The Chinese Film Market – Slowing Down, Or Maybe Not.

China's Growth in the Film Industry

Both China Daily ("China's movie sector becomes 2nd-largest") and The Economist ("The filmindustry-Themonkey and the mouse") reported that China surpassed Japan and became the world's second largest film market after U.S. about a year ago – in the first quarter of 2012.

As of year 2011, China's box-office rose 33.3% to 13.15 billion RMB ($2.08 billion) and the industry's market value reached 17.25 billion RMB ($2.7 billion). This increase according to MPAA - The Motion Picture Association of America is 35%; both suggests China to be the fastest-growing market for film in 2011.

Cinema screens increased from 4,753 in 2006 to 10,700 in 2011: an average of eight screens per day. “No nation in the world grew at that fast pace", as referred by Mike Ellis the Asia-Pacific president of the Motion Picture Association of America.

Economist's Point Of View

The speed of growing dropped down for the year of 2012, but not the growth. It is still much far from slowing down from an economist’s point of view.

U.S., the oldest biggest film market contributes stably 0.4% of total national GDP almost every year from the past 13 years. Even though this industry has a name of – and is indeed of – high risk and unpredictable outcome, the fluctuation of the value added by the film industry as a percentage of GDP has been very small – 0.1% up or down, making its contribution to the biggest economy of the world between 0.3% to 0.5%.

What about China's GDP?

Since the National Bureau of Statistics of China’s GDP data is not accessible (due to its website technology failure), I had to look for corresponding statistics from others sources, and please bear with me for the dated data: According to an article from China Economic Herald, the Chinese motion picture industry weighs only 0.075% in the tertiary sector, and contributes only 0.032% to the overall GDP of China(Original quote “2009年我国电影产值占第三产业比重仅为0.075%，对GDP的贡献率仅为0.032%，对GDP的拉动率为0.0028%，是第三产业中一个并不太重要的行业。”).

As we learned in the first paragraph that there had been a 35% increase in the Chinese box-office, so before the 35% increase, the contribution to overall GDP was 12.5 times less than what motion picture industry averagely contributes to U.S.

Now, let’s do some simple math.  

As more than half (58%) of the overall film revenue in China generates from the box office gross. Let’s first assume the overall revenue for the motion picture industry is exactly 35%, and not even considering China’s overall 8.8% of GDP growth. Then after the change, the overall contribution to GDP becomes (1+35%)*0.032%=0.043%. Great, so the gap between U.S. and China is less than 10 times.

Composition of Film Revenue in China (2009)

Film Industry Revenue of China (2008-2009)

Even with a 20% increase or decrease in other aspects of the film industry revenue, which means the number will change to (1+55%)*0.032%= 0.0496% or (1+15%)$0.032%=0.0368, the Chinese film industry is still far from contributing.

What is the logic behind this comparison? The potential. The future. The should-be scale of the Chinese film market.

Merging of the International Market

As China already became the second biggest market for box office, there is still ten times of space without exploring other aspects. Why should not Hollywood be excited? But the reasons that are driving DreamWorks, Disney, Warner Brothers into this land are much stronger than just a simple rationing based on the healthy category. I will get into the different details in my future pieces, so keep an eye on it if you find it interesting, but before that, I will insert an exciting analysis on how to market a $3 million small-budget film to make $200 million box office revenue in China next time.