China Will Top U.S. as Biggest Film Market in the World by 2020: Study

The country’s media and entertainment industry will grow by 17 percent annually until 2015 and will become the second-biggest advertising market by 2013, says an Ernst & Young report.

HONG KONG – Box office haul in China, which now stands as the second-largest film market in the world after Japan, will surpass that in the U.S. by 2020, according to an Ernst & Young report on the country’s media and entertainment industry.

Released on Wednesday to coincide with the company’s Global Media and Entertainment Markets Executive Forum in Shanghai, Spotlight on China also predicts the country’s advertising market to leapfrog Japan’s to become the second-biggest in the world in 2013, driven by, among others, a projected annual double-digit growth in magazine advertising revenues until 2017.

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The report states that China’s media and entertainment industry is estimated to sustain an average growth of 17 percent until 2015, with seven trends behind its bullish overview of the development of China’s media and entertainment industry, which is expected to benefit from the consumption-led growth as espoused in the country’s latest five-year plan.

The driving force, the document says, lies with an increase in disposable income in the country – figures pointed to an increase of spending on this aspect from US$350 million in 2010 to US$547 million in 2011 – and the surge of digital consumption, with 431 million people going online through mobile devices.

The number is expected to reach 632 million by 2016, the report adds.

Other trends identified in the report are the digitization of distribution infrastructure, such as a state-backed project to present a platform providing telecom, broadcast and Internet, and the digitization of all theater screens by the end of 201, and all cable TV networks by 2015.

In addition, there is also an expansion in the advertising industry; the growth of second-tier cities; emerging business models such as online video and gaming; and the government’s relaxed attitude towards private investment in the industry, such as the implementation of significant tax exemptions or reductions, the granting of film distribution licenses to private companies and the increase of the annual film import quota from 20 to 34.

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“The challenges for media and entertainment companies to penetrate China are still considerable; however, the vast potential of the market makes it impossible to ignore,” said John Nendick, Ernst & Young’s Global Media and Entertainment leader. “Companies will need to understand that investing in China is a long-term proposition, and those who can make that commitment will be in a much better position to succeed.”

Peter Chan, Nendick’s colleague in charge of Greater China, said companies would also need an understanding of the “cultural nuances across geography, age and income level” to sustain brand loyalty from Chinese customers.

The report suggests foreign investors build strong brands and establish successful partnerships with digital-savvy Chinese counterparts. Companies should also regard concerns about the country’s regulatory system a “core pillar” of their strategy and seek to “identify and develop relationships with key regulatory stakeholders” in China.