Wednesday, January 20, 2010

Analyzing the Effect of Avatar Losing 2D Screens in China

By now, news outlets around the world have reported the story I mentioned here a few days ago, that Avatar will see all its 2D screens pulled for Confucius this Friday in China. It is a very controversial decision and has caused an uproar among popular Chinese Internet forums. Instead of joining the chorus to express my disappointment, I would focus on a more practical topic: how much does Avatar stand to lose with this decision?

Week 1: weekly total - 287m yuan, 2D gross - 115m yuan, 40.06% of the gross
Week 2: weekly total - 245m yuan, 2D gross - 65m yuan, 26.55% of the gross

The earning from 2D screens went down 43.5% last week, while 3D and IMAX actually increased 4.7%. This illustrates the drastic difference in their respective staying powers. If the 2D screens were allowed to run its normal course, its gross would likely continue to drop at least 45% a week, since the competition will only get stronger as we move closer to Chinese New Year in mid February. If we assume 2D gross would drop 45% each week, then it would be looking at another 79.4m yuan (65/0.45 - 65). However, that includes the Monday-to-Thursday portion of this week, which is not affected by the Confucius decision, and that portion would have accounted for about 65*0.55*0.6 = 21.5m. So the actual loss would be around 58m yuan.

That is not all. 58m yuan would have been the theoretical maximum Avatar will stand to lose if we assume 45% loss a week in earning for 2D screens. However, not all of those people will simply give up on seeing the film. Many of them will have trouble finding access since smaller cities have a lot fewer 3D screens available, but we could assume the news will push some who were planning on seeing it on 2D later to either catch it before it is getting pulled or change to see it on 3D instead. Let's put that percentage at 20%, and taking the 3D surcharge into account, we could recover another 25-30%, and the loss would be down to 40.6-43.5m yuan, or $6-6.5m.

After a more detailed calculation, we could see that the effect may not be as big as one first imagined. Avatar still stands an excellent chance at making $150m and beyond, unless the 3D and IMAX are also cut off prematurely.

1 comment:

  1. Interesting, your analysis seems pretty sound. I figured it shouldn't be a huge issue, Avatar should do fine.