New competition from beyond the borders sparks ultimatum

SYDNEY – “Pearl Harbor” is being used as a weapon in a different kind of war in China: a battle over back payment between China Film Group and a battalion of provincial distributors and exhibitors.

China Film has threatened to withhold prints of the WWII epic, which debuts on the mainland Aug. 10, from sub-distribs and cinemas that owe it about $8.5 million from the proceeds of earlier releases.

The agency is playing hardball, realizing it soon will lose its monopoly on distributing foreign films — and thus have far less leverage — as China opens its market to at least limited competition as one of its concessions to gain entry into the World Trade Organization.

Buena Vista Intl. execs late last week were unavailable to comment on the pic’s release plans, but one source in Beijing tells Variety China Film’s tactic is paying off, enabling the firm to claw back some of the money owed.

However, some tradesters in Beijing warn Disney should not be surprised if Michael Bay’s epic fails to scale great heights at the B.O. That’s no reflection on the movie’s merits or appeal, but rather a commentary on the ailing Chinese exhib business.

Of the eight U.S. films released this year, the top earner is “Vertical Limit,” with a measly $2.9 million.

“The market sucks,” says one Hollywood rep, ticking off a litany of woes including aging cinemas, frequently inept distribution by China Film and unchecked piracy — which meant high-quality VCD copies of “Pearl Harbor” were widely available two days after its Stateside preem.

One factor that delayed the pic’s launch is the monthlong blackout on foreign films through July 20, when the Communist Party celebrates its 80th anniversary. Also, “Enemy at the Gates” is tentatively slated to bow July 21, according to UIP, meaning “Pearl Harbor” will have to stand in line.

Another U.S. exec says there are so many variables in China that trying to predict how “Pearl Harbor” will perform is an “exercise in futility.” He adds: “If it does well, the studio will be happy. If it doesn’t, that would be par for the course this year.”

China Film and provincial distribs also are feuding over the criteria of some of the conditions for the coming breakup — specifically, for determining who will be awarded up to six distrib licenses, and how films will be apportioned between China Film and the new players.

The Ministry of Radio, Film & Television reportedly is pushing for an auction process to parcel out films to the highest bidder.

There is enormous pressure from virtually all the Chinese studios to secure not only the rights to handle U.S. films, but to be allowed to import them directly, bypassing China Film.

China Film is fighting hard to protect its turf, but some U.S. execs are convinced that provincial studios will be given import rights next year. “It will come; the only question is the precise timing,” one U.S. rep says.

Approved for release later this year are “Swordfish” and “Lara Croft: Tomb Raider”; both will have to avoid yet another blackout (Sept. 20- Oct. 10), wrapped around the Oct. 1 National Day celebrations.

Chinese officials gave an unusually frank admission about the plight of the domestic film industry at last month’s Filmart confab in Hong Kong. “The film market of China is going backwards,” China Film general manager Tong Gang told attendees during a “China Day” seminar.

Tong enumerated a series of initiatives China is undertaking on the eve of its entry to the WTO, including the breaking up of market monopolies caused by “irrational territorial segmentations”; building cinema chains; developing multichannel distribution systems and computer controlled ticketing; and encouraging competition among distribs at provincial and city levels.

State Administration of Radio, Film & TV deputy director-general Hu Zhanfan reiterates that foreign investors are welcome to take part in the construction and renovation of cinemas as long as their investment is capped at 49%.

Hu notes China has more than 50,000 movie theaters — many of which are mobile operations screening only 8mm films — but only 7,592 so-called professional theaters. U.S. execs say the number of viable screens is significantly less than that.

Hu says the film industry employs nearly 300,000 people, and that there are 36 film studios and more than 2,000 distributing agencies. He puts the annual output of Chinese films at about 100.

Some 460 million people visited cinemas in 1999 in the territory (a tiny per-capita rate in a market of 1.2 billion people), generating ticket sales worth $102.8 million; B.O. revs last year totaled $116 million.

Follow @Variety on Twitter for breaking news, reviews and more