MPAA Confirms New Hollywood-China Film Distribution Agreement

IMAX China - H 2015

IMAX China - H 2015

As THR reported in October, the new deal solidifies Hollywood and China's existing trade terms, while also promising international auditing of China's box office, where irregularities have often been reported.

It's official: Hollywood and China have bolstered the rules governing the distribution of studio movies into the country's booming entertainment market, thanks to a new bi-lateral agreement signed in secret during Chinese President Xi Jinping's state visit to the U.S. in September.

As first reported by THR in October, the contract will help Hollywood studios — and all international film companies doing business in China — collect and verify payments from the distribution of their films there.

The Motion Picture Association of America confirmed the agreement Friday.

Most of the accord simply formalizes the landmark U.S.-China film agreement from 2012 that opened the Chinese market to more Hollywood-made films (34 titles a year, up from 20) and boosted U.S. distributors' share of box-office revenue in the country (from the previously dismal 11-15 percent to 25 percent).

The Memorandum of Understanding that delivered those terms had been based on a handshake between Xi Jinping and Vice President Joe Biden — the new MPAA deal codifies them into an official trade contract.

But the September deal is also understood to contain additional terms: a promise that U.S. studios will be paid by China's state distributors within a "reasonable" amount of time and an allowance from the Chinese to let international parties audit their box office.

Both of those terms address past Hollywood grievances.

The need for outside oversight of China's state distributors was made apparent in October, when China Film Group was caught rigging the box office in favor of a state propaganda movie, causing revenues to be stolen from competing titles, including Paramount's Terminator: Genisys. It's also been alleged that CFG under-reported the historic performance in China of Universal's Furious 7 last summer by as much as $30 million.

"[China's] Film Bureau knows they need outside help to oversee the distributors, because they are strong state companies," a Chinese source close to the agreement told THR in October.

Sources tell THR that Chinese distributors have been told to be prepared for outside auditing as soon as January 1, 2016.

Although the stipulation of "timely payment" doesn't specify a particular time frame, the studios are hoping it will prevent a repeat of an episode from 2013, when China Film Group withheld tens of millions of revenue payments because of a dispute over which side should cover a new tax on ticket sales.

"We are grateful to the leadership of SAPPRFT and the China Film Group Corporation for recognizing the importance of the growing partnership between China and the United States with regard to our film industries," the MPAA said in a statement Friday. "Both the rapid growth of Chinese audiences and the incredible contributions that Chinese filmmakers make to the global film industry continue to make this relationship important. Our two industries have done an excellent job meeting these new and exciting opportunities and we look forward to further growth of our partnership in the years ahead.”

According to THR's sources, another major issue was on the table during the MPAA-China talks in September: a plan to increase significantly the number of foreign films allowed into China on what's known as a flat-fee basis. Both sides are said to have agreed to the change in principle, although it didn't make the document's final wording. Such an increase could be a game-changer for indie and international studios, which are unable to compete with the Hollywood studios for the 34 revenue-sharing release slots in China. Talks are said to be ongoing.  

The recently inked deal — the official title of which is "Agreement on Cooperation in Importation and Distribution of Revenue-Sharing Films" — will be up for renegotiation come February, 2017.

Hollywood will undoubtedly be pushing for an expanded import quota, greater share of theatrical revenues and more control over release dates in China — trade barriers that the Chinese have wielded with unmistakable cunning to diminish foreign dominance of their nascent but ballooning film industry.

Given the galloping pace of growth, but the snail's pace of regulatory reform in China, all bets are off for how those 2017 discussions might go down.