Revenue Growth in Media II

Question:

What drives revenue growth in this industry (i.e. more units sold, expanding geographic reach, lower costs for manufacturing, etc.)?

Summary:

This article discusses how DreamWorks Animation SKG, an American movie production company, is thinking about launching a Shanghai-based company which would be responsible for producing and releasing movies marketed specifically to the Chinese population. DreamWorks is only one of a few (including Legendary Pictures and Relativity Media LLC) American studios actively trying to reach the Asian market. While some other companies have teamed with Chinese counterparts, DreamWorks is attempting to establish an entirely separate branch of its company abroad, unaffiliated with any domestic company within China.

The anticipated success of the business venture arose from the record-breaking $93 million grossed in China this past summer by Kung Fu Panda 2. The biggest challenge for the company is that China's policies regarding foreign films are strict--the government only allows 20 foreign movies to show annually.

Opinion:

As long as the United States happens to be trading (however reluctantly) with China, it's worthwhile and profitable to expand businesses there as well. DreamWorks (and those other companies) have the right idea. Different peoples may react to the same movie in very different ways, and it seems that DreamWorks is taking this into account and finding an alternative method of marketing to counter this issue.

With China, the main obstacle for these studios is the country's harsh rules regarding foreign films. This is the danger that DreamWorks faces by trying to blend into a communist nation. China's government is more interested in making money within China than working in tandem with other countries' businesses. For DreamWorks, however, opening a branch in Shanghai makes sense if it wants to become more trusted and respected in Chinese culture.

In the media industry, there is definitely a divide between media in the United States and any other country (China, for example). Media is largely influenced by the people's culture--and usually the people's culture is affected by what the media portrays. But since each country's culture tends to vary significantly (especially in the US versus in China), it's often difficult for media barons (e.g. DreamWorks) to market similar products in such vastly different countries. In today's economic climate, it is in the best interest of the company's mother country (in this case, the US) for the company to invest in overseas marketing ploys in the hopes that the foreign people's loyalties will shift.

From the perspective of the Chinese government, however, DreamWorks' current endeavor sounds like a threat. Part of the reason for this is because the US and China haven't agreed upon a bilateral investment treaty (BIT), thus complicating international trade, business, and regulations. From an economic/political standpoint, the US and China should establish a trade agreement that is advantageous to both countries and does not leave questions floating around (namely: What do you do if China only allows 20 foreign films per year, and your American company's film is produced in China and solely marketed to the Chinese people?).

DreamWorks' actions are definitely indicative of a change in marketing patterns. China has more people to watch movies, more places to show movies, and more people who are dying to experience the media industry due to many regulations in China that have impeded the ability to watch movies often and freely. The media industry is simply latching onto this new way to make money: marketing to a new (and possibly more responsive in many respects) demographic in another country.

Sources:

"DreamWorks in China" by Michelle Kung

http://online.wsj.com/article/SB10001424053111904491704576571084135954322.html

"US Exports to China by State: 2000-10" by the US-China Business Council

https://www.uschina.org/public/documents/2011/03/full_state_report.pdf

http://latimesblogs.latimes.com/.a/6a00d8341c630a53ef015434f09eb7970c-500wi