How Asia conquered Hollywood

In 2011, film studio MGM decided to make some last minute changes to its upcoming remake of Red Dawn. The original 1984 war film featured a group of young Americans fighting off an invasion from the Soviet Union, but for the 2012 version, feeling it was more timely, the studio recast the villains as Chinese.

However, at the last moment, they panicked and spent just under $1m reshooting scenes and digitally changing Chinese symbols and dialogue to Korean.

It was a costly edit, but a drop in the ocean compared to what they would've lost if the film didn't make it to China. Cinema in Asian countries is big business these days, and as Western audiences seem determined not to pay for their movies any more, Hollywood is looking east in search of a new market.

Red Dawn isn't the only film guilty of this type of pandering. Both Iron Man 3 and Skyfall filmed content exclusively for Chinese audiences, and the new Transformers film is filling key cast roles through a televised Chinese talent contest. As well as that, studios are increasingly looking for ways to set films, such as the new Jurassic Park, in China.

Whether it means cutting scenes or creating new ones, Hollywood will do whatever it takes to make itself as appealing as possible to the Asian market. There's so much money to be made at the Asian box office that it has to do it.

And with Asian cinema attendance set to grow enormously in the next few years, it's a trend that looks set to continue. Luckily, I've found a few ways for us to take advantage of this theme.

China expected to be the largest cinema market within a decade

On top of that, the relative amount spent on leisure is set to rise sharply given the relative low base. Macquarie Securities states that consumption on leisure is currently 0.5% in the Philippines, 1.3% in India, 4.8% in Malaysia, 5.7% in China, 7.2% in Thailand and 7.3% in South Korea. On the other hand, the Brits on average fork out a whopping 10.3%.

It's no wonder then that Asia's box office growth exceeds the rest of the world with a four-year compounded annual growth rate of 11.2% versus 3.0% for the US and Canada.

As always when you talk about the region, China towers above everyone else, and film is no exception. It's already got the second largest market in the world and, with an average of ten new cinema screens opening daily, is on track to overtake the US within a decade.

I can't see anything stemming that growth either. Cinema attendance has proven itself to be pretty resilient in Asia, weathering economic slowdowns and political upheavals. In Thailand, for instance, where consumer confidence is falling, because of the current political crisis, cinema attendance has actually increased.

Macquarie Securities points out that the same phenomenon happened in Singapore after the 2009 financial crisis.

Cinema operators are also enjoying other ways to boost their earnings: ticket prices are tracking inflation and price increases do not result in any slack in sales. Meanwhile, sales of concessions and refreshments are rising all the time.

Three stocks coming to a cinema near you

Korea: CJ CGV Co Ltd (KS: 079160) develops and operates multi-screen cinemas in South Korea. The company also hosts stores and restaurants in theatres and sells advertising space on screen.

CJ is aggressively expanding in China from 11 cinemas in 2012 to 126 in 2020. The stock trades on a prospective price/earnings (p/e) of 17.8 times 2014 and a dividend yield of 0.75%.

Thailand: Major Cinemaplex Group PCL (TB: MAJOR) operates a cinema chain under the name Major Cineplex, and a bowling alley chain under the name Major Bowl.

In addition, the company provides theatre advertising services and concession stand rentals in its movie and bowling complexes. Major Cinemaplex also produces successful movies and is likely to seek growth opportunities in the provinces. The stock trades on a prospective p/e of 16.6 times and offers a dividend yield of 5.75%.

China: Bona Film Group Ltd (US: BONA) is an integrated film group. The company's activities include film production and distribution as well as film advertising and owning movie theatres. Bona Film Group also operates a talent agency.It is one of the top three movie distributors in China, and hopes to capitalise on the growing market once China allows free distribution of foreign films.

Interestingly, News Corp invested in May 2012 at $5.70/share (19.3% stake) and the initial public offering was $8.50 in December 2010. The stock trades on an estimated p/e of 25.2 times and is a pure growth stock.

I believe any of these stocks are a great way to play the growth in Asian cinema attendance and if we get in early enough, we will have a strong foothold in a fast-growing industry that shows no signs of slowing in the immediate future.