Price of Admission?

The latest episode of Chinese corporate bullying: sitting on $143 million it owes Hollywood

July 31, 2013
July 31, 2013

In the last month or so, Chinese authorities have smacked down foreign makers of infant formula, fancy cars and cabernets. But if you think they might be getting exhausted, think again. The government-owned China Film Group (CFG) owes a minimum of $143 million to American studios, as The Hollywood Reporter details, and it’s refusing to cough it up until the studios agrees to a smaller box office cut.

The agreed-upon percentage is 25%; that’s the deal US vice president Joe Biden and Chinese president Xi Jinping, who was then vice-premier, negotiated in February 2012, compared to 40-45% in other countries. But now CFG wants to renege on that arrangement and stick Hollywood studios with the bill for a new tax, which could reduce gross earnings by as much as 8% (paywall).

The Motion Picture Association of America (MPAA) is trying to smooth this over, THR reports, noting that asking the US Trade Representative to investigate violation of World Trade Organization terms would be a “dramatic step.” Chinese media report that the MPAA has already requested one, though the source is unclear (link in Chinese).

The state-run conglomerate wears some big hats, notably importing foreign films, advancing China’s film industry, and censoring both. Infamous for making things tough for Hollywood blockbusters (as well as for independent Chinese films), CFG and its parent regulator make no attempt to disguise that their priority is encouraging the growth of domestic filmmakers.

CFG just nixed the release of “Despicable Me 2,” possibly because animation features still are a touchy issue for the government —the wild success of “Kung Fu Panda” set that off. And it pulled “The Croods” two weeks early, reportedly due to complaints from Chinese animation producers.

It’s not just cartoons. In April, authorities axed “Django Unchained” on its release day, rescheduling it to compete with “Iron Man 3,” “Oblivion,” and “The Croods,” a favorite CFG protectionist ploy. In 2012, it pit “The Dark Knight Rises” against “The Amazing Spider-Man” and “The Lorax” against “Ice Age: Continental Drift.”

Many of these films still score big, though—a testament to the fact that there’s probably no American export Chinese people adore more than Hollywood movies. That love affair has made China Hollywood’s second-biggest market, generating $2.7 billion last year, a 30% increase on 2011.

The authorities’ caprices don’t just annoy studios. Suspended releases sometimes raise Chinese moviegoer hackles, most notoriously when authorities delayed “Harry Potter and the Deathly Hallows Part 2” to promote mawkish propaganda pic “Beginning of the Great Revival.”

That might sound like it gives US studios some bargaining strength in demanding their due. But that bargaining chip is offset by how much they stand to make in China in the future. Current ticket sales are peanuts compared with revenue potential as China opens more multiplexes and disposable incomes rise.

Then there’s the annual cap on foreign films. The government just lifted that from 20 to 34 last year, at the same time as it agreed to the 25% split. How much it will end up costing Hollywood studios to get that cap raised some more is anyone’s guess.

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