At the time of dramatic systemic changes in the media business, Hollywood should pay heed to Marco Polo’s history and turn their attention to China as a key opportunity to redefine their business model.
When Marco Polo came back home to Venice after 20 years, he told his contemporaries the tale of a country that was far more powerful and civilized than any other in the world. In 1299, the proud Venetians could not conceive the idea of a more prosperous place than the mighty city-state of Venice, the master of the sea and the mighty superpower of late medieval Europe. So far-fetched was considered Marco’s account that his book, originally titled "The Book of Wonders,” became known as “The Million,” as in “the Million Lies.” Of course we all know how that story ended: Just a couple of centuries later, Venice became a beautiful, yet hollowed, city-museum and China is the biggest world superpower.
A decade of piracy, censorship and failed business ventures have fostered the conventional wisdom of China being a market where the risk-reward balance is skewed the wrong way. The truth may be different and the real risk for Hollywood may turn out to be missing out on what is rapidly growing into the largest content market in the world.
The news on the entertainment business coming from China is nothing short of Marco Polo's "Book of Wonders." Box office takings have been growing for the last few years at an annual rate of 20 percent to 30 percent, with 2009 growing a whopping 44 percent. Theatrical grosses are, for the first half of 2010, already 60 percent ahead of last year.
While the absolute number is still small compared with the U.S., the growth is likely to continue as an average of almost two theaters open each day and the burgeoning Chinese middle class joins the rest of the world in their moviegoing habits.
The room to grow is staggering in a nation of 1.3 billion people but fewer than 6,000 screens; for comparison, the U.S. has 40,000 screens serving a population of 300 million. To put it another way, in 2009, in the U.S. people spent on average $34 per person on movie tickets, while in China that expenditure was 70 cents per person.
Assuming China will develop moviegoing habits similar to those of other Asian countries, such as South Korea or Singapore, China's box office potentially could turn into a $45 billion-plus business -- more than four times larger than the U.S. theatrical market.
As the Chinese government focuses on domestic consumption as the key driver for economic growth, the development of retail environment and shopping malls has been frenetic across the country. Cinemas are a key factor in driving traffic to retail, hence the torrid pace of growth. The need of these theaters for more movies will in turn drive the gradual opening of the market to foreign films. The World Trade Organization's recent rule against China's protectionist measures against foreign films will significantly boost growth as more diverse movies will make it into China's theaters.
