We’ve all been hearing year after year about the amazing growth of China’s economy over the past few decades. If you’ve been paying close attention you may also know that China’s movie business has been growing much faster even than the overall economy. I’ve been following and writing about the astounding growth of the PRC’s entertainment industry for so long that I’ve run out of superlatives to describe this phenomenon. The word ‘staggering’ doesn’t begin to do it justice.
Every time I think China’s growth must finally slow down, it just accelerates. From 2001 to 2007, annual theatrical revenue in China increased at a 34 percent compound annual rate (as measured in US dollars); from 2008 to 2014 the pace quickened to 40 percent per year. So far in 2015 China’s movie revenue has increased by 52 percent over the same period last year, and there’s no sign of a slowdown.
Given economists’ pronouncements that GDP growth has slowed to about 5 percent in 2015, this means that China’s theatrical movie business is growing 10 times faster than its GDP. North America’s theatrical business, in contrast, has been growing at a snail’s pace, at an annual rate of just 1 percent since 2002.
There are three main factors driving this incredible growth:
1. China is undergoing the largest and most rapid development of a middle class in human history. Hundreds of millions of people are moving up from subsistence to affluence before our eyes.
2. Cinema construction is booming. Thousands of new screens are opening each year, affording millions of potential customers the opportunity—many of them for the first time ever—to enjoy the moviegoing experience in modern multiplexes.
3. The Chinese population has embraced movies, both foreign and increasingly domestically made Chinese movies, with exuberance. High ticket prices and generally mediocre films haven’t deterred them from filling up theaters to capacity.
Things will eventually have to cool off, but with so many big cities still lacking multiplexes, it will be many years before China reaches a saturation point. The biggest factor constraining growth is the shortage of screens. There are currently about 25,000 movie screens across the country, the second largest national total in the world by far, but with its 1.4 billion population China is still woefully under-screened, with just one per every 56,000 people. The U.S. has almost 40,000 screens, or roughly one per every 8,000 people, according to the MPAA. To reach the U.S. level of screen density per capita, China would have to build an additional 150,000 screens.
Even if we assume China never gets anywhere near that massive screen count, and even if we assume that the growth trend slows down, it’s inevitable that China will soon have a much, much larger movie business than North America. For the sake of illustration let’s make a few conservative assumptions:
1. Box office growth in China slows down to 30 percent for the next 2 years, then 20 percent for the following 2 years, then 15 percent in 2020.
2. Growth in North America maintains its 1.5 percent historical annual growth.
What we wind up with is a picture like this:
Under conservative assumptions, we’ll see China’s gross box office surpassing that of North America no later than 2018, and going on to double North America by the middle of the next decade.
What this will mean, ultimately, is that Hollywood will eventually cede control of the movie business to China. It has already begun to do so, by voluntarily adhering to China’s rigid censorship rules, by cooperating with its one-sided import quotas and distribution regulations, and by selling to China’s companies ownership of U.S. theaters and stakes in increasing numbers of films. Like Detroit’s once-mighty auto industry, the Hollywood movie business faces a future of slow relative decline.