- A new Deloitte report predicts that China will be the world’s largest cinema market by 2020.
- Revenue generated by China’s film industry will reach RMB 200 billion (US$30 billion) in the next four years.
- Deloitte’s researchers expect uneven growth that won’t necessarily translate into global domination for China.
Revenue generated by China’s film industry will reach RMB 200 billion (US$30 billion) by 2020, with both box office revenue and number of movie-goers surpassing that of North America, making it the largest film market in the world, says a new report by professional services firm Deloitte.
For those who are banking on the continued rise of the Chinese film industry, optimistic forecasts like that are particularly welcome at the moment, especially as box office sales have been declining for the first time in five years, and theater visits in July alone plummeted 15 percent.
While Deloitte’s researchers expect the industry to grow at home, it will be uneven growth, and importantly, it won’t necessarily translate into global domination for China as “cultural differences” and “legal considerations” interfere with the country’s ability to export their own films to other countries.
Those are among the key findings of a chapter on the film industry in Deloitte’s new report, “The New Journey of ‘Internet +’,” which takes a broad look at how the Internet is affecting the growth of the Chinese economy.
Despite recent road bumps, the report’s researchers believe the Chinese film industry has already reached a “golden age” with new carriers, an influx of capital, and innovative business models all propelling the country’s film industry to the “top of the film pyramid.”
The report identifies seven trends that are shaping the Chinese film industry landscape. The following is a summary of those findings.
1. From Bigger to Biggest
The report finds that China’s box office revenues and number of moviegoers are expected to surpass North America by 2020. But different segments of the industry, whether it is film consumption, investment in films and theaters, or film exports, will grow at different rates.
As revenue generated from non-box office activities continues to rise, the report’s researchers believe China’s film consumption still has a lot of room to grow.
The report sees investment in theaters stabilizing with plenty of opportunities for steady expansion into second, third, and fourth-tier cities.
Film exports are likely to struggle, as cultural differences and legal considerations including censorship issues as reasons why Chinese films won’t gain traction overseas.
2. From “Made in China” to “Made for the World”
The report predicts co-productions will increase, albeit slowly. Co-pros can “achieve ‘win-win’ outcomes for both parties,“ because they’re considered to be “Made in China” and enjoy the same treatment as domestic films, the reports says,
“In 2014, though co-productions accounted for only six percent of total productions screened in China, they contributed around 50 percent of total box office revenue,” the report notes. “In the first quarter of 2015, co-productions contributed ~60 percent of total box office revenue.”
However pulling off a successful co-pro is easier said than done, with issues such as copyright ownership, cultural differences, and different work styles presenting challenges.
3. From “Non-intelligent” to “Intelligent”
The reports’ researchers see the involvement of internet giants like Baidu, Alibaba, and Tencent as a game changer as the new players utilize their ability to draw on big data to drive “decision optimization” and profit growth.
The effect of these innovations has already transformed the domestic film industry chain, from intellectual property (IP) to production, marketing and promotion, distribution, ticket sales, and cinema screenings, the report says.
4. From “Highly Concentrated” to “Diversified”
The arrival of new players like Tencent Pictures, iQiYi Films, and Baidu Pictures has prompted traditional film companies to go on an acquisition spree, the report says.
While the M&A binge has led to a much greater “concentration” within the industry, there is also a trend towards companies hiving off their internet and new media departments into new companies that can then go public independently.
There has also been a huge influx of non-industry capital with non-film industries accounting for 49 percent of total acquirers since 2014. Despite all the acquiring going on, the report’s researchers point out that not many companies have yet achieved satisfactory results as differing management cultures fail to gel smoothly.
5. From “Long Tail” to “Thick Tail”
The report shows how Chinese companies like Huayi Brothers and Enlight Media are looking closely at what lessons they can learn from foreign companies like Disney. These local companies are restructuring their revenue streams to diversify away from just box office.
Now, local companies are looking to ape Disney’s blueprint of investing in theme parks, toys, books, video games, and any other possible avenues to provide stable sources of income. Other key areas for revenue rebalancing include video on demand, TV networks and derivative products.
6. From “single IP” to “IP franchises”
Local film companies, particularly Internet companies, have been hoarding as much IP as possible, buying up the rights to hundreds of novels and stories. But converting that IP first into films and then into other fields like cartoons, mobile games, and toys, is still a work in progress.
The report researchers encourage the local industry to learn from projects such as Disney’s Toy Story 3, which generated $8.7 billion through games, books, DVDs, copyright, and licensing, on top of $1.1 billion in global box office.
7. From a Lack of Standards to “Standardization”
The report notes that with around 70 percent of the 600 or more films produced annually in China never being screened, lack of standards are resulting in “a colossal waste of resources for producers and the film industry as a whole, and furthermore, poses potential hazards for investors.”
To solve the problem, the report’s researchers suggest the introduction of “completion guarantees” with third party companies supervising the whole process of film production, ensuring that film production and distribution are on budget and on schedule.
The full report is available here.