Placement of advertising: An alternative interpretation of the film industry's 100 times price-to-earnings ratio

The product placement business has the characteristics typical of an emerging industry: small and scattered, without standards, and not standardized enough. But at the same time, it can also stimulate people's imagination, have high performance flexibility and a lot of room for growth.

Due to the great uncertainty of revenue and the limitations of the installment payment model, companies are currently unable to include advertising revenue into the costing model before filming. Cases in the industry where advertising revenue is used to recover all production costs are still rare. Industry analysts also told reporters that the placement advertising business of star stock Huayi Brothers has little impact on the company's overall performance.

However, bottlenecks in industry norms such as charging standards and charging models will eventually be gradually resolved. No one can deny the importance of film derived income, including film placement, in the development of the industry.

One reason enough to give industry insiders confidence is the surge in the number of movie-goers and the number of movie-goers that have been participating in the year. In the past six years, box office revenue in the film industry has grown at an average annual rate of 30%, and the year-on-year growth rate in 2010 is expected to exceed 60%. CIC Securities predicts that China's film industry will have 8 to 12 times growth space in the next 10 years, with a compound annual growth rate of 25%.

For producers, high box office does not necessarily mean high profits, because production costs may also increase simultaneously. However, the huge number of people watching the movie brought by the high box office can be transformed into real benefits. These incomes do not require too much cost investment for film companies. Such derivative businesses as low investment, high output, and rapid growth may be one of the reasons why stocks in the entertainment industry such as Huayi Brothers have achieved such high P/E ratios.

In addition, while the product placement industry is still in the process of standardization and standardization, its income is not stable enough, but this part of the income will also be full of elasticity. Moreover, this part of the cost is all an increase in profit for the producer.

As more and more film and television companies seek to enter the capital market, whether they can have diversified profit channels to ensure stable operating profits has become a test before them. Brand content marketing, represented by product placement, and even other derivative businesses, are excellent options for the highly volatile film industry to seek diversification. Huayi Brothers, who have big directors, big stars and big production capabilities, have made a good start.

Industry insiders revealed that under the operation of a dedicated team, the advertising revenue Huayi Brothers can achieve has been relatively stable compared with its peers. This illustrates the development prospects of this business. From this perspective, embedding the future may not be empty talk. Expanding the industrial chain as soon as possible and stabilizing the business model of derivative businesses is likely to determine the future pattern of the film industry.