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New Alibaba Pictures CEO warns of 'drastic changes' in China's film industry

New Alibaba Pictures CEO warns of 'drastic changes' in China's film industry
Steven Spielberg joins Alibaba Group's Jack Ma at a press event in Beijing. (VCG / VCG via Getty Images)

Alibaba Pictures, the film and TV production arm of Jack Ma’s e-commerce giant Alibaba Group, has named a new chief executive to grow the upstart entertainment business and contend with what he called “drastic changes” in the Chinese film industry. 

Technology entrepreneur and Alibaba Pictures' chairman Yu Yongfu will replace CEO Zhang Qiang, who was put in charge in 2014, the company said Tuesday.  As part of an organizational change, Zhang and President Zhang Wei have been re-designated as co-presidents of the firm, reporting to Yu.

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Alibaba's leadership shakeup comes amid a dramatic slowdown in the Chinese box office this year, a striking turnaround for a country where ticket sales surged nearly 50% to $6.78 billion in 2015. Analysts say the torrid growth enticed many companies to enter the market quickly, resulting in a glut of bad movies.

Yu, in a letter to employees, said the industry is now entering a new cycle after years of powerful growth as weaker players are forced out of the industry.

"I believe you have felt the drastic changes in our industry the same way as I do," he said, warning that a large number of film and television production companies will opt out or be edged out of the market next year.

"The future is so bright, but reality is tough," he said. "It is both a challenge for film and TV adventurers and an opportunity for entrepreneurs."

Alibaba Pictures, launched in 2014, has grown rapidly by investing in movies and expanding its online ticket selling business. It recently teamed with Steven Spielberg’s Amblin Partners to co-finance and co-produce movies, and has invested in recent American projects such as “Star Trek Beyond” and “Mission Impossible — Rogue Nation.” 

However, Alibaba Pictures lost almost $70 million in the first six months of 2016 on revenue of $39 million, citing costs of ramping up and marketing its online platform.  The company is a separate legal entity from Alibaba Group, and trades on the Hong Kong and Singapore stock exchanges.

Alibaba Pictures' new chief is a film industry outsider. Yu joined Ma's Alibaba empire in 2014 after Alibaba bought his mobile browser business UCWeb. He has risen rapidly within the company, and was appointed as president of its online marketing unit Alimama last year in an effort to spur growth.

Yu told employees the company's new organizational structure will help it reach "new heights" and adjust to sudden changes in a highly competitive and capital-intensive industry.

"The market needs a hard-nosed film and television production company instead of an adventurer with tremendously abundant resources," he said. "We need to devote concrete and thorough efforts to developing the larger and stronger business."

Alibaba is one of many prominent Chinese players — including Tencent and Huayi Bros. -- that have entered the entertainment space by making local investments and backing Hollywood projects.

The biggest and most aggressive is Wang Jianlin’s Dalian Wanda Group, which just this year has bought Legendary Entertainment, Carmike Cinemas and Dick Clark Productions — moves that have invited growing scrutiny from U.S. lawmakers. Senate Minority Leader-elect Charles E. Schumer (D-N.Y.) last week said China’s investments in U.S. industries, including film, deserve a more critical look from Washington regulators.

Follow Ryan Faughnder on Twitter for more entertainment business coverage: @rfaughnder

UPDATES:

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3:24 p.m.: This article was updated with an additional quote from Alibaba Pictures' new CEO.

This article was originally published at 11:50 a.m.

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