China media &entertainment:Welcome to the new era
We are at the start of a paradigm shift from traditional platforms such as TV toonline. Network provider Ericsson expects mobile video, among all applicationcategories, will grow fastest in terms of traffic consumption (50% CAGR in 2016-22E, followed by 38% for social network). This is underscored by relentlessinvestment in the space, and the next move by iQiyi/Youku/Tencent Video toincrease exclusive content should have a profound impact on the sector. Weexpect quality TV drama studios and IP libraries to be the biggest beneficiaries.
In contrast to some mainstream views that long-tail content will benefit from theover-the-top (OTT) era, we are believers in the blockbuster strategy. Thisheavily-watched content is gaining share in the China media sector. The top 10TV dramas took 74% of viewership in 2017, up from 53%/64% in 2015/2016.
Princess Agents (楚乔传) episodes were viewed 47bn times in 2017, impressivegrowth vs The Legend of Chusen’s (青云志) 26bn views in 2016, and Legend ofMiYue’s 15bn in 2015. For movies, the top 5 grossing films, led by Wolf WarriorII, took 27% of the box office in 2017, up from 19% in 2016.
In the OTT era, offering movies in formats that consumers can’t get anywhereelse, such as the bigger-screen IMAX format with great picture quality andsurround-sound, is a good way to attract consumers, in our view. While we arewary of excessive theatre expansion in the medium term, we are relativelyconfident on long-term demand for premium format movies.