This post is by Matthew Dresden, one of our China attorneys. Matthew is fluent in Chinese and also conversant in Thai. Before attending law school, Matthew spent eight years in Hollywood, as an independent filmmaker and as a production executive for Roger Corman’s Concorde-New Horizons Pictures. Matthew now mixes his China law knowledge and his film background to assist Mathew Alderson in representing foreign companies involved in China’s film industry.
On Wednesday last week, The Los Angeles Times had a fascinating article about the latest skirmish in Hollywood’s quest to dominate the Chinese film market, entitled, “Warner, China Film clash on ‘Dark Knight’ debut against ‘Spider-Man.’“ China Film Group, the state-owned entity that determines movie release dates in China, has scheduled both Warner Brothers’ “The Dark Knight Rises” and Sony Pictures’ “The Amazing Spider-Man” to open on August 30. As this likely will significantly diminish both films’ box office take in China, the studios are understandably frustrated (to put it mildly).
But if Warner Bros. and Sony didn’t see this coming then they haven’t been paying attention. American movies have been killing it at the Chinese box office this year, taking in nearly 2/3 of all box office revenue through June and accounting for 9 of the year’s top 10 films. Meanwhile, the Chinese government has mandated that Chinese films have at least a 55% share of the 2012 Chinese box office. Something had to be done to take away some of Hollywood’s market share. Sure, it’s market manipulation, but it’s not even the most egregious example in China this week: the State Administration of Radio, Film, and Television (SARFT), which controls the China Film Group, just lifted a four-week blackout on new, non-Chinese releases, with more blackouts to come in October and December. And don’t forget the annual quota of 34 (or might it just stay at 20?) non-Chinese films eligible for box-office revenue sharing. Meanwhile, China Film Group is being sued in a Chinese court for allegedly having tampered with box office results — but that’s another story, and another kind of protectionism.
In a happy coincidence, the Beverly Hills Bar Association’s Entertainment Law section put on a presentation on Wednesday entitled “Breaking Into China Without Going Broke.” It was a wonderful topic and the panelists were top-notch, but I would have liked to have heard a little more realism about the Chinese film business. China may be adding six new screens every day and the box office may be up 41% this year, but how much that has translated into increased profits for American companies?
When our firm is engaged to work on a film project in China, we typically focus one key issue. If the project makes money, what can we do to increase the odds of our foreign (usually Australian, European or American) client getting paid? All too often, Hollywood companies going into China overly fixate on intellectual property issues, when they also need to be concerned about simply getting paid.
After the event, I was speaking with Mathew Alderson (who heads up my firm’s China entertainment law practice), and he echoed a point made by the panelists: proper due diligence and structuring of deals with Chinese partners can be the most important factors in whether film companies get paid. Mathew’s advice is even more relevant in the context of the China Film Group’s power play, which underscores the desirability of Chinese co-productions (a co-production counts as Chinese content and is not subject to the 34-film quota).
That said, there’s an ongoing debate in China as to whether the co-production regime should be used to decrease Hollywood’s numeric dominance in the Chinese box office or, as per Chinese government guidelines, to propagate Chinese culture abroad. When Dan was in Shanghai during the Shanghai Film Festival earlier this month, he wrote of how, not surprisingly, this was the talk there as well:
Many people are worried about how well foreign movies are doing in China. The thinking is that China’s government is not going to keep letting foreign movies blow away Chinese movies at the box office and eventually may restrict foreign movies even more.
The takeaway here is not that film companies should avoid China, but rather that they shouldn’t expect to do business the same way they always do. China’s legal system is different and so are the motivations of the participants and the regulators. For foreign companies that don’t understand that, it’s going to be a long, strange, and unprofitable trip.
I can’t help thinking back to my first job in Hollywood, as the assistant to Roger Corman. Roger, who received a richly deserved Oscar for lifetime achievement in 2010, has long been known as a savvy filmmaker and businessman who made money on almost every film project he took on. One reason for this is his uncanny eye for talent, and another is that he would much rather take a guaranteed payment upfront than an uncertain payment on the back end. I cannot help but think that film companies should consider taking the same approach when dealing with China.