US private equity firm the Carlyle Group has taken an 80 per cent stake in Asia’s largest provider of cinema digital servers in an attempt to cash in on the explosive growth of the Chinese film-going market.
China has about 7,000 commercial cinema screens across the whole country, or around one-seventh the number in the US, but it is adding an average of three screens a day, by far the fastest growth rate anywhere in the world.
Carlyle’s latest acquisition is Hong Kong-based GDC Technology, which holds about 54 per cent of the market for the digital cinema servers at the centre of the current wave of cinema digitalisation.
In China, the digitalisation rate of cinemas is as high as 70 per cent, compared with a global rate of about 25 per cent.
The Chinese cinema industry has been able to leapfrog technologies because so many multiplexes are newly built and can directly install digital players rather than having to make costly upgrades to old analogue equipment.
Carlyle did not disclose financial details of its acquisition but people familiar with the deal said it paid about $75m to buy the 80 per cent stake in GDC Tech from its previous shareholders, which included Beijing Capital Steel and Li Ka-Shing, the Hong Kong tycoon widely regarded as Asia’s richest man.
Carlyle was joined in the investment by Yunfeng, a Chinese private equity fund backed by Jack Ma, the founder of Alibaba, the internet company.
Man-Nang Chong, GDC Technology founder and chief executive, said his company’s net profits grew roughly 25 per cent in the first nine months from the same period a year earlier as the company grabbed market share in places such as Japan and China.
The company’s main competitors are Dolby, Sony and US-based Doremi.
“We are really well placed to catch two waves right now – the global wave of digital cinema conversions and a second wave of new screens in China,” Mr Chong told the Financial Times.
Fox Studios has said it will now provide only digital copies of its films in the Chinese territories of Hong Kong and Macao and Mr Chong believes this trend will quickly spread to other studios and regions.
Of the estimated 150,000 movie screens in the world 25 per cent were digitalised by the end of the first quarter this year, up from just 11 per cent of total worldwide screens at the end of 2009.
Mr Chong expects more than 85 per cent of the Chinese cinema industry will be digitalised by 2012.
Possibly the biggest obstacle to the development of the Chinese box office is the Communist party’s strict censorship regime, which bans anything considered politically sensitive, making many topics off-limits for moviemakers and distributors.
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