Hollywood Gets Boost From China

The number of Americans going to movie theaters has dropped sharply over the past decade. According to the Motion Picture Association of America, the number of movie goers in North America has fallen from 1.57 billion in 2002 to 1.28 billion in 2011. There are no doubt a number of reasons for this decline including consumers' ability today to rent movies or stream movies at home.

Box office revenues for Hollywood are also on a downward slope from the North American market. Revenues fell 4% last year, as compared to 2010, to $10.2 billion. Hoped for increases from 3D movies turned out to be a flop as those revenues slumped 18% or $400 million as audiences seemed to reject the high prices for such films.

Like in the movies it produces, Hollywood needs a hero to solve the declining revenue problem. And it has found one. The Motion Picture Association says the answer lies in international markets and especially China. International revenues rose 7% in 2011 while revenues from China rose 35%. Surging box office receipts overseas lifted total global box office revenues in 2011 by 3% to $32.6 billion.

The Motion Picture Association of America says that China is adding eight new screens a day and will add 75 new Imax screens this year. Within a few years, China will have more 20,000 screens which is nearly triple the current total. And unlike many screens here in the United States, the new screens in China are mostly digital and 3D capable. China is also opening its doors to the importation of more Hollywood films in the years ahead.

It is expected that by the end of this year China will surpass the second and third largest movie markets – Japan and India. Most in Hollywood believe that by 2015, revenues coming from China will be in the $7 billion range and that the country will indeed be the largest cinema market by the end of this decade. Look at what the marketing head for DLP (the digital cinema technology arm of Texas Instruments), Tony Adamson, said last year “China could have as many as 100,000 screens and it would not be over-screened.”

So for American investors, what companies will benefit from the growth of the film industry in China. One beneficiary could be the aforementioned Imax (NYSE: IMAX) with its 3D technology being widely accepted by Chinese moviegoers. The lion's share of growth for Imax in China is in the smaller Chinese cities, some of which do not yet have any cinemas.

Another possibility are movie makers like Dreamworks Animation (Nasdaq: DWA) which is building a production facility in Shanghai jointly with several state-owned media companies. Dreamworks and other Hollywood studios have found that the easiest way to have films qualify for distribution in China is to partner with Chinese companies.

For those investors with a large appetite for risk, there is also a pure play on the Chinese film industry, a Chinese film company listed here in the United States – Bona Film Group ADR (Nasdaq: BONA). It started out as a film distribution company and later branched out into film production. Today, it is one of China's biggest non-state-owned film companies along with Enlight Pictures and Huayi Brothers Media Corporation.

So it looks like Hollywood has found a “hero” to solve its film revenue problems for now – China. Another happy ending.

This article was originally written for the Motley Fool Blog Network. Make sure to read all of my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.