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3 Companies That Will Benefit From China's Box Office Boom

http://www.fool.com/investing/general/2014/05/09/3-reasons-and-3-stock-picks-for-chinas-box-office.aspx

Bradley Seth, McNew
May 9, 2014

According to analysts, box-office growth in the United States has remained relatively steady over the past 10 years. In the meantime Chinese box office revenues have ramped up over 3,500% in the past decade, according to research by the group at ChinaFilmBiz.com, and expectations call for these revenues to stay on that path for the decade to come.

For U.S. investors who are looking to get in on this Chinese media growth, Disney (NYSE: DIS), DreamWorks (NASDAQ: DWA), and Imax (NYSE: IMAX) are three companies set to gain from this market in the coming years. Here are three charts that prove that this market is bringing incredible growth and show how these companies are positioning themselves to lead this profitable market.

Chart No. 1: Over 3,500% growth in the last decade


Source: ChinaFilmBiz.com

The Chinese film and media industry is booming. PricewaterhouseCoopers projects that the industry will be worth $6.49 billion in 2017. That would double its $3.26 billion value in 2012. That's why these analysts forecast that China will become the largest film and media market in the world in the next few years. Companies like Disney and DreamWorks have huge opportunities if they can win over the hearts, and eyeballs, of local consumers. Both companies are forming partnerships in China to ensure that they have on-the-ground operations that will allow them to be the best entertainment providers in this growing market.

DreamWorks has partnered with Shanghai Media Group and three other local entertainment companies to create Oriental Dreamworks, a joint venture in which DreamWorks Animation holds a 45% stake. The group already has important projects in development such as Kung Fu Panda 3. Disney has also partnered with Shanghai Media Group, as well as others, to create ventures that will help the company make content specifically for the Chinese market as well. In fact, Disney has even partnered with the Chinese government to promote animation and media development in the country. 

Chart No. 2: Equal by 2017, and double by 2025

 
Source: ChinaFilmBiz.com

By 2017, Chinese box office revenues will surpass those of the U.S, and double them by 2025. With all of these new theater-goers, it's not only the media companies that are winning. Imax has also made big bets on China. Imax's global expansion ramped up in 2013, with 112 new theater systems installed in 23 different countries. However, China has become the company's biggest target market. Recently, Imax sold a 20% stake of Imax China to a Chinese private equity firm for $80 million.

CEO Richard Gelfond said that "At this juncture, it makes sense to bring in Chinese investors to help us better address local market dynamics and further optimize our business in China, including both our core theatre business as well as new business initiatives."

Imax has been busy making deals in China already. Dalian Wanda Group is a real estate and investment company in China, and is the largest theater operator in China. Its CEO, Wang Jianlin, seeks to build the "Hollywood of China," with an USD $8.2 billion (about RMB 50 billion) investment to build a 10,000 square-foot main studio, 19 smaller studios, a full theme park, and most importantly, an entire Imax research center just for researching and enhancing the technology and performance of the giant-screen technology. Imax has inked another deal with the same group to build 210 large-format theaters in China by 2021. This is in addition to a deal with a South Korean company to build 30 more giant screens in China and five in South Korea. 

Chart No. 3: Millions of reasons to be excited about mass-market consumers


Source: McKinsey Research Group


An expanding middle class, especially an upper middle class, is a bullish sign for leisure and entertainment companies that depend on Chinese families having discretionary income that they can spend at the movies or on media-themed products. Not only will the rise in Chinese middle class consumers drive