×
You will be redirected back to your article in seconds

China Box Office Worth $5 Billion to Studios by 2017

Analyst Jessica Reif Cohen provides exclusive analysis to Variety on market's growth potential

For years, China has held substantial economic promise, with the outsized growth many have long envisioned only recently beginning to come to fruition. During this time, U.S. media and entertainment (M&E) companies have been quietly chipping away at the opportunity, navigating the market’s onerous regulations with high-quality brands and content, evolving government relationships and an increasing appreciation for local culture.

At present, the most immediate opportunity for U.S. M&E value creation in China resides at the local box office, where restrictions on foreign studios have eased (however, ample room for improvement remains). BofA Merrill Lynch Global Research estimates the Chinese box office could yield $5 billion in value potential for Hollywood studios by 2017 vs. approximately $2.2 billion today, including imported and local productions (with this figure potentially doubling under further relaxed regulatory conditions).

Following years of obscurity, China’s domestic theatrical market has transformed into a rapidly growing priority for U.S. film studios — a concept nearly unheard of just five years ago. From 2007-12, China’s box office has improved at a compound annual growth rate of 47%, to $2.7 billion (becoming second largest in the world), fueled by a 30% CAGR in screens, as well as loosened foreign import quotas and a fast-developing local production market.

Indeed, similar to Hollywood’s importance as a leading U.S. exporter, many see parallels to China’s theatrical “coming out” — as the government appears intent on fostering the development of China’s own world-class film products, rooted in local culture and values. At present, BofAML estimates nearly 560 films get made each year in China, with 150-160 releasing theatrically and 70-80 becoming notable box office contributors.

The top 10 Hollywood films in China generated a steady 30% share of the 2012 box office, whereas the top 10 local productions generated 26% of the 2012 box office (vs. 24% in 2011). The uptick in local hit movies reflects the expanding production industry (both in terms of quantity and quality) and preferential regulatory treatment. Regardless of product origin, though, the expanding exhibition footprint and rising consumer purchasing power are pushing all blockbusters into new territory, as the most successful films are now consistently generating more than $100 million in revenue at the Chinese box office.

Assuming the government continues to manage toward a 50/50 foreign/local box office mix, BofAML estimates U.S. studios could generate approximately $3.4 billion in Chinese box office in 2017 from imported fi lms, plus an incremental $1 billion from local co-production efforts (including international proceeds). Admittedly, and only time will tell, there are several variables that could cause this figure to change significantly, including box office shares and the international appeal of local co-productions that release outside of China (these estimates are made assuming modest performance).

Naturally, should the market become large enough where China believes less regulation is needed to achieve local growth objectives, potentially loosened import quotas and/or content-owner splits could drive U.S. studio value substantially higher, perhaps more than doubling to more than $10 billion using box office shares and splits that are more consistent with mature, international market standards.

Outside of the theatrical market, downstream potential for Hollywood studios still appears small, given historical intellectual property issues. Although China is home to a rapidly developing over-the-top market (including YouTube-like services such as Youku and electronic sell-through models), most services are dominated by locally produced television content that is free and advertising supported.

Outside of theatrical content, development of high-quality tourism/out-of-home entertainment destinations is also accelerating in China, leaving theme park operators with globally recognized brands well positioned to harvest demand.

To date, though, most of China’s theme park inventory has lagged behind Western innovation and quality, yielding an opportunity for U.S. operators to help drive the market to new heights.

Comcast Corp. is reportedly planning a Universal-themed park in Beijing (potentially taking a minority stake with a Chinese state-owned enterprise as partner), SeaWorld Entertainment continues to explore “cap-ex light” opportunities in-region (geared more toward warm-weather, unpolluted areas), and Disney remains solidly on track to open its Shanghai Disney Resort in early 2016.

In many respects, BofA Merrill Lynch believes that Disney Shanghai is poised to take the Chinese theme park industry to the next level, both from quality and attendance standpoints. After nearly a decade of negotiations, Disney Shanghai is the largest and highest-profile Chinese investment made to date by a U.S. M&E player.

Within the filmed entertainment and theme park arenas alone, BofAML estimates $10.6 billion in incremental value could be attainable over the next five years. BofAML estimates the Chinese M&E market at approximately $73 billion, and projects it will grow 10.2% over the next fi ve years vs. U.S. growth of 3.8% and global growth of 4.0%.

However, given regulatory restrictions, the opportunities for U.S. M&E companies are decidedly more unique relative to other emerging economies. For example, due to media controls and security interests, foreign programming networks are essentially restricted from landing feeds in the market, rendering China’s vast 386 million TV-household footprint (just 55% penetrated for pay-TV services) into an aspirational target for the time being.

Jessica Reif Cohen is senior media and entertainment analyst, BofA Merrill Lynch Global Research. This column is copyright 2013 Bank of America Corporation and reprinted by permission.

More Biz

  • Korea's CJ CGV Switches Turkey CEOs

    Korea's CJ CGV Switches Turkey CEOs as It Battles With Local Industry

    Yeun Seung-ro has been appointed as CEO of CGV Mars Entertainment, the Korean-owned company that operates Turkey’s largest cinema chain. He replaces Kwak Dong Won, another veteran of the CJ-CGV group. The change of personnel may reflect two ongoing battles within the Turkish film industry. CJ-CGV, which bought Mars for some $650 million in 2016. [...]

  • China Video Streaming Giant iQIYI Loses

    Chinese Video Giant iQIYI Loses $1.3 Billion in 2018

    Chinese video streaming firm iQIYI lost over $1.3 billion in 2018, as revenues and subscriber numbers ballooned. The deepening losses reflected ever higher spending on original content production. Announcing its first full-year financials since a March IPO that launched it onto the NASDAQ, iQIYI said that it lost $1.3 billion (RMB9.1 billion) last compared with [...]

  • Lisa Borders Time's Up

    Time's Up CEO Resigned After Son Was Accused of Sexual Assault

    Time’s Up has announced in a statement posted to Instagram that its former president and CEO Lisa Borders, who resigned Feb. 18, did so after her son was accused of sexual assault in a “private forum.” “Within 24 hours, Lisa made the decision to resign as President and CEO of Time’s Up and we agreed [...]

  • Louis Tomlinson Signs With Arista (EXCLUSIVE)

    Louis Tomlinson Signs With Arista (EXCLUSIVE)

    One Direction’s Louis Tomlinson has signed with Arista, sources tell Variety. While the singer was formerly linked with Epic Records in 2017, he is signed directly to Simon Cowell’s Syco label and will move within the Sony Music family to Arista. Tomlinson teased a new single on Feb. 2, posting on Twitter, “Just heard the [...]

  • Jussie Smollett

    Jussie Smollett's Bail Set at $100,000, Must Surrender Passport

    UPDATED: A Chicago judge set a $100,000 bond for Jussie Smollett on Thursday, as the “Empire” actor made his first court appearance. Smollett faces one felony count of filing a false police report. Police allege that Smollett staged a Jan. 29 attack, telling detectives that he was accosted by two men who used racial and [...]

  • Michael Jackson Estate Accuses HBO of

    Michael Jackson Estate Sues HBO for Non-Disparagement Contract Breach

    The estate of Michael Jackson sued HBO on Thursday, accusing the cable channel of violating a non-disparagement clause by agreeing to run “Leaving Neverland,” a documentary accusing Jackson of sexual abuse. The suit seeks to compel HBO to litigate the matter in a public arbitration process, and claims that the estate could be awarded $100 [...]

More From Our Brands

Access exclusive content