2016 Top Markets Report Media And Entertainment
2016 Top Markets Report Media and EntertainmentCountry Case StudyChinaChina’s M&E industry is on track to reach 242.2 billion by 2019.1 China has thesecond largest economy in the world, powered by state‐owned enterprises (67 arelisted on the Fortune Global 500). The population of 1.3 billion has more than 600million Internet users and 500 million mobile Internet users. Wi-Fi is widespread andfree, but free speech is curtailed and Internet sites are monitored and blocked foroffensive content. China’s growing affluent middle class is seeking quality anddiversity of entertainment products and services. The government has put its weightbehind promoting culture and is building movie theaters at a furious pace, nowstanding at 23,600 screens (compared to 40,000 in the United States) and more than3,700 theaters and growing and with an estimated 60 million movie goers, there areexcellent M&E growth opportunities in the world’s most populous country.Ranking of the Chinese M&E Sectors 20161. Filmed Entertainment2. Video Games3. Publishing4. MusicChina ranks second on ITA’s list of top M&E exportmarkets by sheer size. China offers a powerful, largemarket place and the government is making sure theentertainment industry is rising to the challenge tomatch global markets and offerings for its vastconsumer base. However, trade barriers such ascontent restrictions and rules for Chinese ownershiplimit how U.S. exporters can access and trade in thismarket, hence it ranks second. U.S. film producersand distributors can enter coproduction agreementsor other entrusted production agreements to bringU.S. content to film and TV viewers, both in theatersand online.The music industry is growing and is equallyOverall Rank24challenging to enter due to regulatory restrictionsand state mandated censorship approval. Demandfor Western music, while popular (especiallyAmerican music), has not developed to the samedegree as K‐pop (Korean pop music), and Chineseopera and other local content is still very dominantin the Chinese marketplace.The games sector is also booming, and both digitalconsole and online games are facing robust growthin the next five years, presenting excellentopportunities for U.S. exporters who would like toenter the marketplace with a Chinese partner. With13 percent of the world’s global mobile revenues, anew trend has emerged with games spreading dueto the popularity of mobile chat apps.30 Piracyplagues China, and the government is working toimprove copyright and IP protections.Overview of M&E Market2016 ITA Media and Entertainment Top Markets ReportThis case study is part of a larger Top Markets Report. For additional content, please visit www.trade.gov/topmarkets.1
China Media & Entertainment Market 2015 - 2019 13,100,000,000 12,100,000,000 10,000,000,000 12,400,000,000Publishing 1,000,000,000 860,000,000 5,800,000,000 9,100,000,000Video Games2015MusicFilmed Entertainment2019* Data Sourced from PwC Global Media & Entertainment Outlook 2014-2018China’s M&E market is growing faster than theoverall economy as the government has strategicallyinvested in M&E and the growing middle classconsumer base can afford to spend onentertainment. The Chinese government hasemphasized training in the Chinese M&E industryand has increasingly made capital available to thecultural and entertainment sectors, while cautiouslyallowing foreigners to invest, such as creating anM&E investment fund in collaboration withSingapore and a media project with U.S. mediaconglomerate Time Warner.In addition, both the U.S. and China view thisindustry focus as a “soft power” tool in a five-yearplan to grow the domestic industry and increaseChina’s global influence as well as their imageiabroad. There is high demand and consumption ofmobile games and filmed entertainment, and someexperts advise new exporters to start investing insecond or third‐tier cities that have establishedinternational business ties and active ports beforeventuring to the capital, Beijing, and so‐called first‐tier cities, like Shanghai, that are more competitive.Opportunities for U.S. CompaniesThis growth is due to China’s policies to stimulatethe sector, build its domestic movie production anddigital theaters, and expand the role of co‐productions, as well as addressing their quotasystem and increasing revenue sharing imports.According to the Los Angeles Times and ArtisanGateway (a leading film and cinema consulting firm inAsia), box office receipts increased 48.3 percent toiii 6.8 billion by year end of 2015. This enormousgrowth is the largest jump in the past five years, and61 percent of it was generated by Chinese films, asAmerican share of the market has continued toivdecline. Chinese screens increased by more than9,000 in 2015, bringing the total amount of movievtheaters to 32,000.China boasts the second largest theatrical marketworldwide after the United States, and box officerevenues are on a meteoric rise and are expected toreach 8.8 billion (15.5 percent) by 2019. Filmedentertainment is a main driver for the entertainmentsector in China, and the government has invested atremendous amount in new mega theaters andentertainment complexes, collaboration with U.S.media and entertainment conglomerates, and coproductions with foreign entities and domestic filmproduction.Filmed EntertainmentChina’s filmed entertainment sector is expected togrow 14.5 percent by 2019 to reach just under 10iibillion, nearly doubling from 5.8 billion in 2015.In 2014, 67 foreign films were released in China; 33of those were released on a flat‐fee basis and 34 onrevenue‐sharing basis, meeting the full quota offilms.33 The U.S.–China film deal of 2012 allows for2016 ITA Media and Entertainment Top Markets ReportThis case study is part of a larger Top Markets Report. For additional content, please visit www.trade.gov/topmarkets.2
14 additional movie imports of new format films in3D or animation on a revenue sharing basis. China’soverall import quota on a revenue sharing basis nowstands at 34 films annually for all countries. Co‐production is gaining in popularity, and several majorHollywood studios as well as indie film makersengage in these deals with China. In 2015, foreignfilms held 45.5 percent market share, in large partdue to the success of the U.S. blockbusterTransformers: Age of Extinction.Whether importing or co‐producing, foreign firmsinterested in working with China will have tounderstand how to address State Administration ofPress, Publication, Radio, Film and Television of thePeople's Republic of China (SAPPRFT), regulations forthe industry, including cultural and contentrestrictions, a quota system for foreign films, andgarnering data and earnings from unclear box officereporting. There are two major modes of co‐production in China: joint production (collaboration)and assisted production (entrusted production).Joint production, or “co‐pro,” is considered adomestic film and not subject to the quota and willalso be at least 51 percent Chinese‐owned. In anentrusted production agreement, the foreign partyputs up 100 percent of the capital; the Chinese sideproduces the film, but it counts as a foreign filmunder the import quota.U.S. exporters and licensors also face a marketplacewith widespread piracy of creative content and areadvised to conduct a cost‐benefit assessment priorto entering the market. The Department ofCommerce offers IPR resources specific to theChinese market, which is available onwww.stopfakes.com. In addition, the China FilmGroup (CFG) controls distribution of importedmovies, and investors will have to either use a jointpartnership or hire U.S. or local experts to helpmaneuver the bureaucracy. Either way, a Chineseentity must be approved for “film distribution” inorder to distribute foreign movies. While CFG hassuch an approval, other Chinese entities may also beapproved.It is a must to speak Chinese or have a localrepresentative who is fluent in Chinese (Mandarinon the mainland) when doing business in China. U.S.producers and exporters will compete for the onlinegeneration in China with the “BATs,” namely thethree Internet giants in China: Baidu, Alibaba andTencent, which have all moved into filmproduction.34Dalian Wanda Group, China’s largest cinema ownerand commercial real estate developer, whichacquired the U.S. company AMC in 2012, is buildinga movie studio to rival Hollywood studios inQingdao, a major port city in eastern China, with a 160 million fund to attract producers.35 QingdaoOriental Movie Metropolis, an enormous film studiodevelopment owned by the Dalian Wanda Group, isset to open in April 2017. The complex will include atheme park and entertainment center, a 4,000-roomresort-hotel complex, a shopping mall, a 300-berthyacht club, a celebrity wax museum, and a hospital.Wanda Studios Qingdao is going to be one of thelargest and most technologically advanced featurefilm-production facilities in the world, encompassing30 sound stages; an enormous, temperaturecontrolled underwater stage; a green-screenequipped outdoor stage that is still larger at 56,000square feet; a permanent facsimile of a New YorkCity street; and much more.China has the largest cable TV market in the worldwith 216 million subscribers. Via the media giantsTencent, Baidu, LeTV and Youku Tudou, Through‐TV‐subscription revenues are projected to reach 462million in revenues by 2019, up from 314 million invi2015 (13.4 percent). Electronic home video isexpected to reach 480 million (16.6 percent),driven by smartphone and mobile expansion. OTTand streaming will grow at a fast clip of 16.6 percentfrom 166 million to 291 million during 2015 to2019, a significant revision downward from the 2013viito 2018 predictions. Nevertheless, China is thelargest IPTV market in the world, yet this sector isalso under siege from piracy.Effective April 1, 2016, SAPPRFT requires foreignfilms and TV series to register for a “publicationlicense” in order to show content and streamviiionline. Imported TV series also have to bereviewed by China’s censorship authority in theirentirety before streaming on the Internet. This has ahuge impact on weekly shows. Programs that werenot registered by March 31 will be removed fromVOD platforms. Finally, a recent 30 percent limit onforeign TV shows and films has been implemented,creating challenges for U.S. industry and raisingquestions in the context of the 2012 film agreement,which promised to make the process of importing2016 ITA Media and Entertainment Top Markets ReportThis case study is part of a larger Top Markets Report. For additional content, please visit www.trade.gov/topmarkets.3
films easier and more transparent.percent on PCs. The sector will also generate gamerelated ad revenues of 399 million by 2019, upfrom 244 million in 2015.MusicChina’s 860 million (2015) music market isdominated by local content and is expected to reach 1 billion in 2019 (5.9 percent). Of this, recordedmusic will grow 5.3 percent to reach 759 million,led by digital revenues and mobile devices. By 2009,digital had substantially surpassed physical recordedmusic, and in 2015, the ratio was 625 million digitalixto 16 million in physical revenues. This is expectedto expand to approximately a ratio of 75:1, or 750million digital and only 9 million physical recordedxmusic revenues, by 2019.PublishingIn contrast to most music markets globally, includingany of the top markets in this report, mobile is kingat 482 million, dwarfing both streaming services( 95 million in 2015, expected to reach 138 millionby 2019) and digital downloads, which will remainxisteady at 15 million during 2015 to 2019. The livemusic market is growing, reached 219 million in2015 and should expand to 290 million by 2019,presenting performance and touring opportunitiesfor bands that are able to connect with state andfestival organizers for a slot for foreign entertainers.The most important subindustry in China’spublishing sector is educational e-books, which,while a small part of the total publishing market, areset to explode in growth at 39.6 percent annuallyfrom 2015 to 2019, to reach 57 million – up fromxvii 10 million in 2014 and 20 million in 2015.However, traditional print textbooks still dominatethe publishing market with a whopping 5.5 billionin revenues in 2015 and a slight decline percentagexviiiwise to remain at roughly 5.5 billion by 2019.The Chinese government is the principle buyer ofeducational books as the penetration rate of tabletsand e-readers in schools are low given the cost forxixstudents.Piracy of creative content is a very significantproblem. The USTR reports that 99 percent of musicdownloads constituted illegal file sharing in itsannual Special Report, where China remains on thePriority Watch List of countries with the mostrampant piracy rates.37Video GamesChina has the third largest video game market in theworld after the United States, with Japan coming inxiisecond and the UK fourth. The Chinese gamessector posted 9.1 billion in revenues in 2015 andxiiishould grow to 12.2 billion by 2019. Recently,China ended the ban on the sale of game consoles,such as Xbox and PlayStation, but circumventiondevices are proliferating, presenting challenges fornew and existing entrants to that market segment.Roughly 345 million Chinese play online games (closeto the size of the entire U.S. population), whichaccounts for the bulk of the industry revenues andhas spurred growth in Internet services revenues.Approximately 65 percent of gamers play onlinegames, versus 16 percent on browsers and fourChina has the third largest publishing sector forxivexporters after the United States and Germany.However, publishing companies are state-controlledand censored by the Chinese government. Whilecensorship may be seen as a major trade barrier toWestern publishers, some authors choosecensorship of their works in order to target one ofxvthe largest markets in the world. Total publishingrevenue was 12.4 billion in 2015 and is slated toxviincrease slowly but surely to 13.1 billion by 2019.Consumer and professional e-books comprise theremainder of the publishing market with similarcharacteristics to the educational subsector. Theprint book market is significantly larger than the ebook versions, with professional print books in 2015totaling nearly 2 billion and consumer print bookstotaling 4.2 billion in 2015. The consumer andprofessional e-book publishing segments are primedto grow over the 2015 to 2019 period at a rate of27.6 percent and 11.7 percent respectively, so thereare opportunities for U.S. exporters in these twoxxsubsectors. While tablets are not yet prolific, themovement towards e-readers is best demonstratedby the expected decline in consumer print books by1.4 percent through 2019, from 4.2 billion to 4.0billion during the same period as popularity inxxitablets continues to rise.2016 ITA Media and Entertainment Top Markets ReportThis case study is part of a larger Top Markets Report. For additional content, please visit www.trade.gov/topmarkets.4
Challenges Facing U.S. M&E ExportersChina remains on the U.S. Special 301 Priority WatchList for IPR due to heavy piracy, especially online, onmobile devices, and from the proliferation of mediaor set‐top box piracy. Rogue manufacturers canaccess, pre‐load and store unauthorized content,including pay TV, movies, music, books and games,and sell them cheaply to users who seek access topremium content without paying subscription ormarket prices. Consumers can also downloadcontent from a multitude of illegal sites, onto set‐topboxes or other devices. The set‐top boxes are sold allover Asia, including markets where much of thecontent is not even legally licensed, creating deeplosses to rights owners and M&E firms. Pay‐TV andsignal theft is also on the rise, and illegal camcordingof movies in theaters is widespread.Guidance and Resources for ExportersThe following information is intended to provideguidance and resources for U.S. exporters looking tosell their services in China. Typical buyers, licensors and distributors of M&Ein China might include state and federalgovernment and select private companiesdepending on the sector. Preferred business strategies to enter/expand inthe market might include identifying localpartners and co-production companies fordistribution and to assist with content and otherrequirements. Common trade barriers to enter/expand in themarket might include that most multinationalvendors have either a regional or local presencein country. Companies should expect somesignificant challenges with content restrictionand State government overview of M&E sectors. U.S. Department of Commerce CountryCommercial ustry Trade Associations: The Publishers Association of Chinahttp://www.pac.org.cn/ China Audio-video and Digital PublishingAssociation http://www.chinaav.org/ American Chamber of Commerce in China:http://www.amchamchina.org/Government Agencies: State Administration of Press, Publication, Radio,Film and Television (SAPPRFT)http://www.sapprft.gov.cnTrade Shows:Filmed Entertainment Beijing International Film Festival April 16 – 23,2016 http://www.bjiff.com/enHome/ Shanghai International Film Festival June 17 –23, 2016 http://www.siff.net/festival-2016 Taipei Film Festival June 30 - July 16 2016http://eng.taipeiff.org.tw/Content.aspx?FwebID 113eab9d-8fae-4e6e-9ed9-06b9dd2f0648 Qingdao International Film Festival LaunchingFall 2017 (Dates TBD) Hong Kong Filmart March 13 – 16 eneral t--FILMART-/FairDetails.htmlMusic YinYang Music Festival September 15 – 17, 2016http://www.yinyangmusicfestival.com/Publishing Beijing International Book Fair, Aug 24 - 28, 2016,Beijing, China: http://bibf.net/EN China Shanghai International Children’s BookFair, Nov 18 – 20, 2016, Shanghai, China:http://www.ccbookfair.com/en/Video Games China Joy July 28 – 31, 2016, Shanghai, China:http://en2016.chinajoy.net/iChina Briefing: Market Overview: The Entertainment Industry in China - See more at:http://www.china- tainment-industry-china.html#sthash.7VrfgA9L.dpuf. BusinessIntelligence from Dezan Shira & Associates, March 6, 2015.iiPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 1/3/2016.iiiJulie, Makinen, Los Angeles Times, “Movie ticket sales jump 48% in China, but Hollywood still has reason to worry,” tml, accessed 01/3/2016.ivIbid, accessed 1/3/2016.2016 ITA Media and Entertainment Top Markets ReportThis case study is part of a larger Top Markets Report. For additional content, please visit www.trade.gov/topmarkets.5
vIbid, accessed 1/3/2016.Pricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 1/3/2016.viiPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 1/3/2016.viiiSAPPRFT Publication License for foreign TV & Film effective April 1, 140904102409770812.htmlixPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 1/3/2016.xPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 1/3/2016.xiPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 1/3/2016.xiiPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 1/3/2016.xiiiPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 1/3/2016.xivPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 12/31/2015.xv xvPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 12/31/2015.xviPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 12/31/2015.xviiPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 12/31/2015.xviiiPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 1/3/2016.xixPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 1/3/2016.xxPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 1/3/2016.xxiPricewaterhouse Coopers, “Global media and entertainment outlook,” http://www.pwcmediaoutlook.com/dataexplorer, accessed 1/3/2016.vi2016 ITA Media and Entertainment Top Markets ReportThis case study is part of a larger Top Markets Report. For additional content, please visit www.trade.gov/topmarkets.6
2016 Top Markets Report Media and Entertainment Country Case Study China Ranking of the Chinese M&E Sectors 2016 1. Filmed Entertainment 2. Video Games 3. Publishing 4. Music China ranks second on ITA’s list of top M&E export markets by sheer size. China offers a powerful, large market place and the government is making sure the
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American Revolution in Europe working to negotiate assistance from France, Spain, and the Netherlands. Foreign Assistance French ultimately provided critical military and financial assistance Spain and the Netherlands provided primarily financial assistance to the American cause. A comparison of the resources held by the British and by the colonies: The population of the thirteen colonies .
