A recent article on Bloomberg Business Week titled “Chinese Moviegoers Prefer Local Films to Hollywood's” discusses three different market supply curves: theaters, local films, and foreign films. As one could guess, theaters are compliments to both local and foreign films. However, local and foreign films are substitutes. The article noted that since 2008 theaters supplied to rural areas has tripled, hence shifting the market supply curve for theaters to the right. Was this a smart move? It appears so. In 2013 alone there was a 45.8 percent increase in revenue and box office receipts. This would mean the demand curve also shifted to the right for theaters. The question then to ask would be, “Which market capitalized on this demand increase, local or foreign films?” Of the 45.8 revenue increase in 2013, 42 percent was in local films while 3.8 percent was in foreign films.
Why did local films capitalize on so much of the new demand? The author is underneath the opinion that the demand shift for local films is due in part to rural Chinese citizens preferring to view local films rather than foreign films. This makes sense since local film makers understand their culture better than foreigners and can capitalize more on Chinese humor and culture while making their movies. They also don’t have to deal with language barriers as do foreign films. The author also indicates that any foreign films shown in China have to be approved by Chinese officials. This could become a lengthy process and could create additional costs to Hollywood. This bias by Chinese officials may also result in poorer quality movie than anticipated and could create lower demand for foreign films.
The first sentence of the article also mentions that new regulation had taken effect in China that Chinese officials would now accept more foreign films into their country than before. This new regulation has the potential of shifting the supply curve to the right for foreign films. The question to ask would be, “Should Hollywood take advantage of this new regulation?” To help answer that question Hollywood should find out if there would be a sufficient enough shift in the demand curve for foreign films to justify supplying more movies, or if they would supply more at a lower price. With that being said, “What do you think?”
Source: Palmeri, Christopher. Chinese Moviegoers Prefer Local Films to Hollywood’s. Bloomberg Business Week. Oct. 24, 2013. http://www.businessweek.com/articles/2013-10-24/chinese-moviegoers-prefer-local-films-to-hollywoods.