Hollywood's Good News/Bad News China Problem

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The country's movie industry is set to grow 19 percent a year and reach $15 billion, says PwC's new annual report, but the U.S. share of it is declining rapidly.

After years of ratcheting projections for China's box office higher, experts now predict the country with nearly 1.4 billion citizens will overtake the U.S. (population 323 million) as the planet's most lucrative cinema market in 2017 — and absolutely crush it for years thereafter.

That's potentially good news for the U.S.-based entertainment industry, which has made significant inroads in China. The bad news: Hollywood's share of the Chinese box office slipped from 46 percent in 2014 to 38 percent in 2015 as the quality of local films improves and a state-sponsored quota on outside movies remains. In fact, Hengdian World Studios — sprawled across 7,000 acres in eastern China — now is the world's biggest film studio.

By 2020, China's box office is projected to top $15 billion, while the U.S. will just hit $11 billion — courtesy of 19 percent annual growth, compared with 2 percent — according to PricewaterhouseCoopers' Global Entertainment and Media Outlook. China already has surpassed the U.S. as the largest market for 3D films. The country is adding 15 screens a day and could be primed for more because China has only 23 screens per 1 million people, compared with 125 per million in the U.S. There's also room for ticket inflation: The average price in China is projected to be $6.04 in 2020, compared with $9.02 in the U.S.

Switching to television, the study reveals global growth would be anemic if not for strength in advertising, which is increasing at 4.7 percent annually. With competition from the internet, the U.S. TV industry — sans advertising — is projected to shrink in 2020 compared with 2019, a first during the 17 years PwC has published its annual report. Domestically, revenue from over-the-top services already has overtaken that from physical home video and is set to do so globally in 2017. An X-factor is virtual reality, which PwC's Matt Lieberman says will begin having a small effect on TV in two years. The research firm is running focus groups for clients who have turned TV content into VR experiences. "They're doing deep dives into which genres and demographics work best," he says. "This is one to watch."

This story first appeared in the June 17 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.