Qinqdao Movie StudioI wrote the below post regarding the Qingdao Film Metropolis project in April of 2018. After we ran the post, I received threats of legal action and threats of violence against both me and my family. That led us to take the post down but now that Wanda has completely pulled out of the Film Metropolis project, we have decided this is a good time to reissue the original post together with a short follow-up on what has happened at the project subsequent to its official opening.

Below is my original post, with names deleted to protect Wanda staff who were very helpful to me and who may have suffered for that:

After years of preparation, the Wanda Film Metropolis will formally open on April 28 [2018]. I met Wanda staff last week at the site for a preview of what will be revealed at the opening.

The commercial part of the project includes: a large retail mall, three separate amusement parks (theme park, water park, movie theme park, all indoor in order to be able to operate year round), at least 6 separate hotels, two large exhibition centers, a large marina and a massive number of condos. As noted, nothing except the condos have formally opened for business.

The movie studio project is conducted under the heading of Wanda Studios: Qingdao (青岛万达影视产业园)operates separately from the commercial portions of the Film Metropolis. You can check out the studio complex on their beautiful website at www.wandastudios.com [still live].

Since websites and reality are often different, here is what I saw on the ground in Qingdao.

a. Projected opening data is April 28. Management expects to begin formally renting out studios soon after opening. They indicate that some of the larger studios have already been used for Chinese domestic film productions.

b. The entire studio project is 2500 mu (400 acres). This is very large for China. The location is on the same side of the main road as the main sales buildings, away from the ocean, running up to the mountains to the west. This is different location from what had originally been proposed. So for us folks who have been following the project for years, it takes a bit to find the studio complex.

c. 30 separate studio buildings have been built. Another 10 are under construction. Construction will be complete in October. The individual studios range in size from 10,000 square meters to 1,500 square meters. Each studio has a full sound stage, attached dressing rooms, full support set up (electronics, lighting, ventilation, etc). Ceiling height is 18 meters. The studios were designed by a London architect and are built to meet an international standard. Management indicates that normal Chinese studios are built for about 2000 rmb per square meter. These studios are built at 10,000 rmb per square meter.

While I am not familiar with film studios, I have done construction projects all over Asia and the U.S. I did my normal construction analysis, and the construction and facilities build out appears to be excellent. The claim that the studios are build to an international standard seems justified. Management claims this is the largest studio facility in the world. The claim seems also seems reasonable to me.

d. The studio complex has a main headquarters building that can house a staff of 1000 persons. The cafeteria can feed 1000 persons at a shift. Current staff is 200. The cafeteria complex is not being used. Presumably all of this will get into gear when formal rentals start in May of 2018.

My impressions are:

a. Nothing at all is going on at the complex at this time. So there is no way to predict what will happen down the road.

b. No one knows who owns the land and facilities. No one knows what is the financial objective. Wanda is, however, in full management control.

c. Management states that they want to attract foreign movie projects. The elegant English language website is evidence of this. However, at the site, I did not see any evidence of any attempt to deal with any language other than Chinese and or for provision of services to any company arriving from outside China. But, I don’t need help with Chinese, so it is possible that these services are available and I just was not exposed.

d. The major logistics issue is that the studio complex located far from Qingdao in a beautiful coastal location that is in the middle of nowhere. That means: no carpenters, no electronics technicians, no retail supply of equipment (no wood, no nails, no paint, no electric drills, no lights, no speakers, no recorders, no cameras, no nothing). The explanation of management is that the film producers will bring in all the equipment AND workers that are needed. I have done construction and engineering projects in China in places where you cannot even buy a nail or a screw. It can be quite frustrating. It is not clear that the management understands this issue and has made any concrete plans to deal with the issues.

e. Having said the above, the studio buildings themselves are quite impressive. It is kind of strange to tour all that expensive stuff and then not see a single project that is actually in operation. The concern is i) will anyone come and ii) if they come, how will the logistics be handled? However, management is confident, on the “build it and they will come” philosophy that is typical in China.

It is a great thing to see this project finally come to fruition. We wish them well.

My update is as follows:

A full update on the status of the project has been published on several Chinese websites. A good version with nice photos can be found here. For obvious reasons, I have not personally visited the site subsequent to its May 2018 opening.

As this very thorough article reveals, much has happened since its opening in May. As related to my post, the key events are as follows:

1. Wanda has completely pulled out of the project and will no longer manage the film studio or the amusement/retail/tourism/condo phases of the project. All management has been shifted completely to Sunac China, the real estate developer that purchased Wanda’s leisure/amusement division in 2017. Wanda staff had indicated to me that Wanda was committed to remaining in management control so as to maintain Wanda’s dream of creating an Asian Hollywood. With Wanda’s departure, the locals in Qingdao are confused and uncertain about the future of the Film Metropolis.

The project is currently under the control of Sunac and the local government. Sunac is a real estate developer and the government is a typical Chinese local government. Neither is noted for its vision in the area of film. For Sunac, the emphasis is on condo sales and other real estate related activities. For the local government, the emphasis is on film projects in other areas of Huangdao. This is typical: local governments in China tend to abandon failed projects started by their predecessors.

2. As predicted by Wanda staff, the film studios are quite active. However the concerns I expressed in my post remain:

a. There is no indication any completely foreign production companies have shown any interest.

b. The domestic film studios have been provided with substantial financial incentives. However, those incentives will soon be exhausted and there is no current plan for a replacement. It is not clear that any Chinese film studio would be financially capable of making use of the film studios at the stated “rack rates.”

c. As I noted in my post, the studios are located in a rural area. As I suggested, no local sourcing of materials or skilled workers has developed. Film studios have been forced to source in Qingdao city or more commonly in Beijing. This is a hardship for the studios and it means there is little benefit for the local economy. The locals with whom I have spoken report not knowing what is going on in the film studio complex: it is basically sealed off from the local economy.

d. Sunac and the local government have taken over complete control of the film studios. Wanda no longer plays any role. The new owner’s future plans are not clear, particularly after the subsidy program terminates.

3. Wanda either abandoned the Film Metropolis project or it was been pushed out. Either way, Wanda is gone and Sunac is now working to “De-Wanda” the project. The plan is to remove the Wanda name from every phase of the project but the new name and the new direction from Sunac and the local government remains unclear.

We will report back if we learn more.

China movie quotaAs Bloomberg reported last week, China’s propaganda ministry (now in charge of all media-related activity in China) has approved an additional seven foreign films to play in China this year in excess of the 34 film quota. These newly approved films will play theatrically on a revenue-sharing basis, and include the animated films The Grinch and Spider-Man: Into the Spider-Verse and the John Cho thriller Searching.

We have previously expressed our skepticism about China’s film quota system on a number of levels:

  1. As an actual quota (the number of revenue-sharing films each year often exceeds the quota, at the Chinese authorities’ whim).
  2. As a meaningful restriction on foreign films (foreign films are also allowed to play in China on a “buyout” basis, and as that market has become more competitive, the “buyout” terms for stronger foreign films have begun to approach the revenue-sharing terms asymptotically).
  3. As a useful shorthand for the foreign film business in China (the quota applies to all foreign films, but its slots are largely taken up by Hollywood product; China unilaterally controls release dates and imposes unannounced blackout periods; and China has historically been months if not years late in making revenue-sharing payments).

Increasing the number of quota films is seen as a win for Hollywood and perhaps even a sign of conciliation in the ongoing US-China trade war. But those issues are ancillary at best. China does not care one whit about promoting American films and it is actively trying to bolster homegrown films while weaning Chinese audiences off Hollywood blockbusters. That said, Chinese officials deeply care about economic growth and are invested in the narrative that China will soon replace the United States as the top-grossing territory in the world for theatrical box office. And right now China simply does not have enough quality movies ready for theaters, so to meet its own box office projections, its path of least resistance is to bring in more Hollywood fare, because it knows demand for those movies already exists.

Bringing in more American movies to satisfy latent demand infuriates Hollywood, because it is patently obvious they could have a larger market share if China would only let American films play without restriction. A China free of content restriction will never happen and perhaps it shouldn’t. France and Canada (to name a couple longtime American allies) both have long-established and uncontroversial rules favoring local content. Canadian radio stations are required to ensure that a significant percentage of the content they play is by Canadian artists; for instance, commercial radio stations must have at least 35% Canadian content between 6am and 6pm on weekdays. This is also known as the Bryan Adams Guaranteed Employment Regulation. It cuts like a knife, but it feels so right.

But I digress. The point is that we shouldn’t expect China to grant American films unfettered access to the China film market, even when China does not have enough quality film content of their own.

Why doesn’t China have enough content right now? In part, this may be an unforeseen consequence of the Fan Bingbing scandal. Once it became clear that China’s film and television productions would be under greater government scrutiny for tax evasion and other financial improprieties, a significant number of motion pictures either postponed or shut down production. I will leave it as an exercise for the reader to divine the reasons, but we are now several months out and theaters don’t have enough Chinese-language films that they want to exhibit.

The lack of Chinese content won’t last, but Hollywood still owes Fan Bingbing a big thank-you. They can start by getting Jessica Chastain’s 355 back on track.

China trademark movies

In the entertainment industry, documenting a film’s chain of title is extremely important. It’s how you show that the putative owners of the film rights do in fact own those rights, and it is essential to securing “errors and omissions,” or E&O insurance. And because a film is comprised of a number of elements, a number of things must be documented, such as: (1) that the underlying rights to the source material were validly acquired, whether the source material be a book or a play or a song or an original screenplay or otherwise; (2) that all the people who appeared in or worked on the film did so as a work for hire; (3) that all the music, still images, and film clips in the motion picture were purchased or appropriately licensed; (4) that the ownership of the completed film was clear and undisputed; and (5) that any entity with a right to derive revenue from the film, or make a substantive decision regarding the film has been identified and documented.

The last thing a producer, financier, or anyone exploiting the film in any way wants is for some third party to come out of the woodwork on the eve of release, asserting heretofore unknown rights and threatening interfere with the release of the film. Timing is crucial for film projects, and a last-minute delay (e.g., via injunction) can spell the difference between success and failure.

Most chain-of-title analyses focus, appropriately, on the copyright to the film (and any elements thereto). Because of the Berne Convention, for practical purposes, copyrights are international and technically do not need to be registered to be effective. As we have written, though, registration is often highly advisable in order to enforce a copyright, particularly in China. See China Copyright Law: We Need to Talk.

Most chain of title analyses will include a title report, which will include a list of trademarks that are identical and/or similar. But making sure that your title doesn’t run afoul of any trademarks is not the same as actually registering trademarks, and many film producers never register their title as a trademark. For most films, the title does not serve the purpose of a trademark, i.e., a way to identify the source of goods. (The main exception to this is with film franchises.) And in the U.S., you don’t need to register a film’s title as a trademark in order to exploit the film. Looking at the top 10 films in the U.S. from the past weekend, only Goosebumps had a trademark registration. None of the following had film-related trademark registrations or pending applications before the USPTO: Halloween, Venom, A Star Is Born, First Man, The Hate U Give, Smallfoot, Night School, Bad Times at the El Royale, The Old Man & The Gun.

Unlike copyrights, trademarks are country-by-country, so what is true in the U.S. is irrelevant in China. Could a trademark squatter register a trademark for a film and prevent it from being released in China? I don’t know that anyone has tried yet, not least because by the time a film’s title is announced, there’s usually not enough time to secure a trademark registration in China. But that may not always be true, and from my perspective, falls into the “why risk it?” category.

Having your film prevented from being exhibited in China is the worst outcome, but it’s not the only risk. The film’s title could also be registered by a third party attempting to capitalize on the film’s popularity by selling branded consumer products. If the film is at all popular, this is almost certain to happen — and we have seen it more than once. And although this may not affect the film release directly, it could certainly affect merchandising or other ancillary revenues. Instead of making money from consumer products, film producers could find themselves having to spend money in the hopes of squelching counterfeit lunchboxes.

If you’re releasing a film in China, it’s cheap insurance to register the film’s title as a trademark, and also to have the registration cover all of the goods that you either want to release yourself, or don’t want to see someone else release using the title as a brand name.

Last but not least, you’ll need to register both the English and Chinese versions of the film title.

China entertainment lawyer

The pace of change is so rapid that it’s always hard to keep up with developments in China. What made sense last month often makes no sense this month. Here’s my attempt to make sense of what’s going on in video streaming right now.

1. More subscribers

As recently as four or five years ago it seemed that Mainlanders simply weren’t prepared to pay for online content. Advertising-supported delivery seemed the only commercially viable form of distribution. These days, millions of Chinese are prepared to subscribe, either to access the increased volumes of premium content now on offer or simply to avoid advertising. The rapid growth of mobile wallets like those provided by WeChat and Alipay is supporting this process. Whatever the reason, in 2017 online video revenues increased by 49% to $14 billion.

2. More streaming, less social media

Over the last five years we’ve seen a huge increase in traffic on VOD sites as Chinese people move over from social media to VOD. The 2018 WeChat Social Commerce Report says that increased engagement on video apps is causing the decreasing use of social apps.

3. VOD, and not TV, is now driving production

VOD platforms are pushing TV broadcasters aside with their production spends. Anke Redl, MD of CMM-I, says “VOD platforms have become production powerhouses. They are investing in other platforms and spending more on production costs. Their content creation spends now far exceed those of the TV stations”.

4. Big platforms are spending big on original content

According to Redl, “The VOD ecosystem has changed dramatically in the last few years. In the past, the platforms were more inclined to buy existing content, much of it foreign. As foreign content restrictions bite, they are now more careful about acquiring foreign content and more inclined to invest in local content”. Youku, Tencent Video and iQiyi, China’s three big OTT players, are all investing more in the production of premium content. In an interesting twist,  increased local production spend may be a way of allowing platforms to access more foreign content because their foreign imports must be a proportion of their local offerings.

5. Content prices are up

The transformation of China’s video market is driving up content acquisition prices. Platforms are now spending two or three times more per episode than they did two years ago. Per episode production spends are reportedly now in the range $1.6 to $2.4 million.

6. Content is local language, China focused

While there will always be demand for foreign content, Chinese people mostly like watching Chinese content. They are very happy with Chinese programs. This basic fact often comes as a surprise to foreigners. This is an underlying cultural preference that can’t be blamed on foreign content restrictions and import quotas. The good news for China’s producers and distributors is that the domestic market is large enough to show substantial returns on investment. The bad news, though, is that there is no foreign market for Chinese programs. A show that fails here has nowhere else to go.

7. Regulation of foreign content is increasing

No surprises there. The US-China trade war obviously isn’t helping. See this recent post for a summary of new proposed regulations. By the way, the Chinese aren’t the only ones restricting foreign content. Look at the new EU law requiring streaming platforms to carry 30% European content.

8. There is a growing market for non-exclusive foreign content deals

Quota places follow the imported programs, not the importing platform. Non-exclusive foreign content deals therefore allow more than one platform to benefit from a quota place. More and more of the smaller platforms are operating in this space. They will clear particular programs for a quota place, shop them around and then license them non-exclusively to bigger platforms. In this way the benefit of quota places is spread more widely across the market.

9. Capital markets are paying attention

Thomas Hui, CMC Holdings COO, says “Specialty and short form content platforms are gaining traction with viewers and in capital markets“. There sure has been a lot of activity at the big end of town. iQiyi raised more than $2 billion when it went public in New York earlier this year, while Tencent invested $1.1 billion in a single day — $461.6 million in Huya and $632 million in Douyu TV.

10. Despite it all, big China platforms are making losses

Subscriptions may be up but subscribers still remain in the minority. They accounted for only a quarter of total online video revenues in 2017, with advertising accounting for half. Tencent recently reported its first profit decline in more than 10 years, wiping more than $100 billion off its market capitalization. According to analysts referred to by The Information, Youku, Tencent Video and iQiyi are all operating at a loss.

On September 20th, 2018 China’s film and TV regulator, NATR, published a discussion draft of the Provisions on Administration of Import and Broadcasting of Overseas Audio-Visual Programs. The provisions apply to “overseas” films, TV programs, animation and documentaries. “NATR” is the National Administration of TV and Radio, the result of a recent restructuring of SAPPRFT, the State Administration of Print Publication Radio Film and TV.

If implemented in their present form, the provisions will seriously impact the streaming and broadcasting of foreign motion picture and TV content. These provisions are part of a process of increasing regulation of foreign content that began in 2014. One of the stated objects of this process is to support the domestic Chinese entertainment industry and to improve domestic program standards. One of the effects of the process will be to reduce foreign access to the Chinese market.

For streaming:

  • NATR will be required to publish and maintain a catalogue of overseas programs approved for streaming in China. Streaming of overseas programs not listed in the catalogue will be prohibited. This would be an entirely new development.
  • Each platform will be required to limit overseas programs to 30% of its programming in any one “category.” This would be in addition to the general 30% limit on overseas programs introduced in 2014.

For broadcasting:

  • Each TV broadcaster will be required to limit overseas content to 30% of the broadcaster’s total daily broadcast time in the applicable “categories.” This too would be an entirely new development.
  • Primetime broadcast of overseas programs of any kind will be prohibited without NATR approval. This would replace the 2016 regulations that already restrict primetime broadcast of foreign formats to two per broadcaster.

The big issues right now are how to draw the line between foreign and domestic content and how best to structure IPR in Sino-foreign film & TV deals.

We will keep you posted as developments occur.

China entertainment lawyer

On September 26, China media and entertainment lawyer Mathew Alderson will be discussing how movie and TV producers can “make the most of the opportunities China offers” as part of a FREE webinar. Go here to register.

PACT, “the trade association representing the commercial interests of UK independent television, film, digital, children’s and animation media companies,” is putting on this webinar and it describes it as follows:

To shine some light on how producers can make the most of the opportunities China offers, we have invited Mathew Alderson, Partner at Harris Bricken to take part in a webinar. Mathew is a transactional entertainment lawyer based in Beijing. He has a wealth of knowledge about the Chinese TV and Film industries and will share his experiences about working with China.

Topics to be discussed include:

–    An overview of China
–    Information about SART and how they work in the market
–    The biggest mistakes companies make when working in/with China
–    An explanation of how copyright works in China
–    The benefits of working within the co-production treaty
–    Contracts and Chinese law
–    How companies can protect their IP
–    Chinese quotas
–    Payment in China, tax, and additional costs
–    Legal representation

To register for this webinar, click here. I remind you that it’s free.

PACT (quite accurately) describes Mathew as follows:

Mathew Alderson is a transactional entertainment lawyer in Beijing. He represents major Hollywood studios, major tech companies and gaming companies, as well as independent producers and distributors. Mathew frequently advises UK companies on the structuring of projects in order to minimize the impact of quotas and other restrictions on foreign content in China. Mathew focuses on protecting his clients’ IP and reducing their exposure to payment defaults in China. He handles China theatrical and episodic projects from development through production and distribution.  Mathew is the author of the UK-China Film & TV Toolkit and a frequent contributor to China Law Blog.

We would add that Variety Magazine described Mathew as a “game-changing” lawyer rocking the movie biz for Mathew’s leading- edge work as a China entertainment lawyer.

You do not want to miss this, so go here and register.

China copyright lawsCurrently, the number one film in China is the smash hit Hello Mr. Billionaire (US$306M and counting). It’s a comedy about a hapless soccer player who stands to inherit 30 billion RMB, but only if he can spend 1 billion RMB in a month (albeit with a number of complicated conditions, like no gambling, donating the money, or purchasing illegal substances).

If the story sounds like déjà vu all over again, that’s because it’s the same plot as a 1985 Universal movie starring Richard Pryor called Brewster’s Millions. The idea for Hello Mr. Billionaire originated with Universal, which was seeking to exploit their back catalog by remaking movies for a Chinese audience. It’s a brilliant strategy when it works, except that it didn’t actually work for Universal: they decided not to finance the remake and merely allowed the filmmakers to use some of the plot points from the 1985 film.

The track record of Chinese remakes is decidedly mixed. In 2017, Disney remained highly involved in The Dreaming Man (a remake of the 1995 Sandra Bullock film While You Were Sleeping) but it barely registered at the box office. Before that, the 2004 film Cellular was remade in 2008 and bombed; the Coen Brothers’ 1984 film Blood Simple was remade in 2009 by Zhang Yimou and enjoyed modest success; and the 2000 film What Women Want was remade in 2011 and basically broke even. It only takes one success to start a trend, though, and the outsize profits of Hello Mr. Billionaire will surely lead to similar remakes being fast-tracked.

But Hello Mr. Billionaire is not just any remake. It’s based on the 1902 novel Brewster’s Millions by George Barr McCutcheon, which has been adapted into a film at least 12 times and in multiple countries. Sure, the story is fun, but I suspect the real reason it’s been remade so often is that the IP is free – the book’s copyright has expired and the story has been in the public domain for years. Thus, when Universal decided not to fund Hello Mr. Billionaire, the only chain of title issues the filmmakers faced were with respect to plot points or characters that solely appeared in the 1985 film. (The filmmakers may have had other contractual obligations to Universal, but that’s a separate matter.)

Let’s thicken the plot even further. China and the US are both signatories to the Berne Convention, but they don’t have the same rule when it comes to the expiration of copyright. The basic rule in China is that a published work enters the public domain after the life of the author plus 50 years (i.e., the minimum protection under the Convention); the basic rule in the U.S. is the life of the author plus 70 years. Both countries have numerous exceptions to the rule, which in the U.S. are even more advantageous to copyright holders.

It remains unclear whether China would apply its own rule or the U.S. rule for a work created in America — say, a book or play or other source material for a movie. It may seem like a moot point because most movies are created for an international audience, but the Chinese film audience is so big now that a Chinese movie only needs to succeed in China. As of December 31, 2018, the works of any author who died in 1968 will arguably be in the public domain in China. That’s a lot of potential material coming on the market, including the oeuvres of John Steinbeck, Edna Ferber, and Upton Sinclair. And that doesn’t even consider anyone who died before 1968! The larger question is whether Hollywood will view this as a threat, an opportunity, or both.

China movie lawAs everyone who follows the Chinese film industry already knows, the would-be blockbuster Asura had one of the strangest and most ignominious openings in film history last weekend. With an estimated budget of US $113 million, it ranked as the most expensive domestic production of all time, and featured a high-profile international cast and crew including Chinese teen heartthrob Lei Wu, Hong Kong legends Tony Leung Ka-Fai and Carina Lau, the costume designer from the Lord of the Rings movies and the visual effects supervisor from Deadpool. But after an anemic opening weekend of $7.1 million and a huge decline in box office even from Friday to Sunday, the film was yanked from theaters on Sunday evening like a vaudeville act getting the cane.

The producers announced their decision to pull the movie via the film’s official Weibo account (in Chinese). Some stories have emphasized that the producers (and not the theaters) pulled the movie. This is true, but elides the fact that Chinese theaters adjust the number of theaters every day for every film, especially on a film’s opening weekend. By Sunday evening Asura was already circling the drain, caught in a vicious cycle of low admissions, terrible reviews, and dwindling screens, and the producers faced a Hobson’s choice of pulling the movie themselves or having it effectively pulled for them.

No one quite believes the producers’ announced plan for Asura, which is that they will modify the film and re-release it. Numerous films have been successfully retooled after preview screenings, but after a wide release with a huge marketing push? It reminds me of the long and troubled history of the Broadway show Spider-Man: Turn Off the Dark, which at the time was the most expensive Broadway show in history, had the most number of “previews” in history, and was revamped several times but still ended up losing more than $60 million.

But if the producers really are going to re-release Asura, their plan to pull the movie early may have been a stroke of genius: by pulling the movie early, they may have given up a million or so in revenue, but they’re getting that back and more with the free publicity surrounding the mystery of what’s next. And the producers are just adding fuel to the fire by alleging they were sabotaged by a deluge of (ostensibly fake) negative reviews. I can’t decide which P.T. Barnum quote is more apt: “There’s a sucker born every minute” or “I don’t care what the newspapers say about me as long as they spell my name right.”

The coverage has bordered on the gleeful, with pundits from across the spectrum weighing in on what went wrong. Everyone agrees that the movie was a disaster, with particular attention to the effects (uninspiring), the story (a strange fusion of Tibetan mythology and action-adventure tropes), the actors (poorly cast), and the marketing (off-putting with its emphasis on the movie’s cost). Indeed, in retrospect it’s hard to identify anything that went right with this movie.

Asura wasn’t some strange labor of love backed by a mysterious billionaire. It was a studio film, produced by powerful and experienced Chinese companies like Zhenjian Film Studio, Ningxia Film Group and Alibaba Pictures. Numerous executives must have weighed in on every aspect of development and production, yet nobody with the power to stop it ever did. I can honestly say that this movie looked horrible and I would have predicted that it would fail, but I would have said the same thing about Warcraft and Resident Evil: The Final Chapter and those movies went gangbusters in China despite being largely ignored in the rest of the world.

As a general rule, I root for Chinese films to succeed. But if this film was as bad as it seems, it’s good that it failed, because Chinese audiences deserve better. Maybe the failure of Asura will even prove a corrective to Chinese studios trotting out 17 Monkey King movies every year. But I doubt it.

The real lesson from Asura, and the reason I think its implosion will ultimately prove to be a good thing, is that it shows the Chinese film industry is maturing. It can fail, and fail spectacularly, in the same way that Hollywood has done for years (see, for instance, Cleopatra, Heaven’s Gate, Ishtar, Cutthroat Island, The Adventures of Pluto Nash, and John Carter). And just like Hollywood, the Chinese film industry will shrug off this failure, because the Chinese film industry is doing just fine – the two movies that dominated the box office last week, Dying to Survive and Hidden Man, are home-grown successes attracting audiences and critical acclaim in equal measure.

It bears noting that Renny Harlin, director of Cutthroat Island, has moved to China and restarted his once-faltering career, with numerous big-budget films lined up including one for Alibaba Pictures. What could possibly go wrong?

China film lawyerLast Tuesday, U.S. Trade Representative (and Trump appointee) Robert Lighthizer released a statement explaining that his office would seek to impose a second round of tariffs on Chinese imports, this time 10% tariffs on an additional $200B in imports. The first round of tariffs, which went into effect on Friday, July 6, imposed tariffs on $34B in imports, and was quickly matched by China’s imposition of tariffs on $34B in US exports to China.

The USTR is justifying its actions on the basis of the 200-page Section 301 report which detailed a wide range of allegedly unfair trading practices by the Chinese government, including forced technology transfer, theft of IP and technology, improper government subsidization, and lack of reciprocity.

It is difficult to find anyone outside China who disagrees with the substance of the Section 301 report, but it is difficult to find anyone outside the Trump administration who understands – let alone agrees with – the country’s blithe entry into a trade war. Ramesh Ponnuru, a senior editor at National Review (hardly a bastion of liberal thought), wrote a cheeky opinion piece in Bloomberg laying out what he saw as Trump’s Four Rules for Conducting a Trade War:

  1. Assume that you will win it effortlessly.
  2. Make sure your tariffs are designed to inflict maximum damage on your own country’s companies.
  3. Take on as many countries simultaneously as you can.
  4. Don’t feel that you have to make your negotiating demands clear.

The USTR has released a tentative list of 6,031 product categories that, in aggregate, allegedly represent $200B worth of Chinese imports. Included on this list, to the chagrin of almost everyone in the entertainment industry, is the following category: “Motion-picture film of a width of 35 mm or more, exposed and developed, whether or not incorporating sound track.” The list also includes motion picture films of a width less than 35mm, but it is silent as to whether this would extend to movies on digital media, which is how the vast majority of films are distributed these days. See Rule (4) above.

Industry observers have been trying to figure out what, if anything, this means to the Chinese film industry, the US film industry, and the interaction between the two. From an economic standpoint, putting tariffs on motion picture imports from China is solely a symbolic gesture. China would love to be exporting films in such quantities that these tariffs would hurt, but as we wrote in What Does the Chinese Film Industry Get From Hollywood?, Chinese films simply don’t do business in the U.S. In the past 10 years, the highest-grossing Chinese films in the U.S. have been The Grandmaster (2013, $6.6M), The Mermaid (2016, $3.2M), and Wolf Warrior 2 (2017, $2.7M).

Meanwhile, multiple U.S. films each year gross more than $100M in China.

Putting all this together, it seems possible (if not likely) that the Trump administration is simply baiting the Chinese government to retaliate against the liberal redoubt of Hollywood. See Rule (2) above. China would love to see Chinese films dominate the Chinese box office, and they certainly don’t care about protecting American business interests. But they also don’t want to do Trump’s dirty work for him.

At this point, all options are open to the Chinese government, and they have even more political cover to take whatever action they like. My guess is that the Chinese won’t do anything except use the threat of tariffs as an excuse to postpone the already-interminable negotiations over the revised film quota and profit-sharing arrangements. I’d do the same thing in their place. How could they possibly reach an agreement on film imports with the threat of retaliatory action hanging over the entire process? This way, the Chinese can have their cake and eat it too.

Of course, it’s also possible the Trump administration didn’t think about any of this too deeply and everyone is reading in complexity where there is none. Being There, anyone?

China IP lawyerHow do you know when a copyright has been infringed? For years, this wasn’t even a question people asked in China because it was so obvious. The guys on the corner with carts full of bootleg CDs and DVDs, the illegal BitTorrents and download sites – all of them were wantonly and flagrantly engaging in copyright infringement. Indeed, infringement was their business model. If they weren’t offering copies of copyrighted works, nobody would be interested.

Slowly but surely, though, China’s enforcement of copyright infringement has improved – in large part because large Chinese companies like Baidu and Alibaba and Tencent now control the rights to a great deal of content and their business models are based on people not getting such content for free somewhere else. The BAT companies have turned to Chinese agencies and courts to enforce their rights, evidenced by a concomitant surge in copyright-related litigation. We wrote about this last year in Copyright Protection in China– It’s Real, and It’s Spectacular:

The point is not that Chinese courts are establishing new rights, but that they are enforcing the rights that already exist for copyright owners – and doing so in a meaningful way. Both Chinese and foreign copyright owners are turning to Chinese courts to enforce their rights, and are prevailing. At least with the easy cases.

China still has work to do on the easy cases before it gets to the level of the US or the EU, but the concept (and value) of copyright has taken hold in China. Bring on the not-so-easy cases! Like the ongoing “Blurred Lines” case in the US, in which Marvin Gaye’s estate sued Robin Thicke and Pharrell Williams for allegedly copying the musical style of “Got to Give It Up.”

Where is the line between plagiarism and inspiration? American courts have grappled with this question for years; lawsuits are filed every day by songwriters and screenwriters who hear a hit song or see a hit movie or tv show and think that the creators stole their work. Many of these cases are spurious and easily dismissed on summary judgment, but not always.

Robin Thicke and Pharrell Williams lost at trial and on appeal, but still deny that they copied Marvin Gaye. Led Zeppelin prevailed in a lawsuit over “Stairway to Heaven,” but the plaintiff (the songwriter for 70s band Spirit) has appealed. Sam Smith quietly settled with Tom Petty before a lawsuit was even filed – perhaps because he feared he would lose the battle of forensic musicologists.

It’s more common to see a music-related case alleging infringement go to trial than a film or tv-related case – probably because musicology offers at least a semblance of objectivity when comparing the original and the allegedly infringing work. But that doesn’t stop online fans from crying foul when they see uncanny echoes of their favorite works in a new program. That’s what happened last week when the Chinese tv show Legend of Fu Yao was taken to task for allegedly ripping off numerous plot points from J.K. Rowling’s Harry Potter and the Goblet of Fire (book four in the seven-book Harry Potter cycle).

This is hardly the first time the Potterverse has been ill-used in the Middle Kingdom. Back when new Harry Potter books were still coming out, Chinese publishers did a brisk business in fake Harry Potter books. Who can forget “Harry Potter and the Hiking Dragon,” “Harry Potter and the Chinese Empire,” or “Harry Potter and the Big Funnel”? Laugh if you want, but these books sold millions of copies. You can understand why loyalists would be unhappy about the latest affront to the Hogwarts canon. The difference is, these days J.K. Rowling can do something about it.

I haven’t seen Legend of Fu Yao and can’t comment on the extent and depth of the alleged similarities. But if the producers of that  show really did steal from J. K. Rowling she could sue in China under the Copyright Law and the Law Against Unfair Competition. That was Disney’s successful strategy against the Chinese filmmakers who made The Autobots, a film whose anthropomorphic cars looked almost the same as Lightning McQueen et al. from Cars.

Suing over Legend of Fu Yao would likely be tougher sledding, but figuring out whether you have a case is what lawyers do for a living. If I were J.K. Rowling, I’d ask my lawyer to engage a China IP lawyer, stat.