How Evidence That Chinese Box Office Numbers Were Rigged May Have Embarrassed President Xi Jinping and Given the MPAA a Bargaining Advantage to Hasten Better Data Reporting From China

On October 23rd, 2015, Li Dong, deputy head of China's State Administration of Press, Publication, Radio, Film and Television (SAPPRFT), announced a tightening of measures to track cinema ticket sales and a public blacklist of theater owners in China who have tried to rig the system.

As reported in the official Chinese news outlet Xinhua on Oct. 24th, 2015, Deputy Li was reacting to evidence of box office fraud that was inflating the numbers for some films at the expense of others: "Statistics from the nation digital ticketing platform show that a few cinemas and distributors have manipulated viewing figures and sales. For example 300 tickets may be sold in a hall of 200 seats and all tickets sold are counted at full price."

What is going on in the Chinese box office reporting and why are these charges of corruption becoming public now? And how might Hollywood have used the scandal in China to its own advantage?

It may be a coincidence, but it seems that whenever Chinese leader Xi Jinping makes a state visit to the US, news is made about changes in the Chinese film business that will benefit the American movie studios.

For example? In February 2012, when Xi was the vice president of China, his state visit to the US was quickly followed by the near doubling of foreign films permitted each year on Chinese theatrical movie screens - from 20 to 34. 

There also was a bump in the percentage that Hollywood earned of Chinese box office. Before Vice President Xi's 2012 visit, the money that flowed back to Hollywood from Chinese theaters followed the revenue-sharing model that the Hollywood studios prefer - where a percentage of box office gross is paid as "film rentals" to the films' distributors - but the balance kept by the local theaters was typically well over 80%. After Vice President Xi's 2012 trip, the percentage paid to Hollywood increased from "a flexible 13%-17% of gross box office revenues to a fixed 25% of B.O."

What about Xi Jinping's latest trip to the US?

In September of 2015, now as president of China, Xi Jinping's state visit to the US may be linked to the increased oversight of what is happening in Chinese box offices. Deputy Li Dong's statement of Oct. 23rd, 2015 sounds like a positive response to what US studios have been pressing for - the right to "audit ticket sales at China's rapidly expanding box office."

As reported in The Hollywood Reporter on Oct. 7th, 2015 a new more-Hollywood-studio-friendly auditing policy should take effect in Jan. of 2016.

Why the change now?

It seems that MPAA lobbying of Xi Jinping may have intensified while he was in the US. And news of a Chinese scheme to boost the apparent performance of local Chinese films - at the expense of under-reporting the true box office numbers of US films - may have strengthened Hollywood's lobbying hand. As described by Patrick Brzeski in the Oct. 7th, 2015 Hollywood Reporter:

"In September, China Film Group was caught rigging grosses in favor of a state propaganda picture, The Hundred Regiments Offensive, released to coincide with the 70th anniversary of the end of World War II. CFG issued a set of orders and incentives to Chinese theater chains designed to boost the movie's performance, which resulted in theaters reallocating revenue from competing films — notably Paramount's Terminator: Genisys, believed to have lost as much as $11 million due to money siphoned away from it. Sources close to Furious 7's high-profile summer release in China have told THR that China Film Distribution reported to Universal that the film grossed nearly $30 million less than outside agency estimates ($390.9 million, according to Box Office Mojo). Universal and Paramount declined comment."

In other words, confronted with evidence of box office data tampering, the Chinese president may have agreed to move ahead with better record-keeping practices (using digital systems that Hollywood prefers) and allowing Hollywood's auditors access to the actual box offices.

And that's not all. In addition to increased oversight of the sometimes sketchy box office reporting coming out of China, The Hollywood Reporter is also predicting that, over and above the quota of 34, there will be additional films permitted to play on Chinese theatrical screens. But these additional titles from non-Chinese filmmakers must make a straight licensing deal with a Chinese distributor (no rentals based on box office gross - just an up-front fee). 

However, even as there are rumors of increased access for Western filmmakers seeking screens in China, there is also a recent history of powerful executives within China's motion picture bureaucracy advocating for Chinese films over Western content

Patrick Brzeski in the Oct. 7th, 2015 Hollywood Reporter explains the latest possible change to the China Film Group's (CFG) film import policies as follows: 

"CFG now has agreed to allow a potentially unlimited number of films into the market via flat fees — possibly as early as Jan. 1 — as long as the China Film Bureau gets final say on which companies are given permission to import."

Note: For certain indie filmmakers - especially those with films that could attract a Chinese following - the flat fee deal might herald the opening-up of a whole new market. The trick? Getting an approved Chinese firm to pay you a license fee to show your film on movie screens in China. This new approach to entering the Chinese mainland, might suggest a business opportunity for an intrepid middleman with 关系  in China and connections with filmmakers in the West: Representing Western indie filmmakers who don't have the network of connections necessary to do business in China (called 关系, or in traditional characters 關系, and pronounced guan-`shi) with the companies given permission to import into China.

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