Hollywood Studios Haven't Been Paid by China in Months (Exclusive)

"Man of Steel"
"Man of Steel"
 Warner Bros. Pictures

Since late 2012, Hollywood studios haven't seen a dime returned from a slew of movies generating big grosses at the Chinese box office, including blockbusters Skyfall, Man of Steel and Star Trek Into Darkness.

Numerous sources tell The Hollywood Reporter that the China Film Group stopped payments pending resolution of a fight over a new 2 percent value-added tax. The China Film Group wants the studios to pay the tax but the studios say that the additional payment would violate a landmark World Trade Organization agreement reached last year between U.S. Vice President Joe Biden and Chinese President Xi Jinping.

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In almost any other circumstance, Hollywood studios would balk at allowing their movies to continue to be released in the country. But with China on track to become the largest moviegoing market in the world within the next five years, studios are reluctant to hold back product as they establish a long-term foothold.

Insiders say MPAA chairman/CEO Chris Dodd is working on resolving the issue, although neither the MPAA nor any of the studios would officially comment because of the sensitive nature of the situation. One source says there's internal disagreement within the Chinese government about who should cover the tax. THR has reached out to the China Film Group for comment.

The MPAA can ask the Office of the U.S. Trade Representative to officially investigate whether China is violating the WTO agreement, but that would be a dramatic step. It's not known whether such a request has been made, although the USTR is working with the MPAA in addressing the issue via conversations with Chinese officials.

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Hollywood studios and Dodd hailed last year's WTO deal for loosening key restrictions. According to the new arrangement, foreign studios get back 25 percent of box-office revenue (previously 13 to 17 percent). Chinese authorities agreed that additional payments, including any taxes, would not come out of the 25 percent split. But late last fall, the China Film Group informed studios that it intended to pass along the tax after all. 

The Wall Street Journal reported on a standoff with Fox in April. Sources now say the dispute is more widespread and that all six major studios are involved.

One insider says a resolution could be reached by the end of the summer; others aren't so sure.

Going by the 25 percent rule, Warner Bros. would be owed north of $31 million for Man of Steel, The Hobbit: An Unexpected Journey and Jack the Giant Slayer; Sony would be due $23 million for Skyfall and After Earth (White House Down is still in the midst of its China run); Paramount would be owed roughly $30 million for Into Darkness, G.I. Joe: Retaliation and Jack Reacher; Disney's Iron Man 3 made north of $121 million in China, which would mean a return of more than $30 million for the studio, while Oz the Great and Powerful would mean about $5 million in payments (Monsters University is headed to China later this month).

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Over the weekend, Universal's Fast & Furious 6 opened to north of $24 million, scoring the second-best three-day debut of the year after Iron Man 3. Universal also would be owed for Oblivion and Les Miserables, which took in $23.9 million and $10 million, respectively.

Some studios say they are due money from 2012 titles as well. Fox hasn't received payment for Ang Lee's Life of Pi, a check that's expected to come in at $23 million.

E-mail: Pamela.McClintock@THR.com
Twitter: @PamelaDayM

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