The staggering economic growth-rate of mainland China has created unprecedented opportunities for Chinese and global media and entertainment companies, according to Spotlight on China, a report released by Ernst & Young, to coincide with its Media & Entertainment Emerging Markets Executive Forum being held in Shanghai. With China's latest Five-Year Plan moving the economy closer towards consumption-led growth, the media and entertainment business is facing new opportunities and challenges, as it markets its products and services to the 1.3 billion people that make up the most populated country in the world.
According to the report the compound annual growth rate for China's media and entertainment industry between 2010 and 2015 is estimated to be 17%, which is significantly higher than the overall forecasted economic growth of the country. China is currently the second-largest film market in the world after the US and is expected to exceed the US box office by 2020. China is the largest internet market in the world and digital entertainment continues to grow exponentially.
David McGregor, Asia-Pacific Media & Entertainment Leader for Ernst & Young, says, "The largest media and entertainment companies in the world certainly understand that their global strategy has to have China front and center. Between the impact of digital adoption and the government of China easing regulatory restrictions, both foreign and domestic media and entertainment companies are in a position to make new inroads into this extremely promising market."
Spotlight on China identifies several trends driving growth in China's media and entertainment economy, including an increasing disposable income among consumers; the convergence of networks, devices and content; the digitization of distribution infrastructure; advertising expansion; growth of second-tier cities; emerging business models and regulatory reform.
It also highlights the challenges facing media and entertainment companies doing business in China, including changing consumer preferences in a diverse marketplace, an evolving and highly competitive digital landscape, price sensitivity, intellectual property rights infringementand government control and regulatory restrictions.
Through conversations with leading media and entertainment companies, the report identified four key factors and associated best practices critical to success in China. These are building a strong brand, succeeding in digital, forming and operating successful partnerships and navigating the regulatory landscape.
"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," says John Nendick, Global Media & Entertainment Leader for Ernst & Young. "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."
Media and entertainment companies are also advised to make cultural influences a key factor in their business strategies for China. "Companies cannot underestimate the importance of culture in China," said Peter YF Chan, Greater China Media & Entertainment Leader for Ernst & Young. "An understanding of the cultural nuances across geography, age and income level is necessary to win the loyalty of Chinese consumers."