Window of opportunity on the entertainment stage

Marcel Fenez, global entertainment and media leader for PricewaterhouseCoopers, says China's urbanization is creating an increasingly affluent middle class keen on art and entertainment activities.

He says this has also been helped by the growth of entertainment facilities in urban centers such as cinemas and theme parks, which would not have been economical in less concentrated rural areas.

At the same time, broadband connectivity is allowing people in smaller cities and more rural areas to enjoy entertainment activities such as watching TV programs on the Internet, or playing games, he says.

Fenez says this growth will create many opportunities for foreign companies because they have an advantage in delivering such content, particularly in sectors such as films, television shows, theme parks and exhibitions.

However, foreign players also face numerous restrictions operating in China, particularly in the TV and film industries, he says.

One such example is the restriction on the number of foreign films that can be imported into China, to protect the domestic film industry. Last year this number was increased to 34 a year, from 20 previously.

"In the Chinese market, the demand for foreign films is much higher than 34. There are definitely opportunities for foreign players, but they will have to work with Chinese partners," he says.

Fenez says such regulations have encouraged foreign production companies to co-produce films with Chinese companies in recent years. Examples include Warner Bros Entertainment Inc, Legendary Pictures LLC, Sony Pictures Entertainment Inc and DreamWorks Studios, all of which have entered into co-production ventures in China, he says.

"The focus is on producing films incorporating world-class expertise but targeted at China's domestic audience", he says.

"In terms of expertise, if you look at some of the production quality of what is coming out of Hollywood, they are very strong on the technical effects and the storyline.

"Foreign companies can share with domestic partners the latest developments either in terms of technology or approach."

In a typical partnership the foreign player would typically work with the Chinese partner to identify the right story line, one that would work with the local audience, and then they would work together to develop the right script.

"Identifying the right talent and the choice of the location of shooting are mainly the responsibility of the domestic player. The local partner can also negotiate appropriate licenses for shooting."

"The foreign partner would make decisions on the technology aspects. For example, if computer-generated imagery should be used and whether the production should involve a great deal of visual effects. In that area, we see a lot of local partners keen to have what is available globally," he says.

After the program has been produced, the local partner would have a significant role to play in distribution through cinemas, he says.

Sometimes when films co-produced for the Chinese domestic market suit an international audience, the foreign partner would help bring it to a global audience, he says.

Fenez says another growing opportunity is the theme reality show sector, where many foreign TV companies are selling their formats to Chinese TV companies, who then produce a program using Chinese characters in the same format.

"It's not a matter of the original program getting exported, but the format being exported, which is a different arrangement," he says.

"The foreign parties will obviously help the local production, to teach them how to produce that particular show, but then everything else is done locally. The key thing with content is localization."

Fenez says another growing sector is games, which is growing particularly fast in China, where demand is no longer driven by teenage boys but by a diverse population including housewives.

"In the gaming sector, we see a more open playing field. Most of the games popular in China currently are made in China."

Growth in all art and entertainment industries in China in turn creates opportunities for advertising companies, to help these entertainment events reach their audiences, Fenez says.

He says most of the globally renowned advertising holding companies have an established presence in China, including WPP Plc, Interpublic Group of Companies Inc, Publicis Groupe and Omnicom Group Inc. These holding groups have made a lot of domestic acquisitions.

"They have the expertise of serving global companies, so they benefit from the network and experience. In China, many of their clients are foreign companies in China and Chinese companies hoping to have a global reach," he says.

"The overall advertising growth in China is still one of the strongest in the world, especially the digital advertising market."

Fenez says as China urbanizes more, growth opportunities for the art and entertainment sector will increase, particularly in the live performance sector, such as dances, concerts and theatre. "Live performances are already in China's first- and second-tier cities, " he says.