Shanghai Paradise Film Distributing Co, which owns Paradise Cinema, said last week it would sell a stake of the 1,400-seat cinema to Warner Bros.

Wu Hehu, deputy manager of the company, confirmed the report over the weekend but declined to give further details concerning the deal.

The deal would expand the tiny foreign presence in China's film industry, as China has promised in its World Trade Organization (WTO) commitments, though Warner's stake would be below a 49 per cent ceiling set by the WTO agreement.

Two foreign companies - Eastman Kodak Co, based in Rochester, New York, and Golden Harvest Entertainment Cinema Co Ltd of Hong Kong - already own minority stakes in two other Shanghai-based cinemas.

In the largest-ever investment in the industry, Eastman Kodak, jointly with the Shanghai Film and TV Group Co, invested US$4 million in a cinema which opened early this year.

Golden Harvest Entertainment Cinema Co in 2000 co-invested with the Shanghai Friendship South Business Co in another cinema in the city.

The Warner Bros office in Beijing said all comments regarding the stake sale would be fielded by its headquarters.

"We are still awaiting governmental approval," Scott Rowe, a spokesman for Warner Bros' head office, told Business Weekly via e-mail.

"We began planning this project last year in anticipation of the dynamic changes that will occur now that China has joined the WTO," said Barry Meyer, chairman and chief executive officer of Warner Bros. "Such projects will fuel the growth of the Chinese film business and help realize the vast potential of this as yet untapped market."

Shanghai is a particularly important cinema market in China. While it only represents about 1 per cent of China's population, it accounts for 12 per cent of the country's total box office revenue. Historically, the Shanghainese audience has also always been the trendsetter in China in the consumption of both domestic and imported films.

"The deal, which is awaiting government approval, is expected to benefit our entire film industry," Wu said, adding that Warner Bros' advanced concepts and experience will help Shanghai Paradise promote its cinema management and movie marketing.

"Based on our experience in developing the multiplex concept in other territories around the world, we have found that venues such as this one provide the spark that triggers growth not only in the exhibition arena, but also in the entire film industry," said Millard Ochs, president of Warner Bros' International Theatres.

"As a result of China joining the WTO, industry experts predict a two-fold increase in the number of films to be imported into China this year alone, and the response to such recent films as 'Harry Potter and the Sorcerer's Stone' indicates an upsurge of interest by Chinese filmgoers for the theatrical experience," said Ellen Eliasoph, another senior manager of Warner Bros.

The introduction of foreign investment will help activate the currently sluggish Chinese film market, said an official of the film distribution and exhibition division of the Film Bureau of the State Administration of Radio, Film and Television.

A recent survey shows more than 16 per cent of urban residents did not make even one trip to the cinema last year, while half of them made fewer than five visits.

The official predicted the introduction of new business models and new ideas regarding management of film companies will bring the industry to a new height.

Wei Jian, vice-general manager of Beijing Xinyinglian Film Distribution Co, said the introduction of foreign investment in the domestic cinema sector will be good for both Chinese audiences and existing Chinese film companies.

Opened in February, Shanghai Paradise is Shanghai's leading film distributor. Its distribution and exhibition circuit account for approximately 90 per cent of the total box office sales earned annually by both foreign and domestic films in Shanghai.

Shanghai Paradise's in-depth knowledge of viewing audiences and marketing techniques have secured its position as a leading exhibitor that operates 140 screens, representing 90 per cent of the total commercial screens in Shanghai.

Shanghai Paradise's relationship with Warner Bros began in 1992 when Shanghai Paradise helped Warner Bros start a dialogue with the central government regarding the importing and distribution of foreign films.

Shanghai Paradise also helped bring about an agreement signed between Warner Bros and the China Film Group in 1994 - the first film distribution agreement in China to be signed by a major Hollywood studio.

Prior to 1949, Warner Bros ran its Chinese distribution business from Shanghai. In 1986, Warner Bros Pictures co-produced Steven Spielberg's "Empire of the Sun" with the Shanghai Film Studio.Over the last decade, Warner Bros' various distribution divisions have maintained strong relationships with Shanghai's film and television companies and government authorities.

(Business Weekly July 23, 2002)