China’s benchmark Shanghai stock market took another major tumble on Monday, plunging 8 percent for its biggest 1-day loss since 2007. As a leading indicator, the stock market seems to be signaling that China will fall well short of the government’s 7 percent GDP growth target for 2015.
What does this mean for China’s booming film industry? If the economy crumbles will it take the movie business down too?
I seriously doubt it. Consider the following:
1.China is vastly under-screened. Whereas the U.S. has a movie screen for every 7,700 people, China has one for every 50,000. Over 1,000 counties and numerous cities of 1 million and more people have no movie theaters at all. There is enormous pent-up demand for the movie-going experience that’s unlikely to diminish much even if China dips into a recession.
2.Cinema construction is on a tear, with total movie screens having more than quadrupled in five years, from about 6,200 in 2010 to about 28,000 now. And the screen count is likely to double again in the next 10 years, because owning and operating theaters in China is extremely profitable.
3.While only about a quarter of China’s population has sufficient income to regularly afford movie tickets, that’s still almost 350 million people, more than the entire U.S. and Canadian populations combined. And that number will continue to grow, recession or not.
4.Cinema-going is still in its early stages of becoming established as a leisure activity in China. Even after the tremendous expansion of incomes and increased accessibility of cinemas over the past decade, the average Chinese person still goes to the theater less than once per year, and spends on average less than $5.00 per year on movie tickets. Compare this with the U.S., where the average person attends 4.1 movies each year and spends $34 on tickets. China has a long, long way to go before it will face the challenges of market saturation and growth constraints that plague more developed markets like the U.S.
5.Box office revenue in China has grown more than five times faster than the country’s GDP for 10 years now, even through the fiscal crisis of 2008. This year it’s growing at least eight times faster. An economic slowdown would, at most, slow the pace of box office growth from torrid to merely very fast.
6.Even in the highly unlikely event that per capita incomes drop for an extended period, Chinese theater operators enjoy great latitude–much greater than operators in the U.S. and other mature markets have–to adjust ticket prices to accommodate moviegoers’ needs. Ticket prices in China are high relative to average incomes, perhaps the priciest in the world on a relative affordability basis. And there’s plenty of room for theater operators to negotiate with their landlords to reduce costs: many theaters are currently forced to pay as much as 20 percent of their revenues to the real estate owners, which is 3 to 4 times more than they paid only 3 years ago.
7.Vast pools of capital have been allocated to funding movies, especially as investors move out of real estate and stock market investments to alternative asset classes. China made over 700 films last year and imported around 50 more, but only had room in its theaters for about 300. Even if production were to suddenly plummet, which is extremely unlikely given all the available funds, there would still be more than enough films to supply distributors.
8.The central government has made large and very public investments in the film industry, in the form of major new production facilities, production and post production equipment, distribution infrastructure, and staff. Furthermore, they have consistently designated ‘cultural’ industries—especially film—as a major priority for growth, partly as an engine for economic expansion and partly to extend China’s ‘soft power’ around the globe.
In short, China’s movie business is still far from reaching the maturity stage of its life cycle. Movie-going has swiftly become a favored pastime, and it will only become increasingly accessible and affordable for hundreds of millions of people. Whether it happens now or in the future, a slowdown in China’s economy is inevitable, but cinema has years of solid growth ahead.