A suspicious Hollywood is finally auditing box-office sales in China

China's Transition
China's Transition

Hollywood has long suspected it’s getting cheated in Chinese movie theaters. Now it’s doing something about it.

For the past half year or so, the Motion Picture Association of America (MPAA) has been reviewing (paywall) Chinese box-office receipts for certain titles released in the country last year. The news was first reported by Bloomberg on June 27.

Beijing allows a set number of movies (officially 34 last year) from the six major US studios to be shown in China on a revenue-sharing basis. Under the arrangement, the studios get 25% of the box-office receipts for the films. They’ve long suspected, however, that the sales for their movies are underreported.

Between them the “Big Six” recorded revenue last year of just over $500 million from ticket sales in China.

They might have deserved more. China’s movie theaters and distributors aren’t always honest about ticket sales. In March, authorities punished more than 320 theaters for falsifying box-office records. In 60-plus cases, the doctored numbers led to the theater receiving over $145,000 more for the year than it should have.

Distributors sometimes hire agents or individuals to use online systems to give the appearance of greater ticket sales. In March 2016 authorities uncovered a racket involving the Hong Kong film Ip Man 3, in which the distributor inflated ticket sales by as much as $8.7 million. That led to the introduction of a law last November designed to, among other things, crack down on fraudulent reporting in the industry.

The MPAA’s audit—reportedly being conducted by PricewaterhouseCoopers—could be completed by the third quarter and reveal more data manipulation. That might prove consequential toward year’s end, when Hollywood will renegotiate with Beijing for an expanded number of slots for US films—and a bigger cut of the (real) box office.

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