to see our market share in China lift towards our worldwide market share [around 38 per cent]," Cadzow says. "Exactly where we think that will end, we don't have a defined goal."

The Credit Suisse report says ongoing new cinema builds will be driven by further urbanisation in China's smaller cities. "We believe that cinema coverage in Tier 1 cities [such as Beijing, Shanghai and Guangzhou] is already saturated, which was evident in 2014 and only 10 per cent of the new cinemas were actually built in those cities," says the report. "As a result, the future expansion of cinemas will focus on Tier 2, 3 and 4 cities."

The report, published in September, says China's film sector is going through a warring period.

"The market landscape is rapidly changing and both incumbents and new entrants are eager to make a push to become the five to eight major players in China over the next three to five years," it says.

"On top of that, Hollywood is also making a strong push, hoping to grab a piece of the new box office market, despite SARFT's [the State Administration of Radio, Film and Television] protective measures of trying to control the import and release of Hollywood films in China."

- NZ Herald

Get the news delivered straight to your inbox

Receive the day’s news, sport and entertainment in our daily email newsletter

SIGN UP NOW

© Copyright 2016, NZME. Publishing Limited

Assembled by: (static) on production bpcf03 at 09 Dec 2016 09:25:35 Processing Time: 386ms