China’s total box office may have hit another record high in 2019, but a struggling exhibition sector and plummeting growth in lower-tier cities will likely sow seeds of trouble in 2020 for the world’s second-largest film market, Chinese firm Tencent Entertainment said in a year-end white paper.

China’s theatrical market has grown an impressive 60-fold in the past twenty years, but since 2015, growth rates have seen a “cliff-like decline,” the report notes. Last year’s box office was essentially propped up by just four films that accounted for around a quarter of total earnings.

“No one can guarantee that in 2020, another batch of films that each break RMB4 billion ($570 million) in box office will come out all at once,” Tencent News said in an in-depth analysis posted to one of its social media accounts last week. “By the end of 2019, China’s film market has already put one foot on the path to a turning point towards negative growth.”

Top-line figures also obscure what the firm called “hidden secrets” plaguing the film industry. Chief among these is the fact that the average occupancy rate of theaters across the country has hit a new five-year low, at a time when the movie-going of audiences in third-, fourth- and fifth-tier cities — previously hailed as the driving force of future box office growth — has stagnated.

In the past two decades, the number of cinema complexes in China has grown from a few hundred to more than 11,000, and its screen count risen from around 1,000 to nearly 68,000. While such growth is unprecedented, a healthy market needs regular occupancy and a culture of movie-going, which the country still lacks.

On average, Chinese citizens each went to the cinemas 1.23 times last year, according to Tencent, which reports ticket sales of 1.66 billion in 2019 from a population of 1.35 billion. Furthermore, an average of just 11.1% of seats at each screening in China were occupied — the lowest rate of the past five years. Even at peak occupancy back in 2015, attendance rates were just 17.4%. “This is a very dangerous sign,” said Tencent, since low occupancy marks a huge waste of resources and big challenges for the exhibition sector.

The cinema complex with the lowest occupancy rate in the country made an average of just 43 cents (RMB3) per theater last year, it noted.

The problem isn’t ticket prices, which nation-wide average about $5.78 (RMB40). The per capita disposable income of Chinese urbanites last year was more than RMB40,000 ($5,710) according to the National Bureau of Statistics — meaning that generally speaking, movie-going is a form of cultural consumption that audiences can afford.

Market growth was thought to be dependent on getting larger numbers of “small town youths” from China’s third-, fourth-, and fifth-tier cities into cinemas. But the proportion of China’s overall box office coming from these cities has drastically declined in the past three years, at rates that Tencent deemed “alarming” and “shocking.” While these tiers each used to contribute about 30% of the overall box office as recently as 2017, they’ve now plummeted to account for less than 10% each of the total.

With the numbers of movie-goers in first- and second-tier cities remaining largely stable in recent years, a drop in audience numbers from less-developed regions means that “slowdown in growth will be unavoidable,” the firm said.

The report also provided a number of general statistics that help illustrate the changing presence of foreign films in China’s protectionist market.

The gap between the size of the North American and Chinese theatrical markets last year narrowed slightly, mostly due to a fall in the North American box office, rather than a boom in China. While China’s box office reached a record high of RMB64.3 million in local currency in 2019, its U.S. dollar value remained the same as the previous year, at $9.2 billion. Meanwhile, the North American box office fell from $11.9 billion in 2018 to $11.3 billion.

China produced 2,308 films in 2019, a five-year low, but put 524 of them — a five-year record high — up on the big screen, according to Tencent’s analysis. Other data services including China’s National Film Administration, show significantly different production numbers.) The total number of imported films ticked up slightly, rising from just 76 in 2015 to 121 in 2018 and 124 last year. Though the number of quota films dipped to a four-year low, the number of flat-fee imports hit a five year high. China imported just 36 quota films last year, down from 42 the year before, but took in 82 flat-fee titles, up from 77 the year before, and just 50 in 2017.

The most unexpectedly successful dark horse titles of the year were the Oscar-winner “Green Book” and Lebanon’s “Capernaum.” English-language titles were most popular in Guangdong, Jiangsu and Zhejiang provinces.

Last year, films broke the RMB100 million ($14.5 million) mark more quickly than ever before, but there were fewer such titles than in previous years. There were noticeably fewer romance films, actioners and comedies released in 2019, and titles in those genres did markedly less business than in previous years, particularly comedies. Sci-fi and animation, meanwhile, were way up.

One sector to watch in 2020 will be China’s online film sector — the straight-to-streaming titles put out by platforms such as Tencent Video and rival iQIYI.

The film industry was shaken by new tax rules and regulatory uncertainty in 2019 that caused a total of 1,884 film and TV companies to shutter, according to business data firm Tianyan, and left many film professionals jobless or looking to switch industries.

Tencent says online films have seen “wild, barbarous growth” because they require less investment than theatrical titles, are made on a shorter cycle, and involve fewer, more controllable risks, since they’re commissioned and distributed by the platforms themselves, in-house.

This is not, however, to say they can bypass China’s strict censorship. At the beginning of 2019, the country’s top media regulator put out a new policy that requires online films, like theatrical ones, to submit to government approvals before both shooting and dissemination.

Fewer online films were produced in 2019, of greater quality. Chinese companies put out around six or seven hundred of them last year, about the same number it produced four years ago. But budgets have gone up. “Daoshi Chushan,” a popular, representative title from 2015, was shot on a $40,000 (RMB280,000) budget in just eight days. Now, it’s not uncommon to see budgets of more than $1.5 million (RMB10 million). In the 5G era, with mobile viewing in China on the upswing, Tencent predicts to soon see online films with budgets as much as $4 million (RMB20-30 million) — about as much as a low- to mid- budget theatrical film in China.

“In 2020, while the growth of theatrical films is sluggish and the entire industry will have to face the market’s inflection point, more film companies and practitioners will turn their attention to online movies, which may thus provide new developmental directions for the Chinese film industry,” the company wrote.