Will China Overtake the U.S. at the Box Office in 2017?

By Motley Fool Staff Markets Fool.com

On this episode ofIndustry Focus: Consumer Goods,the cast considers how Universal Studios' poor box office showing in 2016 hurts parent companyComcast(NASDAQ: CMCSA). They also discuss the rising importance of China with its massive audience and predictions for the industry in 2017.

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A full transcript follows the video.

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This podcast was recorded on Jan. 3, 2017.

Vincent Shen: For Universal, then, aspart of Comcast,keep in mind, this film entertainment segment is just 8% of the top line. Even at theNBC Universal division, which is, in my view, much morecomparable to Disneyif you look at them one-to-one,the cable networks and television businesses are still the lion's share of revenue, similar to Disney. Even with filmed entertainment, for Universal, it's down 20% year-over-year for these first three quarters of 2016. It's really not, in my view, a huge blow, if you're a Comcast shareholder. I think, we talked about it earlier, 2017, the cycle returns to its favor with some really big, established franchises coming out.

Dan Kline:And they bought DreamWorks, so they got a few properties that can bolster their slate. They had this hit withThe Secret Life of Pets. So, I would look. Maybe they're an acquirer. There's not a ton out there,in terms of franchises that are available. ButComcast only needs maybe two or three more properties. MaybeKung Fu Pandahas tired out. Maybe they can get anotherShrekmovie out. ButJurassic Worldhas a ways to go, and theFast and the Furious, it seems like they could be doing 12 Fast 12 Furious and people will still see it [laughs].

So, Comcast isn't Disney, but they're getting close. It wouldn't shock me if they were to maybe buy some rights fromSony, or do something like that. But, this is becoming a business where it's all aboutguaranteed hits, where you're just not going to see a lot ofPassengers, orLone Ranger, or movies that are sold based on stars or premise. You're going to see franchises and things that can be franchises. It's why they're already planning at least two moreFantastic Beastsspinoffs. You know the audience, you can build it, you can see the market, you can sell the books, all the other stuff. And Comcast isn't there, but they're going to get there.

Shen:All right. Last point before we wrap up this episode, in my view, for 2017 and beyond, frankly, is that the biggest winner for all of this, beyond Disney, is actually probably going to be China. The Chinese government has been quite public, I think, in its desire over the past several years to export more culture and influence as an established superpower. Film and television are obviously a huge part of these efforts. Keep in mind, theWanda Group is a massive Chinese conglomerate; they own AMC, they own other theater chains, they're the biggest operator in the world. They own a whole host of media companies, likeLegendary Entertainment. Youcombine all that with theimportance that the Chinese market has to most majorHollywood releases at this point, andit should be the biggest box-office market starting this year in 2017. And we're going to only see more and more movies and TV shows cater to this market. The deal might be undernegotiation, and the authorities only allow 34 foreign film releases per year in China. Studios fightreally hard for those slots.Ghostbusters, for example, did not get that, and we saw their international take really struggle. What do you think, in terms of the place that China plays in terms of their audience and everything?

Kline:It'sunbelievably huge,because there's a way to get around those 34 slots, and that's to have a co-production company in China. The upcoming Matt Damon movieabout the Great Wall of China, I think it's calledThe Great Wall,that movie takes place in China,it's made in conjunction with Chinese companies, so it gives it access to that market. We did see some movies this year, likeWorld of Warcraft, which bombed in the U.S. but made their budget back -- or at least did very well -- in China. But this is a case whereChina has a lot of cards. When Hollywood is saying, "I want you to releaseRogue One," they can say, "There's only so many slots, and here's what we want you to do. We want more character representation. We want product kickbacks," or whatever it is. Hollywood, with these big-budget movies, is very muchbeholden to the Chinese market.

Now, that changes a little bit when China has seenRogue One, and they're looking forward toRogue Two, though we both knowRogue Twoisnot likely to happen. But when they're looking forward to the nextStar Warsmovie, then maybe the audiences start demanding what they want. But for the next few years, China is sitting in a position where it can demand concessions from Hollywood, and it's been able to get them. Some of these movies -- I don't think you see a movie likeMoana, the Disney movie (and I apologize if I'm not pronouncing that correctly), that had a much more diverse cast than the traditional, very white Disney princess movies, if you don't have a global influence led by China. And I know it wasn't a Chinese character, but it wasn't the typical Ariel Disney princess. So, absolutely, everything is different. You're not going to see your very smart talk-yBen Affleck movie play in China. That's influencing what gets made.

Shen:Yep. Any other final thoughts orpredictions that you have for 2017? Like I said for mine, the growing influence in that market. Also,I'm very curiousto see what happens for Disneyin terms of its succession plan.I know you're doubtful about 2018. Iger has been pretty set about that timeline,because he has already postponed it three or four times at this point. But overall, it's always a cycle, how the studios rank. They always fluctuate depending on the release schedules. I'mvery curious to see what this year is going to be like. What about you?

Kline:I think there's only one thing you can be really sure of in the coming year, and that's whatthe biggest movie of 2017 is going to be.

Shen:Yes, that's fair.

Kline:It is going to beStar Wars: Episode VIII. Perhaps we'll have to do a show from waiting in line to go seeStar Wars: Episode VIII, because we'll probably have to do that two or three days in advance to get into a big screening. But there are a handful of movies coming out this year. This trend we've talked about all episode is only going to get stronger. We're going to see aDespicable Mesequel,we're going to see the nextFast and the Furious,all of these big movies are going to be big. And if you look at the slates, or you even watch thepreviews that I saw at the movies yesterday, other than low-budget horror films, you're not going to see a ton of original swings from the fences. It's going to be more of the same,as long as the audience keeps buying. If they keep makingStar Warsfilms andMarvelsuperhero movies, I think people are going to keep buying.

Daniel Kline has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.