In the early 2000’s, Professor Aswath Damodaran on talking about valuation, used to say people to justify a growth projection used to say China or the Chinese market can be used to justify their valuation number. In some cases, that was correct, China emerged as the number 2 economy in the world and if the company made transactions it was possible. One area that tended to be correct was in Hollywood movies, but times have changed.

In an article by Claire Fu, Brooks Barnes and Daisuke Wakabayashi of the New York Times News Service, it seems the big blockbuster movies from Hollywood can no longer depend on China. The Chinese market is still important, but if you consider Aquaman and the Lost Kingdom. The studio made $1.2 billion worldwide on the first Aquaman and China represented about 25% or $293 million. Expectations were high, marketing budgets were spent and the movie brought in $60 million in its first few weeks down from $90 million.

In 2023, no US films ranked among the top 10 highest grossing movies despite movies such as Mission: Impossible, the Fast and Furious and Spiderman franchises. In 2012, 7 of the top 10 were US Hollywood movies.

Part of the reason is China produces more high-quality movies that resonate with domestic audiences. The top 2 movies were Full River Red and The Wandering Earth II.

Hollywood once viewed China as a market where they would always make money. Consumers are spending less on movies and box office sales have are below pre-pandemic levels.

Linking to dividend paying companies, all markets mature and local companies mature with the competition so the quality demanded is the quality produced. Many industries do not have wide barriers to entry and with technology, it is possible to do the same thing as the big players. The growth in capacity is a good thing in general, but sometimes companies lose market share and begin to lose margins or profitability. If the reason you are buying an investment and the seller says we can capture 1% of the Chinese market, remember the golden rule of investing – try not to lose money.

There are more questions than answers, till the next time – to raising questions.