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BEIJING -- As the Year of the Tiger dawned in February, China's biggest movie star, Jackie Chan, made a Lunar New Year's resolution: He opened his first movie theater, close to the university district of the nation's capital.

At the new 17-screen Jackie Chan/Yaolai International Cinema, the versatile performer said he hoped the 160,000-square-foot venue, one with legitimate claims to being the biggest movie house in China, would support films from young and art-house directors whose works have long fallen through the cracks.

The timing is right because boxoffice is strong, rising 44% in 2009 to 6.2 billion yuan ($908 million) on only 4,700 screens. And that's after five years of growth averaging 30%. (By comparison, U.S. boxoffice rose 9% last year to reach $10.8 billion with roughly eight times the number of screens.)

But boxoffice is only one factor in influencing growth. Another is a potential relaxation of government rules that might pave the way for more audience-pleasing blockbusters.

"Little Big Soldier"
 

As China's cinema owners and moviegoers push for choice, the government's rules favoring the state-run China Film Group as the go-to distributor are being challenged. Indeed, in November the World Trade Organization said China must stop forcing U.S. content owners to go through government-controlled distributors.

If the ruling is implemented, Hollywood studios could have access to more distribution channels. Their hope is that demand will result in the banishment of a long-standing 20-title cap on the annual import of films allowed to share a piece of the boxoffice.

After 10 years fighting for greater access to China's movie market, the MPA is eager to see how China will implement the WTO ruling. During a visit to Beijing in February, chief policy officer Greg Frazier summed up Hollywood's take on the ruling: "The hard work starts now."

That may be an understatement, because the entrenched powers aren't going to allow change overnight.

Rance Pow of Shanghai-based theatrical consultancy Artisan Gateway says the architects of the plan for China's film market won't back away. "China will be tested, but the government will still play a central role," he says.

Still, there are signs of change -- most notably in the small distributors that are beginning to make their mark.

Huayi Brothers Media, China's first publicly listed film studio, played a significant role in the Feb. 11 release of the first co-produced Chinese-language drama from Fox, "Hot Summer Days."

Frazier sees in this and the presence of even smaller new distributors a "chink in the armor" of China's defenses, an opportunity to test how Beijing will bring the country's film industry into compliance with WTO rules.

Nipping at the heels of the big boys is a host of up-and-coming distributors, including Enlight Pictures, the film division of a well-established Beijing-based television production company.

But getting up and running isn't easy, even for well-backed Enlight. The company's biggest film release to date, the Hong Kong/U.S. co-production "Astro Boy," was "a bit of a disappointment," says company president Zhang Zhao, who claims nonetheless that the company accomplished its 2009 goals: reaching the top tier in China's film market, making a profit, and growing its market share. "2010 looks strong. We expect to accomplish the three goals again," Zhang says.

If Enlight believes it's possible, the real test of new openness in the market will be the ability of much smaller players to get a piece of the action, too. To that end, upstarts are scrambling to capitalize on whatever advantage they may have as they sell themselves as the ideal alternative distribution partners.



Some upstart companies highlight their experience in marketing or advertising; others tout pan-Pacific connections between Hollywood and China. Few, however, will speak on the record in detail given the fact that no one knows yet how this will play out.

Nevertheless, with the WTO ruling in sight, several of these upstarts, including DMG Entertainment and Xinhua Media Entertainment in Beijing and Fundamental Films in Shanghai, have landed distribution licenses. Each company is keeping the number of prints it has ordered under wraps and would not discuss the details of the deals they've cut with state-run importers.

Ran Wang, media analyst at Beijing-based consultancy China eCapital, says the liberalization of the distribution sector will not happen overnight. "Private Chinese companies can hope to grab a small bite of the pie," he says, adding that the biggest titles will remain firmly in the hands of the government. "You can bet that films like 'Avatar' will only be distributed by state-owned giants like China Film Group."

"Hot Summer Days"
 

Dan Mintz, CEO of DMG Entertainment, is cautiously optimistic. DMG imported the Nicolas Cage film "Knowing" late last year, eight months after its premiere, and even got it a revenue-sharing slot, a coup for a nonstudio film.

"It wasn't 'Transformers,' but it did pretty well," says Mintz, adding that sales were about 50 million yuan ($7.3 million).

XME managing director David Lee, who landed Chan's latest Hollywood title, "The Spy Next Door," in a Jan. 15 day-and-date release with the U.S. (a first here for a nonstudio import), initially declined to share boxoffice figures. When "Spy" appeared to have legs, Lee revealed that it made about 55 million yuan ($8 million) in its first month, a respectable sum for an independent.

Despite the extreme caution in talking about this new sliver of China's growing film pie, there's a consensus emerging: Where importing films without a guaranteed share of the boxoffice gross (typically 13%) used to guarantee losses, new players now believe they can cash in by buying what are still called "flat fee" films, bought for a one-off sum from the copyright holder.

How is it done? With some variations, Company X buys Title Y from Copyright Holder A in Country B, then sells it to China Film or Huaxia "at cost," says one of the new distributors, asking not to be named.

But how cost is determined can be "arbitrary," as can the "management fee" that the state importers demand, says a cautious rival.

Company X then lays out money to "operate" Title Y -- promoting it however they can, most often with a targeted media campaign across the platforms now attracting a flood of China's new middle class: Outdoor, the Internet and mobile.

"Once our P&A is covered, we split the gross with the importer," another new distributor says. "If we choose the right film and promote the heck out of it, we believe studios can make more money sharing our split with us than they can going the guaranteed revenue-sharing route."

What this means is that so-called flat fee films have quietly morphed into revenue-sharing films -- quietly, because there's been no official acknowledgment of this new practice. To recognize the new system would be to admit that China has opened up without actually doing so, the new partner distributors say. After all, each only gets to play if they play with the state.

The new players' logic is that being closer to the ground gives them expertise in the areas of marketing and promotion that the state giants have long lacked. DMG is best known for advertising, for instance.

Assuming this new crew of distributors is able to expand, cinema-building and exhibition growth could continue unabated.

It is China's growth that prompted Chan and his Hong Kong-based partners, the Sparkle Roll Group, to announce plans to open 15 Jackie Chan cinemas this year in the first tier markets -- Beijing, Shanghai and Guangzhou.

Which means Chan could end up being just as famous for his theaters as his movies.
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