Bus 101 assign 4c,4b, and 4d

China's Movies Are a Hit With Investors by: Lilian Lin Apr 30, 2016

TOPICS: Government Regulation of Business

SUMMARY: The movie industry in China represents the potential for growth, but there are also risks. More money is available to make movies which might make the industry more competitive with Hollywood, but it also means more movies are being made than there is a market for. As other businesses in China slow, money is flowing into the movie industry. One concern is that there may be a bubble. Movies are being financed with nontraditional sources including online platforms. Hollywood's trade association, the MPAA, restricts how movies are financed. There is no comparable trade association in China and regulators have trouble keeping up.

CLASSROOM APPLICATION: Innovative financing used to make movies in China has risks. In Hollywood, worth is based on possible cash flows. There is a trade association, the MPAA, which resisted nontraditional financing. The concern is that the movie industry in China may be a speculative bubble. Money is coming from other sectors whose growth slowed. A recent scandal involved a movie where tickets were purchased in bulk and there were "ghost screenings." Regulators suspended the operations of the company for a month. The interesting aspects of this story are how the movie industry is growing in China and the risks associated with how it is financed. Regulation is another difference between the Chinese and U.S. movie industry.

QUESTIONS:  1. Discuss the relationship between slower growth in China in real estate, energy and other industries and increasing investment in movies. 2. Compare regulation in China with U.S. regulation. 3. Describe how movies are financed in China and describe the potential risks associated with financing movies in China. 4. Do an internet search and find a good definition for the term “investment bubble” and describe concerns that the movie industry in China might be headed for a “bubble”.

END