Hollywood Auditing China Box Office In First Look At Middle Kingdom Books

While box office manipulation has long been a major issue in China, the vast market has increasingly vowed to crack down on cheats. Now, the MPAA has hired an accounting firm to audit Middle Kingdom ticket sales on a select number of films. This is the first time the Hollywood studios are availing themselves of a clause in the longform agreement with China which gives them the ability to take their own close look at the books.

I understand that the decision to trigger the audit was a group call made by the MPAA’s member companies. While it’s a sensitive subject, the practice has happened in other markets and helps gain a better understanding of the exhibition and distribution sectors. In China, they’ve been historically murky to say the least. Bloomberg first reported news of the current steps taken by the MPAA amid concern over inaccurate reporting.

It’s not clear what titles the audit is looking at, nor when it will conclude — this is a market of over 40K screens with nearly 40 Hollywood movies released on a revenue-share basis in 2016 and more under flat-fee deals.

But, it’s a smart move as the world’s fastest-growing market becomes an increasingly important part of Hollywood economics. Although box office improvement ground to a sputter of just 3.7% in 2016, this year has seen Hollywood dominate. Eight films have already crossed the $100M mark locally, led by smash The Fate Of The Furious.

The PROC powers-that-be have also been more carefully policing their own back yard in recent months. Last November, authorities established a new film industry law which vowed to be tough on box office fraud, ultimately resulting in suspensions, fines and warnings this past March.

Earlier in 2016, SAPPRFT slapped the distributor of Hong Kong actioner Ip Man 3 with a one-month suspension from releasing films after investigating it for fraud. That was after the distributor of 2015 hit Monster Hunt had given away $6.2M worth of tickets for “public welfare screenings” and acknowledged there were overnight and duplicate showings.

Also in 2015, there were reports of box office being falsely goosed when moviegoers buying tickets to see Terminator: Genisys were sold entries to propaganda film The Hundred Regiments Offensive so that the coin would go into the local film’s coffers. Write-ins then allowed folks to instead see the film they initially sought. The state stayed silent on that one.

Indeed, 2015 came replete with what execs have previously characterized as “shenanigans” and “tricks.” Per a 2016 Xinhua report, statistics indicate that at least 10% of all box office takings have been “stolen” in recent years.

News of the audit comes as China and the U.S. Trade Representative have begun negotiations on a new industry contract. The last one in 2012 upped the quota floor on foreign films to 34 and increased to 25% the box office revenue share. This time around, the studios are looking to improve terms. On the agenda are discussions about another possible revenue-share hike; more transparency and flexibility over release dates; and potentially an increase in the number of rev-share titles (although there are schools for and against as PROC P&A costs rise). Those talks will likely continue into next year.