Alibaba Pictures Group Cites Online Build-Up In $69M Loss, Despite Earnings Gains

Alibaba Pictures Group Limited, which has been investing in several Paramount Pictures films since last year including Mission: Impossible – Rogue Nation, Teenage Mutant Ninja Turtles: Out Of The Shadows and Star Trek Beyond, reported a revenue increase of 1022% compared with the same six-month period the previous year, mostly due to its vast Internet segment. The build-out of that segment however resulted in a net loss of $69.81M (RMB465.7 million) for the first half of 2016.

Star Trek Beyond is yet to bow in China and will get to audiences there next month. The company has also partnered with Skydance Media for Flying Tigers, a film about the volunteer group of U.S. Army Air Corps, Navy and Marines that defended China against Japanese forces before America entered World War II. Randall Wallace is penning the script.

The company has been fast developing its O2O business segment in China, covering 95% of the country’s total box office. O2O means Online To Offline and is a new business model that combines online shopping to front-line transactions (things like automated ticket sales).

Alibaba’s core operating asset is Tao Piao Piao, of which a 12.4% stake was secured by outside investors in May. Tao Piao Piao’s main marketing expense this year so far was in building its user base for ticket subsidies to movie-viewers. That resulted in the net loss of $69.81M (RMB465.7 million), but Tao Piao Piao’s market share has grown sharply and is now one of the leading online movie-ticketing platforms in China.

However, Alibaba reported steady progress in each of its four core segments: Content Production, Internet-based Promotion and Distribution, Entertainment E-commerce, and International Operations. Overall, the company reported $38.5M (RMB257.3 million) in revenue over the past six months.

Online movie ticketing has grown by leaps and bounds in China not only for the convenience of it but buying online provides moviegoers with discounted prices. That is done to induce the moviegoing population to develop the buying habit to purchase online. Once done, consumer behavior is more easily tracked.

Tao Piao Piao now offers online ticketing and seat selection services in more than 5,000 theaters nationwide, covering 95% of the country’s total box office, and therefore, they are building a significant database for research.

According to the State Administration of Radio, Film and Television, overall box office revenues in China exceeded $3.6 billion (RMB24.5 billion) for the first half of 2016, compared with $3 billion (RMB20.4 billion) in the first half of 2015.

Alibaba noted that the next frontier will be IP-centric merchandise which they call “an important business initiative for the company’s entertainment e-commerce segment.” To that end, the company says it has licensed a number of products for sale and also are pushing sales online and acquiring IP rights.

It notes that Yulebao, which serves as a C2B financing platform for entertainment related projects, was fully acquired from Alibaba Group on December 31, 2015 and that the collaborations between the company and Hollywood on various films with respect to merchandise “have advanced steadily.”

Alibaba also said that in the first half of 2016, they are pushing forward on its content production business and have finished production on Ferry Man, a film produced by Wong Kar Wai. That film will be released in the Middle Kingdom this year. In addition, they completed filming on Three Lives Three Worlds Ten Miles of Peach Blossom, which was adapted from the popular Chinese fantasy romance novel and will bow in 2017. Other major projects in early stage development include visual-effects-heavy The Heroic Age, and ZhengTu.

Alibaba said it will continue to invest in film projects both in China and abroad. It also said it expects to see a substantial increase in revenue in the second half of 2016, compared with the first half.

The Alibaba Group announced in the second quarter of 2016 that its key media investments including Youku Tudou, UCWeb and OTT TV were combined into a Digital Media and Entertainment unit that would be under a unified management structure. Alibaba Pictures is expected to work more closely with Alibaba Group’s Digital Media and Entertainment unit, which includes also Alibaba Music, Alibaba Literature and Alibaba Sports. The company is expecting a synergistic approach that will generate more revenue.

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