The Chinese Film Industry is Set to Surpass North America’s

by Tony D'Altorio

The Chinese Film Industry is Set to Surpass North America's

by Tony D'Altorio, Investment U Research

Tuesday, March 1, 2011

Forget the Oscars... Movie lovers and investors alike should take note of the Chinese film industry instead.

Back in January, China's cinematic market produced the largest grossing domestic film ever - Let the Bullets Fly - a western, that raked in over $100 million in ticket sales.

Despite the rise of piracy over the last few years, the cinematic culture in China is finally looking up.

For years, it has suffered from poor films, poor movie theaters and a thereby natural lack of consumer interest. But film companies now expect good things ahead, thanks in part to China's rapidly growing middle class.

And heavy investments into new cinemas certainly don't hurt either...

The Silver Screen Finds Gold in China

It's not Hollywood yet, but China's overall box-office receipts grew 40% in 2009. They rose the same last year as well, rising to $1.5 billion.

China now has over 6,200 movie screens, after adding 1,500 in a single year. That number keeps on growing, with about 3 screens added per day, a faster pace than anywhere else.

Within five years, the country should have 20,000 screens, more than triple its current total. And unlike in the U.S., most of the new screens are digital and 3-D capable.

Box-office revenues should surpass Japan and India, the second and third largest markets, by the end of 2012. And they could grow to $7 billion by 2015.

That can't yet compare to North America's 2010 total of $11 billion. But if it continues to grow 40% annually, China's cinematic market will surpass all of that by the end of the decade.

Tony Adamson, marketing head of DLP - the digital cinema technology arm of Texas Instruments (NYSE: TXN) puts its sheer size into perspective. He says, "China could have as many as 100,000 screens and it would not be over-screened."

That projection looks good to Chinese movie studios and theater chains. And North American-based cinema equipment and technology firms like it too.

Investing in China's Film Industry Boom

China's movie-going boom opens up several noteworthy investment opportunities...

  • For one, investors can buy into equipment makers that sell their wares there. That group includes RealD (NYSE: RLD), the force behind 3D technology's growing popularity.
  • There's also small-cap Ballantyne Strong (AMEX: BTN), which resells digital cinema projectors and manufactures movie screens and other equipment. Its biggest customer is state-owned China Film Group's cinema-building arm, China Film China Investment.
  • Imax (NYSE: IMAX), the large-format motion pictures and systems specialist, presents another opportunity. It plans to build 96 cinemas in China this year, up from an original 15. Most of that growth will be in smaller Chinese cities, some of which don't have cinemas yet. Most industry insiders expect cinema construction to spread like wildfire in those areas.

And the rate of urbanization and availability of digital projection seem to agree.

Chinese Film Industry Restrictions Still Allow Profits

The Chinese government only allows 20 foreign films to show per year. And only two state-owned companies control that quota.

That means the best way to play the situation is through Chinese film company Bona Film Group ADR (Nasdaq: BONA).

Bona started out in film distribution, then branched into film production. Today, it is one of China's largest non-state film companies, along with Enlight Pictures and Huayi Brothers Media Corporation.

Bona often teams with non-mainland partners, often from Hong Kong, in its productions. That's certainly true of The Flying Swords of Dragon Gate, which stars Jet Li and will release at the end of the year.

And expect China's film industry to fly high as time moves on. This investment looks like it's going to be a blockbuster.

Good investing,

Tony D'Altorio

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