It is not every day as a journalist that you look at an American company’s financials and you see, under “export revenues,” that the biggest customer is China. But suddenly one of the hottest industries in China is one that the United States perfected, the movie-going business: China is adding new movie screens at the rate of four or more per day, and that means Chinese cinema owners are spending big on digital projectors, screens and other equipment and technology, often sold by North American companies like Ballantyne Strong, RealD and IMAX Corp.
You might be surprised by the rise of a cinema-going culture in a market rampant with piracy, but China suffered for years from a paucity of good content, quality movie theaters and, unsurprisingly, customers willing to pay more to see this bad content in bad theaters. That has all changed dramatically in the last five years.
China’s box office grew 64% in 2010 to $1.5 billion, on top of more than 40% growth the year before that, and the nation now has more than 6,200 movie screens, having added about 1,500 in one year alone. There is no sign of that growth slowing down: A number of Chinese players are racing to add theaters and make and market movies as they seek to build vertically integrated companies akin to Hollywood’s Studio System of the pre-war era.
That means more content and more screens chasing customers who seem increasingly willing to pay. Box office receipts should pass the 2nd and 3rd-largest markets, Japan and India, by the end of 2012, and could grow to as much as $7 billion by 2015, still a long way off from the U.S. and Canada’s take ($11 billion last year), but that could be a different story by the end of the decade.
That is the China growth story driving North America’s other movie industry export besides the films themselves: the exhibition equipment to show them.
If you want to invest in a Chinese company that will be showing movies on screens, you can look at a recent Nasdaq IPO that somehow underperformed despite being a China consumer play: Bona Film Group. And the company I profiled in the story, SMI Corp., is listed in Hong Kong. In the case of both companies, analysts initiated coverage in January with bullish recommendations.
With China adding thousands more screens in the years ahead, all these companies may look even better a year or two from now. Of course domestic competitors will emerge for the North American equipment providers, and there will be concerns about intellectual property theft (Dolby Laboratories’ financial reports repeatedly warn investors about this danger in China). But the Chinese movie business is growing quickly and that may pace may only accelerate. Experts believe the nation is on its way in the five or six years ahead to 20,000 screens, more than triple the number that exist today. This seems like one Chinese market where there will still be room for American exports — both Hollywood movies and the technology to show them — for years to come