CHINA has been supporting cultural development as part of efforts to boost consumerism as an economic growth engine.

China's media and entertainment industry is expected to show a compound annual growth rate of 17 percent from this year through 2015, boosted by consumer spending, Ernst & Young said in its "Spotlight on China" report last month.

China is the second-largest film market in the world after the US and is expected to surpass the US box office by 2020.

Two analysts from Ernst & Young talked about trends in the media and entertainment sector with Shanghai Daily recently. Participating in the interview were John Nendick, global media and entertainment industry leader at Ernst & Young, and Peter Chan, media and entertainment leader for the firm in Chinese mainland, Hong Kong and Taiwan.



Q: China is relying on its cultural sector to boost domestic consumption and is encouraging the production of more Made-in-China content. What are the prospects for Chinese films and other cultural content both at home and abroad?

Nendick: China's consumption power in the media and entertainment sector will move up with its massive Internet user base as well as ever-growing film audiences. In terms of Chinese-made content, the quality is essential because consumers nowadays have plenty of chances to choose the content they want.

If we look at the macroeconomic demand side, China clearly stands out among other Asian countries. There is still a gap between demand and existing content, leaving opportunities for more content to be distributed across various channels.

Chinese firms do have the ability to make larger investments in content production because of the huge potential demand in the domestic market.

Local knowledge and distribution is very important for overseas companies seeking to tap the growing Chinese market. The same is also true for Chinese companies that want to extend their footprint overseas.

The ability to distribute content digitally is getting easier with the popularity of the mobile Internet, making it easier to export to segment markets.

Chan: There have been high expectations of deregulation in the cultural industry, and we've seen an increasing number of foreign films, including 3D and iMax films, coming to Chinese movie screens.

We've seen successful joint ventures like the one between China Media Capital and News Corp, as well as DreamWorks' partnership with Shanghai Media Group. This not only brings capital to the domestic media and entertainment market but also provides an influx of talent and knowledge for the local market.



Q: How can print media cope with the challenges of the digital age when consumers increasingly turn to digital devices for news?

Nendick: In countries like China and India, print media will still see growth in the next several years. In China, publishing is seen as the biggest component of the increase in media and entertainment spending.

However, we still need to encourage consumers to gradually get used to paying for content. As a business model, that's still in an immature stage despite the capability to differentiate content and the flexibility of distributing it through different channels.

We suggest publishers and content distributors trial different business models to see what consumers want and whether they are willing to pay for it. It could be a mix of both free and paid content to suit different segments. Content distributors need to work on more diversified business models to see which one works best.

Publishers also need to know their customers and preferences, and also track their online behavior.

Chan: The publishing business will become more focused on content rather than on physical format. It's critical for media publishers to understand customers to modify their products according to different platforms, and to study each market segment they're targeting to see if readers will be willing to pay for content. We've also seen traditional media companies are forming partnerships with digital firms to tap new trends.



Q: How are Chinese companies doing in terms of digital payments, compared with developed nations?

Nendick: Some online game companies are doing quite well with micro-transactions within the games, where the game itself is free and additional tools require payment. There are also quite a few successful companies with "freemium" models, where the basic content is free and readers will have to pay if they want to read further.

It's important to make your content unique, whether it be a movie or a TV show, to differentiate it from what everyone else is offering. Then you may be able to charge a little bit for that content.

Q: There are some quite successful third-party payment channels, such as Alibaba's online payment arm and Tencent's payment unit. How do you see the relationship between content distributors and third payment channels in the next few years?

Chan: It's a natural development to see more cooperation between electronic payment companies and content providers because otherwise people won't have the incentives to pay for content. It's essential to make sure that content is accessible for consumers and at the same time convenient to pay for.

New developments in technology, such as convenient electronic payment methods, will, in return, boost the media and entertainment sector and there will certainly be more convergence and cooperation between the two sides because one cannot survive without the other.

Payment companies need revenue and content companies need to make money by charging users through effective means.

We've also noticed that China's younger generation tends to spend a lot of time at home on their own, shopping or surfing the Internet. That also provides huge business potential for online services.

Nendick: We've noticed that globally media and entertainment companies, which have generally been engaged in business-to-business operations, are now able to interface with consumers directly by selling them content.

Many content providers would definitely want to build up direct links with consumers, but there is still a lot of cost, time and infrastructure investment needed to manage customer relationships effectively.



Q: Making money from the mobile Internet is different from existing business models for broadband Internet, and measurements for the effectiveness of digital advertising are still lacking. What's your view on China's advertising market and how Internet companies and content providers should cope with it?

Chan: China's advertising-to-GDP ratio, at 0.48 percent, is less than half that of the US and lower than the world average of 0.70 percent. Advertising spending in China still has large room for growth, and content providers are set to benefit from rising advertising income.

Mobile advertising is starting to grow, But for handsets and even tablet computers, it's still quiet hard to place advertisements.

People will gradually come to accept the new forms of advertising, but advertisers have to keep clear in their minds that they can't afford to do anything to ruin the user experience.