Variety and Movie Industry Analysts Agree China’s Movie Box Office heading to $5 -10 billion in 2017

BofA Merrill Lynch Global Research estimates the Chinese box office could yield $5 billion in value potential for Hollywood studios by 2017 vs. approximately $2.2 billion today, including imported and local productions (with this figure potentially doubling under further relaxed regulatory conditions).

Yesterday, Nextbigfuture forecasted that China could pass the US+Canada box office of about $10.8 billion by 2016. China had $1.8 billion in box office in the first 6 months of 2013. Matching performance in the second half of 2013 would be $3.6 billion for the full year. More box office hits and growth could reach $4 billion for all of 2013.

China’s domestic theatrical market has transformed into a rapidly growing priority for U.S. film studios — a concept nearly unheard of just five years ago. From 2007-12, China’s box office has improved at a compound annual growth rate of 47%, to $2.7 billion (becoming second largest in the world), fueled by a 30% CAGR in screens, as well as loosened foreign import quotas and a fast-developing local production market.

Conservative Estimate

Assuming the government continues to manage toward a 50/50 foreign/local box office mix, BofAML estimates U.S. studios could generate approximately $3.4 billion in Chinese box office in 2017 from imported films, plus an incremental $1 billion from local co-production efforts (including international proceeds). Admittedly, and only time will tell, there are several variables that could cause this figure to change significantly, including box office shares and the international appeal of local co-productions that release outside of China (these estimates are made assuming modest performance).

Should the market become large enough where China believes less regulation is needed to achieve local growth objectives, potentially loosened import quotas and/or content-owner splits could drive U.S. studio value substantially higher, perhaps more than doubling to more than $10 billion using box office shares and splits that are more consistent with mature, international market standards.

China’s richest man, Wang Jianlin, will spend over $8 billion to create an Oriental Movie Metropolis, set to span 376 hectares (1.44 square miles), in the eastern port city of Qingdao. It will house 20 studios that will turn out 100 films a year, including 30 foreign productions. The Movie Metropolis complex is set to begin operations in 2016 and will also feature a 3,000-seat theatre and a shopping centre with seven hotels. There is a large expansion of movie theaters as well. Imax locations could increase from about 100 to 400 in China over the next few years.

The expansion of domestic China movie production and the Movie city should give China’s industry the strength to allow regulations restricting US movies to be lifted.

Disney Shanghai and other theme parks

Outside of theatrical content, development of high-quality tourism/out-of-home entertainment destinations is also accelerating in China, leaving theme park operators with globally recognized brands well positioned to harvest demand.

To date, though, most of China’s theme park inventory has lagged behind Western innovation and quality, yielding an opportunity for U.S. operators to help drive the market to new heights.

Comcast Corp. is reportedly planning a Universal-themed park in Beijing (potentially taking a minority stake with a Chinese state-owned enterprise as partner), SeaWorld Entertainment continues to explore “cap-ex light” opportunities in-region (geared more toward warm-weather, unpolluted areas), and Disney remains solidly on track to open its Shanghai Disney Resort in early 2016.

Within the filmed entertainment and theme park arenas alone, BofAML estimates $10.6 billion in incremental value could be attainable over the next five years. BofAML estimates the Chinese M&E market at approximately $73 billion, and projects it will grow 10.2% over the next five years vs. U.S. growth of 3.8% and global growth of 4.0%.

Theme Parks and Toys a big part of blockbuster movies like Avengers and Iron Man

The global toy market ($90 billion) is about 3 times size of the movie box office ($35 billion). Disney owns Marvel, Pixar, Star Wars and other movie franchises. Movie decisions in Disney consider the money to made across movie box office, television-blueray and other sales, toys and theme parks.

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