Screen door opens wider

Studios dive in but local regs still make co-prods tricky

2004 CHINA B.O. TOPPERS

Film Total B.O.*
1. House of Flying Daggers 18.1
2. Kung Fu Hustle 15.1
3. World Without Thieves
12.2
4. Lord of the Rings: Return of the King 10.4
5. The Day After Tomorrow 9.9
6. Cell Phone 9.7
7. Troy 8.3
8. Spider-Man II 6.2
9. New Police Story 5.2
10. Harry Potter … Prisoner of Azkaban 4.2
*in millions of dollars

SHANGHAI — Chinese co-productions are on the rise thanks to changes in legislation, but as Arthur Jones reports, the main players are still cautious as fight for a bigger slice of the profits.

Since China’s entry in the World Trade Organization at the end of 2001, the country’s industries have been opening up to foreign investment.

Film has been no exception, with a series of regulations introduced by the State Administration of Radio, Film and Television paving the way for overseas media companies to shoot, market and distrib their pics in China.

“We have made 12 or 13 films in China over the last seven years, including a couple in Hong Kong and one or two in Taiwan,” says Barbara Robinson, head of Hong Kong-based Columbia Pictures Film Production Asia (a division of Columbia TriStar).

Of the majors, Columbia has been the most active in pursuing what for many is the ultimate goal: making films in Asia for the local market aka local-language productions. And inevitably in China, where foreign media companies are not allowed to shoot independently, it means working with the authorities on a co-production.

Columbia began its Asian operations with helmer Zhang Yimou’s “Not One Less” in 1999 and has followed with a steady output of two or three films a year. It hit paydirt in 2000 on a project that many viewed as extremely risky. Ang Lee’s “Crouching Tiger, Hidden Dragon” turned out to be the biggest crossover hit of all time, with massive audiences in Asia and the West.

“The (relatively) high cost of the film and the fact that it was in Mandarin and featured martial arts, not exactly a household word at the time, meant we felt there were risks involved,” explains Robinson. “The success of the film in the West relative to its success in Asia was a surprise — but who’s complaining?”

Warner Bros. is also active in China, recently shifting its regional HQ to Shanghai.

With major interests in the Chinese homevid and exhib sectors, the company upped the ante earlier this year when it announced the establishment of China’s first Sino-foreign co-production joint venture.

Traditionally, foreign companies looking to shoot in China have signed one-off deals with authorities that allow them access to locations, equipment and crew sourced locally. But at the end of 2004, new regs opened up the possibility of forming joint ventures. This encouraged studios looking to work on Chinese projects in the long term to set up permanent production bases. So far, only Warner Bros. has been approved for film; several TV production joint ventures have been OK’d.

In a three-way partnership, Warners has teamed with two of China’s most influential movie companies: Hengdian Film Studios and the China Film Group. Announcement of their first project has been expected since February, but sources suggest they are still looking for the right script.

Other studios have been making co-production forays into China. Miramax, shot scenes for “Kill Bill” and then “The Great Raid” in quick succession in 2002. Merchant Ivory completed work on “The White Countess”, shot almost entirely in and around Shanghai in late 2004, in a co-production with Shanghai Film Studios.

International interest

Hollywood studios are not the only outside parties looking for a bite of the China production market. The French have been particularly active this year in Beijing, planning several one-off co-productions as well as organizing a Gallic film festival in the capital. Several other European countries are in the final stages of negotiating film treaties with China, many of them containing co-production elements.

Also this year, China signed a major new co-production agreement with India. Premier Wen Jiabao’s visit to the subcontinent in April resulted in a wide-ranging pact involving co-productions, regular and ongoing meetings between their respective film authorities, and the establishment of a joint body to promote Chinese and Indian movies.

This activity is just the tip of the co-production iceberg. China has participated in around 700 co-productions through the China Film Co-Production Corp., a government-controlled body, since 1979. Of these, over 400 were features.

But there are concerns among Chinese film authorities about leaping into major co-production agreements. The new minister in charge of Sarft, Wang Taihua, has signaled that he is less enthusiastic about foreign involvement in the domestic media than his predecessor.

In a widely circulated notice in March, Sarft announced restrictions on the new co-productions, saying that each foreign media entity would be restricted to just one joint venture.

“We must exercise control over the content produced by joint companies and must understand the political tendencies and background of overseas partners and prevent harmful foreign thinking or culture from coming into our production sector through joint ventures,” the announcement said.

Last month brought another move that some insiders interpreted as more evidence of resurgent cultural conservatism at the highest levels of government: Several of the more internationally focused film fests in China, including the Shanghai Intl. Film Festival, were reoriented by the Ministry of Propaganda as local festivals. The ministry is Sarft’s controlling body.

It has not been a smooth ride for some overseas film studios looking to shoot in China. Sarft is like a “persnickety bride,” being courted by everyone but giving very little in return, says one European film exec.

Other execs highlight the dangers of trying to establish a co-production in China, where the authorities have the power, and sometimes the inclination, to pull out of deals at the very last minute, throwing international financing into chaos.

Slice of the pie

Even for those functioning in the market, there are big decisions to be made in terms of what type of co-production partnership to form (joint venture or one-off) and with whom to form it.

“We still like the picture-by-picture model for now,” says Columbia’s Barbara Robinson, “whereby we co-fund a project with a local partner, working with the China Film Co-production Corp. to make sure we have all the right permits.”

One of the key financial advantages of working on films that are ostensibly local is that Columbia Pictures gets to dodge the film quota and the standard revenue-sharing deal that foreign studios are subject to when their films play in China.

Since 1994, foreign movies have accessed mainland cinemas via one of two arrangements. Most Hollywood majors attempt to get their films in through a so-called revenue-sharing deal with the China Film Group — still the only organization in China authorized to import foreign titles. Pics in this category are subject to a quota, originally set at 10 films a year. For the last couple of years that number has risen to 20, of which around 16 are usually U.S. movies.

Another group of about 25 films a year are sold to China for a flat fee — described by an insider as “insultingly low in most cases.” Most large studios choose to avoid this method, for fear it undermines their long-term aim of coming in to the market on decent terms.

But decent terms are hard to negotiate in China. Even if you get your film on the official quota list, the potential for profit is limited, with the foreign party’s split restricted to around 13% of B.O.

This is where a local co-production deal like that engineered by Columbia begins to make sense. “Kung Fu Hustle,” for example, was treated as a domestic film, so it was not subject to the quota. And the studio could expect to take home 30%-40% of the box office revenue, according to Robinson. “Our division is a pretty good case in point of profitability,” she says.

The 13% figure has been a bone of contention for years, with the Motion Picture Assn. in particular making repeated requests to film authorities for an increase. Despite several meetings, Jack Valenti never got the number to budge. His successor, Dan Glickman, is set to make his first visit to China in the next month, and the rev split is sure to come up.

“Revisiting the revenue-sharing agreement is one of our greatest concerns in China, along with the need to increase market access and improve protection of intellectual property,” said Glickman in a recent interview with Variety.

“We are working every day toward a review of this arrangement and are optimistic that we can increase revenue share for MPA member companies while increasing revenue for our distribution partners in China.”

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