Deep Dive
After COVID-19 Shutdown, Can China’s Burgeoning Nightlife Scene Bounce Back?
From 2010 to 2018, nightlife grew fivefold into a $7.2 billion industry, often through dubious business practices. With the club world at a standstill because of the coronavirus outbreak, insiders…
When the first SPACE nightclub opened in Chengdu, in Sichuan province, in 2015, it was unlike anything else in China at the time. “People had never seen a club like that,” says Leon Chen Zhao, program director of YES! FM 96.3 Chengdu. Massive clubs dedicated to dance music — and dancing — had not existed before then in China. SPACE was “2,500 people together, 60-foot ceilings, LED screens everywhere. I took my Beijing friends there and they were all shocked,” says Zhao, who recalls two-hour waits to get in the door and traffic jams on the streets outside at 2 a.m. “And the most important thing was you could actually dance!”
Chinese people were beginning to discover EDM, and SPACE Chengdu, then the biggest club in China, would push that trend along in a big way, and serve as one of the starting points for an explosive growth in the country’s nightlife business.
“We had people like Martin Garrix or Steve Aoki coming to SPACE for debut shows, and everybody thought, ‘These are people we’ve never seen in our entire lives, and now we can see them for real,’” says Zhao.
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Other clubs quickly followed. SirTeen in Beijing, which also opened in 2015, made a big splash with expensive bottle service and big-name acts — amenities that had been popular in the West for over a decade but still inspired dozens of copycats. The dance music festival scene blossomed as well. In 2016, there were 32 festivals in China. By 2018, the number had grown to 150, including Ultra and Electric Daisy Carnival, festivals that had begun in the United States and expanded internationally.
Although China lumps bars, clubs and all other nightlife or live-music venues into one statistic, the rate of growth from 2010 through 2018 was still staggering. In 2010 there were 28,200 such establishments across the country, and by 2018 the number had more than doubled, to 64,500, according to Zhiyan Consulting, a research firm based in Beijing. During that same time period, the dance-club industry alone mushroomed from $1.4 billion (9.87 billion renminbi, or RMB, the official currency of China) to $7.2 billion (51.19 RMB). Around 5,000 new clubs opened across the country in 2018 — the bulk of them in Shanghai, Chengdu, Beijing, Kunming and Guangzhou, respectively — and although data is not yet available, the number was likely even higher in 2019, when China introduced a policy to back the “night economy” as a way of boosting local economic growth.
Club operators and investors would often pour their short-term cash flow from one successful club into a new club, according to Jim Wong, managing director at Live Nation Electronic Asia. “When they made a million, they would borrow a million and open a new club in another city, and keep doing it and keep doing it,” he says. Competition became so fierce that DJs with international followings, such as Tiësto, Armin van Buuren and Skrillex, commanded Las Vegas-like fees of upwards of $200,000 a night in a half dozen or more cities — and, Wong explains, the clubs paid those fees even if they couldn’t afford it.
Those tactics now threaten to magnify the economic fallout that China’s nightclub business faces in the wake of COVID-19. The party stopped in January when the government put some 60 million people under mandatory quarantine by locking down Wuhan, the epicenter of the coronavirus, and neighboring cities. “The virus came so suddenly — it was a disaster,” says Haoyu Chen, president of Future Club in Nanjing, near Shanghai. He adds that the economic calamity was especially acute because the shutdown occurred just before Chinese New Year celebrations began in earnest.
Although China had begun allowing hundreds of public venues — clubs among them — to reopen over the last few weeks, on March 27 it reversed course, closing movie theaters and other spaces without explanation, leading to speculation that it feared a second wave of infections. Although some nightclubs have been allowed to remain open, a new round of COVID-19 cases could quickly put an end to a nightlife renaissance.
Echoes Of Las Vegas
The boom in China in some ways resembles frothier times in Las Vegas a few years earlier. In the wake of a devastating housing crisis, Las Vegas resorts diversified their businesses in the early 2010s by building massive nightclubs that catered to international DJs spinning then-trendy EDM. Hakkasan opened a five-level, 80,000-square-foot club at the MGM in 2013 with residencies for Calvin Harris, Tiësto and Hardwell. The space cost over $100 million to build and another reported $70 million for DJ fees in its first year of operation. On opening night, when deadmau5 spun, one Hakkasan clubber rang up a tab of almost $600,000, most of it on champagne. That same year, LIGHT nightclub opened at Mandalay Bay in conjunction with Cirque du Soleil. In 2015, Caesars Palace welcomed the 75,000-square-foot OMNIA.
Ironically, just as China was catching EDM fever around 2015, Las Vegas clubs were starting to struggle to be profitable, as fees for the top echelon of global DJs continued an inexorable rise and hotel operators opened more dance clubs, says Matthew Minichino, corporate vp nightlife and daylife at Hard Rock International. “The market became completely oversaturated,” he says.
Even if Chinese clubs are able to reopen soon and remain in operation, Wong predicts many will go out of business because they can’t pay back their loans. When the music resumes, he estimates that China’s live-music industry will be 50% of the size it was before the pandemic emerged — a prediction echoed by the China Association of Performing Arts, a trade organization, which said Feb. 20 that industry experts were projecting a 50% contraction in revenue this year.
According to Chen, China’s nightclub shakeout isn’t entirely attributable to the coronavirus. Much like warnings before the virus swept the United States that stock prices there had become overvalued, Chen says there were indications in 2019 that the club market had become overcrowded and overhyped as new entrants poured money into new ventures and high-profile bookings at unsustainable rates.
“I think the path forward is to realize how fragile the business is,” says Wong. “In many cases, I’m seeing people who are saying, ‘I was too busy thinking that nothing is going to go wrong so I’ll be super aggressive and open 55 clubs at the same time.’” Wong adds that now those operators and investors are realizing, “My 55 clubs are all going to go out of business.”
Jacky Qing, founder/CEO of Club Galame in Foshan, a city of 7.2 million people just west of Guangzhou, declines to divulge the booking fees his operation paid for top-shelf DJs, but he does confirm that the club operated at a loss on those nights when it booked marquee names. Despite that, however, Qing says Club Galame — a 25,000-square-foot space with a 2,000-person capacity — was successful and the economics were attractive. In 2019, he says profits were around $422,000 a month (3 million RMB).
Qing says Club Galame has lost “at least” $21 million (150 million RMB) in the past two months. “At the beginning we thought we’d only be closed for one month,” he says, explaining that the venue’s overhead includes not just rent, tax, and food and beverage costs, but also the cost of feeding and lodging the club’s staff, which is typically done in China’s nightlife business. “Currently we have around 400 full-time employees, and we haven’t fired anyone,” he adds.
For Qing, the sting of having to abruptly shutter his venue is not just economic. Club Galame, which opened in 2015, was among the trailblazers that built China’s clubbing culture. “Before we opened, there was basically no EDM or rave culture, especially in the region around Foshan,” he says. “We put in a lot of effort to promote [those cultures], we spent a lot of money to bring the best DJs, and we’ve been touched to see the results. So many young people have fallen in love with EDM in the past five years because of us.”
There are many stories like this, although most club operators are reluctant to cite specific losses, and most insist they will survive the predicted shakeout. It is, industry executives say, most likely wishful thinking.
Charting A Path To Survival
The looming crisis has forced clubs to find other ways to survive without bottle service and entrance fees. In February, TAXX, one of Shanghai’s biggest nightclubs, became one of the first venues to livestream a four-hour DJ set on China’s version of TikTok, Douyin. (Both are owned and operated by Bytedance.) Some 71,000 people tuned in and the set generated over $100,000 (720,000 RMB). The next day, Beijing’s SirTeen followed, attracting 1.2 million viewers and pulling in over $280,000 (2 million RMB).
On Douyin, users watching a live performance can give “Dou Bi,” a virtual currency available for purchase to show their approval. Those credits can then be redeemed for cash by the club or the performer. Sets are held from the DJ’s house in most cases, and a club’s social media reach draws significant audiences. The resulting revenue may not approach a typically good night at the club, but it’s better than nothing and keeps fans engaged and connected with the club brands until it’s safe to come back in person.
Cindy Gu, marketing manager for Spinnin’ Records Asia, says these virtual dance parties represent an exciting evolution in the industry and a hedge against future downturns in live events.
“This new model opened so many doors in a way that people hadn’t thought about before,” says Gu, who began working in dance music around 2016. “The cost of booking is lower, and you can also reach an audience during a club’s [slow periods] from Sunday to Wednesday.” She adds that “from a talent perspective, a lot of local DJs were able to come out from the shadow of international A-listers and get their own moment in the spotlight.” As a result, she predicts “a lot more Asian artists growing quickly in their home territories in 2020.”
Ferry Rais-Shaghaghi, an agent at Creative Artists Agency who represents artists Matoma and Baynk, says he has been impressed at the ingenuity he has seen in this difficult time. “It’s actually phenomenal how [streaming shows] have turned into a tool for these artists. It’s a great way,” he adds, “to keep people and fans that are home entertained and plugged in, and for the artists to stay connected with their fans.”
Gu thinks all of this could help boost local talent as well. “It is an unfortunate time for everyone but I think, on a positive note, it gives us the space to reflect on the business and be creative,” says Gu. “And I can’t wait to support and help these talents take their careers to the next level.”
China may hold some lessons for the American club industry, especially as Las Vegas navigates its own COVID-19 lockdown. Just as doctors in the United States are turning to their Chinese counterparts for counsel on treating — and saving — patients, survival tactics learned by Chinese promoters as they put clubs back in action — including temperature screenings at the door and app-controlled virus-status readings on smartphones — could become relevant in the weeks and months to come. China’s success with alternative revenue streams like Douyin could conceivably be translated to American markets. (TikTok users are also able to pay livestreamers using virtual coins that can be converted to cash through PayPal.) Early experiments with livestreaming of DJs in the United States — like a Hard Rock-sponsored Facebook Live event on March 28 with sets from 3LAU and two other DJs recorded from their homes — have so far not involved charging fans much, if anything, and thus contributed little to the clubs’ bottom lines.
Rais-Shaghaghi says those alternatives will work — to a point. “This technology will turn out to be a great new tool that we can use in different ways down the road, but there’s absolutely nothing that can replace that human interaction of a live show,” he says. “I think we’ll be in a very healthy position in a few years,” adds Rais-Shaghaghi. “It will just take us some time to bounce back.”
Moses Sun, marketing director at Shigoo Symbole Investment Group, which operates 25 clubs in China under the SPACE brand, agrees. He says that, despite the coronavirus-related shutdown, the company is moving ahead with expansion plans, which include opening five new clubs in the next year.
Sun says Shigoo will also shift to using more local DJs. “Inviting international DJs is unrealistic amid the COVID-19 outbreak because of travel restrictions,” he says. “But we also want to offer a better stage for our own Chinese DJs. It’s time to support them.”
COVID-19 wasn’t actually the cause of the downturn in China’s club business, but more of a catalyst, Gu contends. “It has forced a lot of people to rethink their business model. It’s about the survival of the fittest.”
Additional reporting by Alexei Barrionuevo.
