Going Global: The Evolution of International Film Markets
For much of the history of the film industry, the United States has been the epicenter of its birth and evolution throughout the past hundred years. From Thomas Edison’s invention of the Kinetoscope to the dominant rise of Hollywood throughout the 20th century, American creators and consumers have been the critical focus of studio executives. Nearly all the top studios in the world are American-based, including Disney, Warner Bros., Universal, Paramount, Netflix, and Amazon. However, one critically important factor is changing: the international markets outside the U.S. and their role in the film industry’s evolution.
The growth of global markets and economic interdependence with American products is not a particularly new phenomenon or isolated to just the entertainment industry. However, with the film industry at a critical inflection point largely due to the massive rise of streaming services and changes in pandemic-related consumer habits, the role of international markets becomes a crucial element in shaping the evolution of the industry.
For reference, in 2019, the total international market was $64.4 billion, compared to just $36.6 billion for the U.S. market. On top of that, for the theatrical segment, international markets grew 10% from 2015–2019. That number for the U.S. and Canadian market was just 2%. This quick snapshot shows us that international markets are nearly twice as large and growing five times faster. This trend is likely only to accelerate as streaming giants make significant pushes to increase subscribers globally. In short, this provides evidence that the domestic market is leveled out with little potential for growth, so studios and filmmakers alike are turning more attention towards how to captivate international moviegoers.
Important Markets Going Forward
To zoom in a bit more granularly, it would be helpful to look at which specific countries are making themselves the most vital for the industry. First, the region that is the largest and showing massive growth is Asia Pacific. Looking at the theatrical segment, the region’s market reached $17.1 billion and exhibited 22% growth from 2015–2019. Compared to Europe, Middle East, Africa, and Latin America, the Asia Pacific region is where most dollars are being spent at the box office. As you can see from the chart below, four of the top five largest box office markets are in the Asia Pacific region, including China, Japan, South Korea, and India, with China raking in the lion’s share at $9.3 billion in 2019.
China
China is not only the most important Asia Pacific market or even the most important international market. In many respects, it is the most important market in the entire world. In the next year or two, China’s theatrical market ($9.3 billion) is projected to surpass the U.S. ($11.4 billion) and become the most significant market worldwide. Though 2020 was a bit of an outlier year due to the pandemic, technically, the theatrical market in China did surpass the U.S., bringing in $3 billion vs. $2.2 billion. 2021 and 2022 will likely result in China solidifying its pole position as the world’s biggest film market.
China’s market landscape is unique and is home to some of the largest film companies in the world. Companies like Tencent Video and iQiyi are the big streaming giants. Alibaba and Bytedance are also tech giants that have their hand in financing and distributing films. Traditional studios like China Film Group and Huayi Bros. are losing ground to their tech-centric counterparts but still produce some of the country’s biggest movies. Chinese streaming giants show similar high growth to their American counterparts. However, notably, China added over 9,700 new screens in the country in 2019, indicating that the theatrical market has much more growth opportunities than in the U.S.
Furthermore, the relationship between China and Hollywood will play a vital role in developing markets all over the world. There have been recent examples of successful partnerships and collaboration between Chinese and American film companies. Alibaba, Perfect World, and Tencent have all been financing partners in many films alongside the large American studios. In 2019, eight of the highest-grossing movies in China were produced by American studios, including “Avengers: Endgame”, “Fast & Furious Presents: Hobbes & Shaw”, and “Spider-Man: Far from Home”.
On the other hand, there have been tenuous points in the China-Hollywood relationship lately. There are delicate issues surrounding the censorship of parts of American films. Moreover, getting distribution in China at all can be a difficult task with heavy government oversight for all releases. As diplomatic tensions rise, the risk of successfully getting Chinese market access may increase.
India
Another dynamic market on the minds of studio executives is India. With over 1 billion people, increasing internet access, and rising income levels, India represents a massive opportunity over the next decade. Moreover, India is home to the largest film capital in the world, Bollywood, which is based in Mumbai. While the market size may not be as large as the U.S. or China, the output of films is unmatched. In 2019, Bollywood released 2,446 films.
Over the past few years, there have been increasing partnerships and synergies between Hollywood and Bollywood. Most recently, Eros International and STX Entertainment announced a merger last year, representing a new partnership between two major players in India and the U.S. Netflix also recently unveiled a slate of 40 films and TV series geared specifically to the Indian market. With that, Netflix will be partnering with several big Indian production houses such as Reliance Entertainment, Viacom18 Studios, T-Series, Endemol Shine India, and Emmay Entertainment.
Additionally, the top three streaming services in India are Netflix, Amazon Prime Video, and Disney+ Hotstar. All three companies are doing huge marketing pushes into the country. Netflix has been offering free access to titles for Android users. Amazon Studios’ executives have emphasized that India is a “priority market” for them. Disney has been working to integrate the Indian streaming service Hotstar with their own Disney+ platform since purchasing it several years ago.
International Distribution Landscape
One of the most significant elements shaping the market goes beyond national borders, which is the rise of the streaming giants and home entertainment market. In 2020 alone, the digital streaming and home entertainment market grew by over 30%. Moreover, 2020 was also the first time that subscriptions to online video services topped 1 billion subscriptions.
Using Netflix as a proxy, we can see which regions show the most significant streaming growth. In their latest quarterly earnings report, Netflix reported adding 4 million new subscribers, bringing its total to about 207 million. It indicates that EMEA (Europe, Middle East, and Africa) and APAC (Asia Pacific) were its two strongest growth areas. EMEA reported 69 million subscribers and a 11% yearly growth rate. APAC reported 27 million subscribers and a 9% yearly growth rate. This underscores the same trends seen in the theatrical segments.
The rise of streaming services and home entertainment consumption and the similar expansion into international markets reinforces the notion that international markets are where the top studios will compete for the foreseeable future. Netflix, Amazon Prime Video, Disney+, HBO Max, Tencent Video, and iQiyi all control the vast majority of the worldwide streaming market. This gives immense power and opportunity to these American and Chinese giants to succeed over the next decade across every country globally.
Overall, if Hollywood wishes to flourish in this next era of premium content, it will need to continue to evolve its approach to the production and distribution of its films alongside the evolution of international markets. As globalization continues to accelerate, China and India stand as two critical players in the growth of the global film industry. To succeed going forward, studios, filmmakers, and investors alike will need to tailor content, build partnerships, and be mindful of the local streaming landscape.
Luckily for Hollywood, watching a good film is something universally enjoyed. So, if done right, a golden opportunity lies on the horizon to take advantage of the emerging dynamics in the next era of the global film industry. As a financier to top studios, MCT stands to benefit from growing international markets and the expanding reach of Hollywood. Whether it is through financing large tentpole films with global appeal or producing local language content with international talent, there are many opportunities to build worldwide audiences and enhance a film’s monetization strategy. With a globally connected audience, there has never been a better time to invest, create, and distribute content. MCT aims to pave a path forward in shaping the future of premium content.
