by Robert Cain for China Film Biz

May 18, 2012

This week I’m inaugurating a new stock index to track the performance of equities in China’s entertainment and media industry. The new index is called the Cain China Media Index (CCMI), and it comprises the stocks of 20 companies in China’s advertising, broadcast & cable, games, motion pictures and online media industries. Most of the stocks are in the mid-cap range (with a few small cap exceptions), trading on the Shenzhen, Shanghai, NASDAQ and New York stock exchanges.

The CCMI will be set at 100 as of the close of today’s markets in the U.S., and it will track the movements of the aggregate market capitalization of the 20 stocks.

My reason for starting the CCMI is to fill what I see as a gaping hole in the universe. I’ve been combing the web lately looking for useful coverage of the growth stocks in China’s media sector and I haven’t been able to find anything interesting or reliable.  So I’ve decided to step into the breach

Here’s why I think this is important, and why you should pay attention: 

1. China is fast becoming the world’s most important media and entertainment market. In contrast with the low single-digit growth in North America, Europe and Japan, China’s media sector has grown at a compound annual rate of better than 30 percent for more than a decade. By 2020 China’s movie, game and online media markets will be larger than their counterparts in the U.S.
2. China’s media sector is still in its early growth stage, which means that there is plenty of opportunity ahead for well-positioned Chinese companies in film, TV, and mobile and online content businesses, and for the investors who back them. All of the stocks in the CCMI are actively traded and can be purchased on the above-mentioned exchanges.
3. Now is the time to invest in Chinese media. According to a recent McKinsey & Company research report, between 2010 and 2020 China’s GDP will double and 170 million Chinese households, or some 500 million people, will move up into the “mainstream” middle class and affluent class. That’s 500 million new buyers of movie tickets, video games, premium TV services, , and other forms of entertainment. Put another way, the next 8 years will offer the biggest surge in entertainment and media consumption the world has ever seen.

Even if China’s economy slows down, the entertainment business will keep growing, because the Chinese market is still extremely under-saturated and under-served by entertainment businesses.

The CCMI stocks, their ticker symbols and market caps are listed in the table below.

CAIN CHINA MEDIA INDEX

 

Investors in the sector have had a very happy 2012 so far. The stocks in the CCMI have risen by an average of 21 percent so far this year, compared with an 8.8 percent gain in the Dow Jones U.S. Media Index, a 6 percent gain in the Shanghai Composite Index and a 3.8 percent gain in the S&P 500.

Investors in certain Chinese online media stocks have been particularly well rewarded, as digital online video company Tudou has gained 188 percent in the past 4-1/2 months, and social media site RenRen has gained 76 percent. Bona Film Group has also performed well, gaining 55 percent since the beginning of the year.

I plan to update the index each week and to keep a close eye on trends in China’s media stocks, so keep checking in.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.