China's Foreign Movie Quota Set to Expand -- For Arthouse Films

Illustration by: Lars Leetaru

A busy March overseas –- including Johnny Depp's first visit –- hints at four new rules studios have adopted when thinking about the Asian country's rapidly growing market.

This story first appeared in the April 18 issue of The Hollywood Reporter magazine.

If you're paying attention to the rapid changes in China's booming film industry -- and you should be, considering its box office hit $1.08 billion in the first quarter, more than the total for the entire year of 2009 -- the past few weeks have seen dizzying activity. What it means for Hollywood is complicated:

Quotas will increase

While it's not official, insiders tell THR that the rumors are true: The annual limit on imported films -- now at 34 -- will be raised to 44. The catch? The new guidelines likely will open the market only to art-house-style releases. It's a savvy move because "prestige" pics normally don't take a bite out of China's share of the box office. The country's ruling party has made homegrown hits a priority, and it shows: Of the $3.6 billion in grosses in 2013, $2.12 billion, or 59 percent, came from domestic films.

Still, more access to foreign films means more opportunities for those all-important Hollywood-China partnerships. Just don't expect Nebraska to pack them in at the Beijing multiplex.

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New censor means new rules

The biggest challenge in getting movies into China still is censorship, but insiders say the government's film bureau is making it easier for filmmakers to explain their case and secure approval.

Now, with the March appointment of the more worldly La Peikang to replace the retiring Han Sanping as head of the state-run China Film Group, this newfound openness likely will increase. Han was respected, but he also was closely linked to the toe-the-party-line mentality of the old guard that contributed to films like Django Unchained being rejected.

Li, however, is more representative of the new era of reform ushered in by president Xi Jinping. "Li is much more international," says one China industry source. "Due to the many years he spent in France, he may improve the situation for movie imports."

Hollywood gains an ally

THR reported March 28 that a second import license had been granted to the state-backed China National Culture & Art Corporation (CNCAC), which is linked to the Ministry of Culture. Granting the license to CNCAC is a potential game-changer because it breaks China Film Group and Huaxia's monopoly on distributing revenue-sharing movies (although the film bureau denies the license has been issued). Chris Lee, former head of Columbia TriStar Pictures, has been named president of Hong Kong-based China Railsmedia Group, the company that will be tasked with helping the new importer acquire Hollywood films.

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Good for Hollywood? Absolutely. Not only could the move open the floodgates for more distributors to lobby the government for similar licenses, the appointment of a Hollywood insider like Lee sends a clear message that China is willing to adapt to Hollywood business practices. It also could increase the box office revenue split with China, which currently sees Hollywood taking 25 percent. "This is about getting the ministries to work together," says a source close to the deal. "The orders behind this come straight from the top."

Stars need to work harder

With Scarlett Johansson eagerly treading the red carpet in Beijing on March 23 to push Captain America: The Winter Soldier, Andrew Garfield cycling around the Forbidden City on behalf of the next Spider-Man film and Transcendence's Johnny Depp hugging everyone in sight during his first promotional visit March 31, Hollywood stars are promoting their projects like never before.

The charm offensive is a direct result of the country's recent focus on promoting local films. "Chinese stars are becoming more important in China than their Hollywood rivals," says Dan Mintz, CEO of local player DMG. "If Hollywood studios and stars don't put in the effort to create relevancy for the Chinese consumer, then the market will continue to turn its attention to domestic films."

Despite the recent moves, those who have done business in China for years warn that nothing can be taken for granted in an industry on track to pass the U.S. by 2020. "One thing that Hollywood studios need to get ready for is that there may never be one primary method [of doing business]," says Mintz. "That means being nimble and finding what works best for each movie."