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Alibaba Pictures, the entertainment arm of Chinese e-commerce giant Alibaba Group, has issued a profit warning, saying it expects losses for the financial year ended March 31, 2020 to range from RMB 1.1B-1.2B ($156M-$170M). That would be an increase of over 330% as compared to the previous year. The company cited “complicated difficulties in pursuing profitable operation faced by the entertainment industry in mainland China since 2019” and a “significant decrease” in the group’s fourth quarter revenue as a result of the outbreak of the coronavirus.
In a filing to the Hong Kong Stock Exchange late last week, Alibaba Pictures noted there is “additional uncertainty in the overall operating environment of the industry.” With movie theaters closed since late January due to COVID-19 — kiboshing the lucrative Lunar New Year period — and production halted, entertainment companies have been exposed to mounting pressure. That’s coming off a 2019 that hit a new box office record but nevertheless saw slowed growth with just 5.4% versus 9% in 2018 on a local currency basis, and an admissions hike of just .5%.
The year was complicated by date changes, pile-ons and the pulling of certain films. After cracking down on tax fraud at the end of 2018, and with the shift of oversight of the film industry from SAPPRFT to the Propaganda Department, there had been fear about investing — and even pre-coronavirus there was concern about a dearth of new product this year and into 2021.
Alibaba noted that many of its partners “are facing operating difficulties and risks of disrupted capital chain.” Given the circumstances, the group’s receivables and investment projects “are subject to recovery risk.” However, it said there is an “adequate inventory of films and TV dramas and sufficient cash reserves” and that it “remains optimistic” on operations in each segment for the financial year ending March 31, 2021. Looking ahead, “in addition to maintaining its focus on building infrastructure for the entire film and TV industry chain, and on enhancing industry-wide digital capabilities,” Alibaba will “make greater efforts in the creation and composition of its comprehensive entertainment contents.”
Alibaba Pictures had significant hits in China during 2019 including Green Book (via its investment in Amblin Partners), which made over $70M locally.
Further details of Alibaba’s 2019/2020 final results will be provided in late May of this year.