On the Movie in Asia

By Peter Pham - July 17, 2012 | Tickers: GE, GOOG, YOKU | 0 Comments

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Growing economies in Asia represent a massive new and relatively untapped customer base as many countries in the region, from Vietnam to Cambodia and China, are emerging from decades of isolation and beginning to fully re-integrate with the world economy. It is estimated that 800 million to 1 billion new consumers around the world will enter the middle class this decade, many of them in Asia. This new openness, coupled with rapid economic growth in the region, is fueling a hunger for entertainment and Western pop culture unlike any other period in history. This just at the moment Western entertainment companies need it the most.

Despite the economic crisis, Price Waterhouse Coopers forecasts movie revenues will grow to more than $14 billion in the next five years, in spite of North American box office revenues dropping 4% in 2011, with ticket sales hitting lows not seen since the 1990s. As Europe and the US continue to wallow in fiscal misery, Asia has been a relative bright spot and a source of growth for many businesses seeking new opportunities and less saturated markets for expansion. The timing for the emergence of Asia could not be better.

We’re Gonna Need a Bigger Boat

Of course Asia is no stranger to Western wares. The region has long been infamously known as the epicenter of intellectual property piracy, from fashion knock-offs to bootlegged music, movies and software, where one can easily find all of the latest and most popular new releases for as little as $1.

But as Asian economies continue to modernize and develop, these countries are now coming into their own as legitimate and lucrative markets for the real theater experience. It is forecast that total movie revenues from the Asia Pacific region are expected to grow 35% from 2011 to 2016. Hollywood is taking notice as the growth in new theater openings aims to meet the demands of the growing middle class in search of entertainment outside the home. While in North America the home entertainment business is double theater intake, in Asia people spend significantly more on outside entertainment as many still cannot afford game consoles and home entertainment systems. This is not limited to growth economies, as wealthier and more advanced Asian countries are also showing an increased appetite for big budget films. The most recent edition of Spider-Man raked in big numbers in Asia, earning $13.4 million in South Korea and $11.4 million in Japan.

Good Morning, Vietnam

In Vietnam, with its population of 90 million, there are now modern, Western-style theaters where people line up to see the most recent Hollywood releases, complete with sweet or salty popcorn, soda and hot dogs. Many of the theaters are within new, flashy shopping malls featuring top brands from the West.

Recently Myanmar did a dramatic 180-degree turn, renouncing over 60 years of government oppression and opening the country to foreign investment, creating a brand new market of over 60 million virtually overnight. No doubt this will soon become yet another huge market hungry for entertainment very soon. China, of course, is the Holy Grail of markets and is already a massive market for foreign entertainment.

The China Syndrome

China is one of the world’s fastest growing movie markets, with growth expected in excess of 20% through 2016, when revenues are expected to surpass $7 billion. In 2011 that figure was just $2.7 billion. Of that, roughly $6 billion is expected to come from theaters. Already the second largest economy in the world, China is now also the second largest market for movie theaters, behind the United States, which China is also expected to surpass in the not-too-distant-future.

Many Western movie studios, actors, producers and directors are looking to Asia as not just new potential markets, but also as production locations and markets for Hollywood production expertise as countries begin to develop their own home-grown entertainment industries. James Cameron has been exploring co-production opportunities in China, where his films Titanic and Avatar were wildly successful, making Cameron a very hot commodity there among local studios seeking expertise in 3D and big budget film development.

In a sign on the times, Youku (NYSE: YOKU), China’s version of Google's YouTube, has entered an agreement with NBC Universal, a subsidiary of GE (NYSE: GE) to begin offering premium back titles on its paid service, including The Mummy franchise, Jurassic Park, Schindler’s List, The Big Lebowski and more. Youku has also signed similar deals with Lionsgate, 20^th Century Fox, Warner Bros, Disney, Dreamworks and Paramount.

According to Huilong Zhu, Youku’s vice president of movie operations, “the agreement with NBCUniversal is one more step forward towards our goal of offering the highest quality content to Youku’s more than 300 million viewers.” Google (NASDAQ: GOOG) is also investing in content, announcing in 2011 that it would invest $100 million in original content due to air on YouTube sometime in 2012. Talks are reportedly under way with a number of media companies, including Warner Bros, News Corp, HGTV, Discovery and many more. Google plans to generate revenue to fund content from advertising.

Hulu, a joint venture of NBCUniversal, Fox Entertainment Group and Disney-ABC Television Group, is also working on agreements with content partners for streaming rights to broadcast programming online.

The Student has become the Master

In perhaps a sign of things to come, China’s Dalian Wanda Group entered into a $2.6 billion deal in early 2012 to take over AMC Entertainment, creating the largest chain of cinemas in the world. Wanda currently owns 86 theaters with 730 screens in China, generating almost $17 billion in revenue annually.  South Korea’s CJ Group is looking to install 200 4D theaters in the U.S., adding environment effects to the experience of sight and sound, as well as deploy close to 1,000 new screens across southeast Asia.

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