Leaked emails: Sony’s experience shows how Hollywood studios walk the line in China

Sony brought 007 to China with “Casino Royale.”
Sony brought 007 to China with “Casino Royale.”
Image: AP Photos/Elizabeth Dalziel
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Last year, as part of a corporate-wide strategy shift, Japanese electronics and entertainment giant Sony Corp. forecast that sales from Sony Pictures would grow to as high as $11 billion in its fiscal year ending in March 2018, a roughly 36% jump from its fiscal year ending March 2014. China, the world’s second-biggest movie market, is going to be instrumental to that growth.

But the trove of internal Sony emails—released by hackers and now available via WikiLeaks—reveal some stumbles as Sony Pictures expanded there in recent years. According to the contents of the emails, there were deals with partners who weren’t properly vetted, concerns that service companies might be faking invoices, and questions about potential payments to employees of state-owned companies.

The US Securities and Exchange Commission subpoenaed several studios in 2012 regarding possible violations of US bribery laws in China, as Reuters previously reported, and the emails show Sony was part of that inquiry. Sony’s internal investigation connected to the SEC inquiry raised several potentially troubling situations, the emails show.

The company has not been charged by the SEC with breaking any laws related to the matter. Sony has condemned the release of the emails, saying “We vehemently disagree with WikiLeaks’ assertion that this material belongs in the public domain.”

Distributing foreign films in China is particularly challenging, because authorities only allow a few dozen in every year, which means hiring an executive in China with enough influence to get films approved is key. At Sony, the emails suggest that role was filled by Joe Zhang, who is listed on LinkedIn as the Beijing-based “Director, Marketing & Distribution, Sony Pictures Releasing International at Sony Pictures Entertainment.” Zhang did not immediately respond to emails requesting comment.

A July 25, 2014 email between a Sony Pictures lawyer and the company’s in-house counsel questioned the terms Zhang offered in a 2012 email to a Chinese translator who worked for a state-owned company, but ultimately decides it is a simple gratuity. One lawyer writes:

In the email, Joe asks Lin Liao (in Chinese) to do some dubbing work as follows:

“Ms. Liao, For Pirates! Band of Misfits, please see how much dubbing would cost using the original cast for theatrical dubbing. Whatever price you say is fine. I will arrange for the company to pay you in ways convenient to you whether it is a company account or a personal account. This is a little something from me.”  

This last sentence has also been translated as referring to “a little favor for her” or stating “Just something to compensate you, just something to express our gratitude” or “Just a little token of our gratitude.”

An April of 2014 email lays out two instances where Zhang was “involved in the preparation” of invoices billed to Sony, and mentions documents that “may reference some kind of financial benefit to Joe Zhang or other individuals.”

In January 2014, Sony lawyers flagged an out-of-the-ordinary $1 million fee related to a distribution agreement with a state-owned Chinese partner:

Wanted to let you know that SPRI [Sony Pictures Releasing International] is about ready to sign an agreement with Shanghai Film Corp. (an SOE) for the distribution of Two Guns in China…This agreement is slightly out of the ordinary for China in that there is a $1 million MG to SPRI.  Luis checked with Li Chow and David Steinberg and apparently this motion picture is such that such an MG is not extraordinary. [emphasis in original]

In 2013, the SEC met with Sony counsel to discuss how Sony and DMG Entertainment—a Shenzen-listed company that helps foreign film studios arrange for government approval and film distribution—worked together to bring Resident Evil 4 to theaters in 2011. The emails show that an SEC official told Sony’s outside counsel he was concerned because:

…he has received information that Li Chow communicated orally with someone outside Sony in 2011 and indicated that (a) DMG had used “special influence” (Morgan’s words) to get RE4 approved, and (b) Sony intended to use DMG again if necessary in connection with subsequent films…[but]…he reiterated that his focus is really on Li Chow and Joe Zhang.

[The SEC official] could not elaborate on what form the special influence took, and he was rather clear that he does not yet have definitive proof that the influence took the form of a bribe.

Neither Sony nor DMG were charged with any violation of US law. Sony’s outside counsel and a third-party translation service billed the company over $600,000 for services related to the “SEC China matter,” according to the emails.