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By Robert Cain for China Film Biz
April 6, 2013
Year after year I keep telling myself that China’s box office growth has to eventually slow down. An industry that has been rising at a pace 4 or 5 times faster than its country’s GDP for over a decade can’t continue at that rate for long. But year after year I’m amazed that growth just keeps accelerating. From 2001 to 2007, theatrical revenue increased at a 34 percent compound annual rate (as measured in US dollars); from 2008 to 2012 the pace quickened to 43 percent per year. So far in 2013 China’s movie revenue has increased 51 percent, and there’s no sign of a slowdown.
This year, China’s theatrical movie business is growing more than 6 times faster than its GDP. North America’s theatrical business, in contrast, has been growing slower even than its recession-worn economy, at an annual rate of just over 1 percent since 2002
Over the past few days China enjoyed a national holiday, the Qing Ming Festival (清明节), and again moviegoers turned out in huge numbers, roughly doubling last year’s holiday box office total with over $31 million in revenue on Thursday and Friday.
There are three main factors driving this incredible growth:
- China is undergoing the largest and most rapid development of a middle class in human history. Hundreds of millions of people are moving up from subsistence to affluence before our eyes.
- Cinema construction is booming. Thousands of new screens are opening each year, affording millions of potential customers the opportunity—many of them for the first time ever—to enjoy the moviegoing experience in modern multiplexes.
- The Chinese population has embraced movies, both foreign and increasingly domestically made Chinese movies, with exuberance. High ticket prices and generally mediocre films haven’t deterred them from filling up theaters to capacity.
Things will eventually have to cool off, but with so many big cities still lacking multiplexes, it will be many years before China reaches a saturation point. The biggest factor constraining growth is the shortage of screens. There are currently about 15,000 movie screens in 3,700 theaters across the country, the second largest national total in the world, but with its 1.3 billion population China is still woefully under-screened, with just one per every 90,000 people. The U.S. has almost 40,000 screens, or roughly one per every 8,000 people, according to the MPAA. To reach the U.S. level of screen density per capita, China would have to build an additional 150,000 screens.
Even if we assume China never gets anywhere near that massive screen count, and even if we assume that the growth trend slows down, it’s inevitable that China will soon have a much, much larger movie business than North America. For the sake of illustration let’s make a few conservative assumptions:
1. Box office growth in China slows down to 30 percent for the next 3 years, then 20 percent for the following 4 years, then 10 percent for the following 5 years until 2025.
2. Growth in North America maintains its 1.5 percent historical annual growth.
What we wind up with is a picture like this:
Under conservative assumptions, we’ll see China’s gross box office surpassing that of North America by 2018, and going on to double North America by the middle of the next decade. No other territory will come close even to North America, except possibly India. Hollywood’s century of hegemony over the global movie business will clearly soon come to an end.
Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at firstname.lastname@example.org and at www.pacificbridgepics.com.
That’s very positive. Now we need to work hard locally and make sure that this shift will serve film diversity as much as it could. The end of Hollywood’s hegemony is not enough.
Global film dominance is not only a factor of audience size, it’s a matter of what message you are selling. The U.S. promoted the general themes of freedom and the primacy of the individual and the general philosophy of the Enlightenment (as filtered through a corporation). In Hollywood genres this plays out as the individual against authority. Institutions are invariably bad or suspect. Or, they need to be cleansed by the action of the rebel, whistle-blower, renegade, etc. This message has played well around the world. China’s message is the opposite and it’s institutionalized throughout the various media agencies. Hollywood’s message, which evolved over the 20th century, was generally inclusive despite the egregious racial stereotypes prior to the 1960s, because the U.S. is still one of the most open societies in the world, however, imperfectly. China is extremely ethnocentric and not likely to be any more open to outsiders than Hollywood. Yes, Hollywood, is an easy target. I’ve always wondered why so many filmmakers believe they are entitled to be given millions of dollars to make and promote internationally what may be art, but is also a product. Even a small film is a big investment. Why would anyone think there will not be a Hollywood/banks between them and the audience, except online?
Steve, it’s true that Hollywood movies gained global prominence thanks to their accessible and popular storytelling style. But it takes money to make movies, and the Hollywood economic model is broken, as evidenced by the ever shrinking profit margins of the major US studios, the ceaseless string of corporate layoffs, and the shuttering of prominent visual effects houses and service vendors. Chinese capital and market clout are already impacting the messages that Hollywood movies can sell, as Chinese censorship strictures and political sensitivities have begun to shape those films intended for distribution in China. China’s influence will only increase as its market takes a bigger and bigger share of the global revenue pie. Hollywood will still be making movies a decade from now, but more and more these movies will have to be China-friendly in order to be financed and distributed.
“more and more these movies will have to be China-friendly in order to be financed and distributed.”
I’ve seen that in the Tatal Recall remake : very china-friendly with signs in the street with chinese words, asian casting, etc.
But my feeling is that the US market is big enough to be self-suficient and don’t need the chinese market. French market is too small to compete with US blockbusters (our average budget is 5m$ versus 70m$ in US and ou max is 60$ versus 300m$ in US), but who really needs more than 300m$ to make a blockbuster ? To me China is not a threat, it will be just complementary.
American movies may not need the Chinese market today, but they will absolutely want it as it swiftly becomes the world’s biggest market. Moreover, American studios & producers will increasingly need Chinese equity capital.
The U.S., an example of freedom? Maybe in U.S. school books. That’s no longer what comes to people’s mind around the world when they picture the U.S., it’s more like fearless greed, disparities, segregation, economic warfare (and no just economic), tendency to dominate and turn other countries into vassals, and financial irresponsibility. The fact that the quota of Foreign films in China is mostly made of U.S. Hollywood studio films is just a pure scandal, we should call it the quota of U.S. films. Greed is contagious indeed, and the studios definitely found some officials in China who are not very scrupulous about protecting the construction of their creative industries. And, as if it was not enough, the MPAA director, with his outrageous wages, keeps whining around that it is not enough. I am a fervent advocate of cultural diversity and the opening of these quotas to other countries, which would be a positive decision from China in many ways, even if that’s at the expense of China Film Group’s cash flow.
“cultural diversity” : something the USA have energetically rejected when the EU voted cultural diversity as a pillar of their values. The USA want to globalize the world : one language (English), one food (Mac Do), etc. Hopefully quotas and Internet saved movie diversity, to some extent.
Domestic BO has been the big surprise. Everyone knew that it would eventually happen, but it has come on kind of suddenly.
The limiting factor in screen growth is going to be real estate. Since Avatar broke records in China, there was a big trend (led by Wanda) toward doing cinema in retail malls. Nearly every developer wanted to do a multiplex (often with IMAX) as a way to differentiate… The problem is, China has a structural under supply of land, cinemas take a lot of space and the economics really aren’t that great for the landlords relative to other uses.
By the way, I haven’t looked at the global comps recently, but there aren’t too many countries in the world (certainly not in Asia) that even come close to the US in screen density. Korea would probably be a better benchmark for what you are trying to project.
Adam, you’re right, the US has a very high screens per capita ratio. I don’t mean to suggest that China should or will reach a similar level of screen density as the US. I included the US figure as a benchmark to illustrate how under-screened China is.
India should be slower than China but faster than US I think. Other countries in the region should grow as the new shopping malls are built and a rise in living standard at a faster rate than ever before for some of the populations that are now enjoying greater prosperity even through the GFC. When the GFC corrects itself they will grow at a greater pace, a good bet if you have the startup money for long term growth and income.
Adam, Thanks, very interesting observations the industry in China. I seem to recall that there is a similar growth in the industry India and a few other parts of Asia . Two questions… 1) What do you think are the differences in subject matter? For example Hollywood has a few good human interest stories, e.g. The Descendants, but they seem to be obsessed with fantasy/violence flicks like Batman and Pirates of the Caribbean. Do you see the same split in China? 2) Do you see their penetration increasing until their screens per capita ratio matches the US and Europe? Or will they transition into HD TV viewing like we have before their ratio matches ours? For example, I hear that they are transitioning to cell phones well before their land line phones/capita ratio matched ours?
China is not an exception, in Africa 90 % have a cell phone verus 5% a land line. It seems cheaper to provide. I’ve read in the 2011 Indi census that only 3% have Internet but more than 50% have a cell phone.
Rob, I agree that the sheer market size of China will begin to influence content and market control, but whether audiences will bite or not is another questions. Japanese owned Sony has been right in line with Hollywood strategies for years. The Japanese movie industry is very successful in Japan, but not internationally and it’s the second biggest market. Admittedly, it’s only about 20% of the U.S. box office and China may end 75% bigger than the U.S. That’s a big difference. But I don’t see the world’s taste changing substantially because China has the biggest market. Hayao Miyazaki, one of the world’s great animation masters, has box office hits in the $150M – $200M range in Japan, but less then $10M in the U.S. despite distribution by Disney supervised by John Lassiter. Wanda can fill all the screens in AMC with Chinese co-pros, but this means little to the audience. A much bigger issue is the loss of the audience for broadcast TV and theatrical features in the West. Hollywood has lost the zeal for innovation. This, however, is likely to be a global consequence as the sheer volume of repetitive storytelling in all languages drives people to other activities. In the U.S. and much of Europe, the audience for movies has evaporated. This is largely generational as the ability to make video and images is now so easy that the internet is flooded with content ranging from dreck to inspired short programming. There may be a Golden Age of Chinese cinema coming, but the movies may well have seen a peak in the 20th century.
Steve, perhaps I haven’t been clear. I’m not suggesting, and I never have, that the world’s tastes will shift to Chinese content. I’m merely pointing out that China already has significant influence over the content of many movies that get made in Hollywood, and that influence will only grow as China’s market and pools of film investment capital become larger and increasingly important. Hollywood will have no choice but to cater to the Chinese market because it won’t be long before China accounts for one-third of the global movie pie. And because China has a burning desire to exert cultural influence around the world, and because it is able to devote more resources to this ambition than any other country, it will find a way to do so.
Very interesting comment Steve, I mostly agree to your point of view.
Japanese movies are not exporting very well (a bit more regionally) with the exception of Pokemon movies and a few others like Battle Royal.
But even if movie going is diminishing in developed countries in admissions per capita since the advent of illegal downloading, it still managed to stagnate or grow a little in most developed countries thinks to population growth (in France 2011 was the best year since 1967) and a regain of interest since it bottomed in the early 90’s. Movie going is a festive hobby, people don’t go the the theater just to watch a movie, but to gather, chat, have a drink after seeing the movie, etc. and IMHO I don’t see movie going ever going under the bottom of the 90’s.