After a year in which Britain thumbed its nose at the rest of Europe, and Americans elected a man who promised to build a wall on the border, much of the world seems to be turning inward, retreating into a defensive shell. But one thing, at least, is defying that trend: the entertainment business.
Passport in hand, the industry is forging ahead with its march across the globe. Films, TV, digital, and other forms of content entertainment are increasingly leaping across borders — or even erasing them — from Siberia to cyberspace. In return, that content is giving consumers their own powerful passport, to a shared land of imagination and ideas, of stories that enthrall and enrich far-flung people who might otherwise have little in common. This year, the story of a lost fish managed to find its way into the hearts of millions of moviegoers on six continents, in countries including China, Australia, South Africa, Italy, Argentina, and the U.S.
“Finding Dory” also managed to reel in a boatload of money. Its worldwide haul of more than $1 billion is part of a global entertainment and media revenue stream in 2016 that looks poised to surpass last year’s record-breaking estimated total of $1.7 trillion. Although growth is expected to slow over the next few years, with some parts of the planet in the grip of political and economic uncertainty, that figure is forecast to keep on rising, to as much as $2.1 trillion in 2020, according to consulting giant PwC.
The growth is being fueled by new and emerging markets and new technology. China and India, which between them are home to a third of humanity, have long commanded the attention of entertainment purveyors, and will continue to do so for years to come. By the end of the decade, the Chinese box office is widely expected to outstrip that of the U.S. — which has already topped $10 billion in 2016. But other countries with rising levels of disposable income also present opportunities.
More content is reaching more consumers than ever, thanks to new distribution pathways carved out by technological advances and by enterprising companies around the world on the hunt for unlikely destinations. This year, for example, the Indian film “Ki & Ka” journeyed all the way to the Ivory Coast for a theatrical release — a first there for a Bollywood film. Over-the-top options and other digital services are making entertainment newly available to cellphone-toting masses in corners of Africa, Asia, and the Middle East where traditional outlets like cinemas and cable TV have spread more slowly.
Innovative platforms are attracting consumers in developed markets like the U.S. as well. But they’ve sent established media players scrambling to adjust to new rules of the game, rules increasingly being written by the likes of Netflix and Amazon, which have ambitious global strategies of their own. With cord skeptics — the cutters and shavers — multiplying fast, especially among coveted younger viewers, the challenges facing the old entertainment ecosystem are set to deepen in the coming months and years.
“It’s the best of times in that the numbers are still up and still growing,” says Mary Ann Halford, a senior managing director with FTI Consulting in London, about entertainment and media overall. “But it’s also a time where there are warning signs. There are cracks in the dam. Entertainment consumption patterns haven’t settled.”
And a world without borders isn’t necessarily a utopia, at least not commercially. Many industry figures loudly lamented Britain’s decision in June to withdraw from the European Union, yet at the same time, they were aghast at proposals for greater European unity in the form of a single digital market across the continent. That jeopardizes the lifeblood of the entertainment business in Europe — the territorial licensing system — which generates billions of dollars for national film and TV industries and for Hollywood as well. Although EU officials have recently begun to backpedal on the issue, executives are keeping a wary eye on Brussels and whatever new proposals for European digital integration come down the pike next year.
Any such threat to revenue abroad looms larger now than in the past, as trade overseas grows more important to entertainment companies’ bottom lines at home. What was once regarded almost as a sideline or bonus has become integral to business models throughout the industry.
“International is unbelievably key,” Halford says. “It first started with the film business, then it moved on to the television business, and now you’re seeing it in the OTT services. International is a critical component to what’s going on.”
For Hollywood, the foreign market that continues to transfix is China. And with good reason: Its blistering economic growth, despite slowing down in recent years, remains the envy of other developing countries. Relentless urbanization and large-scale infrastructure investment have turned what was once a nation of peasant farmers into a vast reservoir of consumers eager for entertainment.
During the first nine months of 2016, China built new movie screens at the astonishing rate of 27 a day, according to research firm IHS Markit. With a population four times that of the U.S., China’s capacity for more theaters remains huge; Chinese conglomerate Wanda alone has pledged to build 1,500 screens every year over the next decade. At the end of September, the nationwide tally stood at nearly 39,200 screens, second only to the U.S., which boasts about 40,500. But the feverish pace of construction means that the Middle Kingdom probably grabbed the No. 1 spot last month.
Eclipsing the U.S. at the box office will come later; despite the new screens, Chinese box office growth has slackened dramatically from a white-hot 49% in 2015 to most likely a single-digit rate this year, owing to a crackdown on fraudulent reporting and sketchy ticket-pricing schemes, and to a weaker crop of films. The drop has sparked concern in Hollywood and beyond and has led analysts to lengthen their forecasts for when China will become world box office champ; instead of next year, as had originally been predicted, it’s more likely to happen two or three years from now. But make no mistake: China’s great wall of moviegoers, who have more than quadrupled the country’s box office earnings since 2010, make it an inevitability. Little wonder one senior Hollywood executive says that no tentpole or big action pic gets greenlit these days unless a studio’s international division is confident it’ll sell in China.
The sheer size of the Chinese market tends to overshadow all others. But India, China’s fellow member of the billion-population club, beckons — though Bollywood and other indigenous studios still rule there. Also encouraging is the prospect of growth in Indonesia, the world’s fourth most populous nation, where spending on entertainment and media is increasing faster than the growth rate of the economy at large.
“If multiplexes get built inside and alongside shopping malls, which has been a tried-and-tested formula for success, you’d have to say that’s got a real shot,” says Duncan Clark, head of distribution for Universal Pictures Intl. “As has a market like Vietnam, which is going through a rebuilding and trying to create and develop an infrastructure.” He adds, “The exhibition infrastructure is what drives success in my world, and it’s encouraging to see that that’s beginning to take hold.”
A theater-construction boom has likewise boosted the industry in Mexico, whose box office vaulted into the world’s top 10 for the first time last year. This year’s receipts are on track to beat 2015’s record take. But that sunny picture belies a significantly darkened outlook for the nation, from Hollywood’s perspective, in the wake of Donald Trump’s election, which has caused a precipitous plunge in the value of the peso. The devaluation has hit Mexican distributors badly and severely eroded the dollar-denominated earnings of the Hollywood titles that dominate the market. Whether the currency can recover much ground in coming months, with Trump in the White House, is uncertain, forcing U.S. studios to revise their projections downward and rethink their strategies for south of the border.
The outlook is also mixed elsewhere in Latin America. Colombia, one of the region’s biggest economies, is on the cusp of ending a half-century-long war between the government and left-wing rebels, and is seen by some as a promising emerging entertainment market. The Andean nation posted a healthy gain in movie attendance for the first half of 2016 compared with the same period in 2015. Farther south, Argentina clocked more than 51 million theater admissions last year, a domestic record, but it may fall short of that number this year.
Brazil, South America’s giant, remains a tantalizing but tough nut to crack, with its startling disparities in wealth, uneven infrastructure, rampant corruption, and a turbulent political scene that recently saw the president impeached and replaced. An abysmal number of screens — barely more than 3,000 — serves a population of 200 million. Still, box office has gone up every year over the last decade, and the southern Brazilian town of Gramado hosts one of Latin America’s most important film festivals. UPI is about to open an office in bustling São Paulo.
“That’s getting ourselves properly geared for a market that has real potential,” says Clark, who adds that “people have said that about Brazil for years.”
So what sells all over the world? The two Fs: family fare and franchises. In almost every major market, at least one of the three top-grossing films this year (as of late November) featured a talking animal or a Lycra-encased crusader. Hollywood currently has a lock on globally successful, stratospherically expensive superheroes, but for family entertainment, others are trying to muscle in on its turf. Studiocanal, the European powerhouse behind the hits “Paddington” and “Shaun the Sheep,” has identified family-oriented films that travel well as a key pillar of its growth strategy for the future.
“They don’t need to be crazy expensive, so we can fully finance,” says Ron Halpern, Studiocanal’s chief of international productions and acquisitions. “We’ve definitely been optioning other books, and we’ve definitely been developing seriously in that space.”
The second Paddington movie, with an expected budget of $75 million to $80 million, is due out in late 2017. A “Shaun the Sheep” sequel and “Early Man,” another stop-motion animated feature, are aiming for 2018.
As a market, Europe is patchy. The continent as a whole — in fact, Western Europe by itself — outspent China at the box office last year. Cinema admissions were up during the first half of 2016 by 14% in Italy, 10% in Spain, and 5.5% in France, according to IHS Markit. But those gains were tempered by a 4.8% decline in Britain, the world’s third-largest box office territory, and a steep drop of 13.9% in Germany, Europe’s biggest economy. Whether this is the beginning of a worrisome trend for either country is unclear.
Britain has been further battered by a fall in the value of the pound comparable in magnitude to the peso’s tumble in Mexico. Like the peso, the pound has come undone because of an election — in this case, the Brexit vote — and could sink even lower next year as divorce proceedings between Britain and the EU pick up pace. Studios and distributors are bracing for the fallout.
Much of Europe is rushing to capitalize on entertainment’s great migration: the astonishing shift of money and talent from film to television. High-end dramas such as Britain’s “War & Peace,” Germany’s “Deutschland 83,” Italy’s “Gomorrah,” France’s “Versailles,” and the countless skeins of Scandinavian noir have exploded in the past few years. This year’s slate of European shows includes series directed by Oscar-winner Paolo Sorrentino and starring actors such as Dustin Hoffman and Jude Law. In Britain alone, the number of big-budget programs qualifying for the country’s film tax credit has more than doubled in two years, to 77; spending has almost quadrupled during that period.
A similar trend is sweeping across the U.S., where independent producers and big studios spy growing opportunities in television. For Hollywood, TV serves as a useful hedge against the unpredictable returns from movies. Television’s share of overall revenue is rising at Lionsgate and MGM, for example, while the percentage is slipping when it comes to films. The TV feeding frenzy has been further stoked by Netflix, Amazon, and Hulu, which are eagerly gobbling up others’ content and commissioning their own. Netflix had its global rollout earlier this year; Amazon on Wednesday announced the international expansion of its Prime Video streaming service to more than 200 territories.
“I don’t see any short-term slowing down,” says Stuart Baxter, president of Entertainment One Television Intl. “Supply and demand have risen reasonably in equilibrium…. There are still new players entering the market. Demand is still growing.”
So are the costs. The $100 million Netflix shelled out for the original series “The Crown” raised eyebrows, as well as questions of whether financing for TV is on track to become as onerous and risky as it is for film. Worldwide audiences and revenue are increasingly as important for glossy small-screen projects as for large-screen ones.
“There are certain shows that can exist without international. Those series are becoming fewer and further between,” says Gina Brogi, president of global distribution for Twentieth Century Fox Television Distribution. “We have conversations with our production entities from the beginning with regard to how well we think a particular series will resonate internationally. That’s not to say that all of our series have to resonate internationally, but the ones that do have so much more potential and so much opportunity.”
In another sign of the globalization of TV, shows in languages other than English are able to travel more frequently and widely now, even to the U.S., which has long been more resistant to subtitles than other parts of the world. The loyal American fan base of drug cartel series “Narcos,” which is in Spanish and English, and the surprise success in the U.S. and Britain of spy thriller “Deutschland 83,” which is almost entirely in German and which recently won the International Emmy for best drama, bear this out.
Another bumper crop of scripted programs is expected to hit screens in 2017. While many in the industry enthuse about a new golden age of television, others are beginning to warn of irrational exuberance — of a bubble that will eventually pop. Baxter isn’t worried about that yet, but he does voice concern that quality is failing to keep up with quantity.
“We’ve seen costs escalate dramatically. All the projects nowadays are expensive, and what you’re seeing is, some of them are distinctly average,” he says. “People have to be very careful that the money is proportional to the audience and the channel it’s for.”
Across the industry, whether in film, television, or digital, today’s entertainment landscape is more complex, changing, and fragmented than ever. But it also covers more of the planet than ever, with opportunities lurking in unusual or as yet undiscovered places. To survive and thrive, companies must spot those increasingly global opportunities while adjusting to quickly evolving consumer habits and tastes.
“I don’t think this business is bulletproof,” says Halford. “The industry just has to be careful in terms of how it places its bets.”
The biggest driver of success at home and abroad, whether for an old studio in Hollywood or a new streaming service in Hanoi, remains high-quality content. That will be true no matter how content is distributed, according to Clark at Universal Pictures Intl. “The competition has never been greater across all these platforms,” he says. “The onus is on us all who are in the business to really deliver what we feel to be really outstanding product in the face of heavy competition.”