As regular readers know, there is nothing I like more than being able to create a post straight from what goes into my email box. I am able to do that today by way of having been cc’ed on a long email discussion between our Beijing-based attorney, Mathew Alderson (who does quite a bit of China film law) and Rob Buckham, of Oceana Films China. The discussion started when Mr. Buckham wrote Mathew regarding foreign companies sharing in China’s movie box office receipts.
Buckham: Quick question. In one of your blog posts, you say that “Insufficient attention is given to the issue of garnering a share of the box office.” We naturally assume we will be “ripped off” for any box office receipts in China . . . .
Alderson: That is a sound assumption.
Buckham: … and therefore would normally structure the deals so that we would get any dollars we actually expect from China (ever) to be cash up front from the Chinese participants.
Alderson: That is the best way to structure your deals. I must add, however, that I see a disturbing trend even among those who structure deals this way. What frequently happens is that the Chinese party promises to pay cash on account of production costs but what they really do is arrange locations, props, equipment or services at substantial mark-ups, through deals with related parties or through deals which are not done at arms length. In such cases the Chinese side is not actually putting in hard cash and it is obtaining a disproportionate share of the production. This is not a good way to structure a deal.
Buckham: Then if we get anything on the back-end it would be more or less in the category of a windfall.
Buckham: It’s probably one of the main reasons why the big studios aren’t trying harder here yet — they’re waiting for the collection process to open up and begin to look like it makes sense.
Alderson: Yes, you may be right about that. The major studios are curiously quiet about their China box office. We constantly hear about this or that US production, or US-Sino co-production, doing ‘well’ at the box office in China but what we don’t hear is whether the American party is getting its full share paid through in the US with all of the tax dealt with. I imagine that whatever problems they are encountering are being kept quiet. I could be wrong about this – I am just basing this on what I hear or see reported and on what I have seen from some of the botched film deals that have come to us. I would be pleased if we were wrong.
Buckham: So the question is this: Do you think there’s a way to get a fair count of the box office from Chinese exhibitors and distributors and actually collect a significant portion of the proceeds due the western producers of a film distributed in China?
Alderson: Probably not yet. For that to happen, we need an independent collection agent endorsed by the Chinese authorities and run along Western lines. As I said in one of my recent posts, one of my cinema clients (whom we are advising on entering the cinema market here) confirms ticket sales by getting a photo taken of each session’s movie audience before the lights go down. I suppose you could require your Chinese partner to jointly undertake such an exercise with you. That would not mean that you would be paid, but it would mean that you would know precisely how much you were owed.
Buckham: Not asking for legal advice here — just your thoughts as an informed participant — if someone could figure out a reliable method of accomplishing this they could become quite successful.
Alderson: You are right about that, too.