'Potter' to provide snapshot of box office potential

When “Harry Potter and the Deathly Hallows: Part 2″ bows today in China, it will provide an up-to-the-minute snapshot of the box office potential for Hollywood pics in the country.

But if quotas are loosened, a potential half-billion dollars more per year could pour into studio coffers, and that amount has the potential to significantly change the biz landscape.

The last “Potter” pic could easily approach the $210 million that “Avatar” racked up, while “Transformers: Dark of the Moon” scored China’s biggest three-day debut ever for an American film at $40 million, eclipsing “Avatar” by 72%.

But Warners and other studios releasing Hollywood fare in China still face significant hurdles. “Harry Potter” opened in nearly every other country the weekend of July 2 but was hobbled in China by a government-imposed blackout period. Releasing a film four weeks after its initial rollout feeds a giant piracy maw, which rankles studios.

Another sore point: For every “Harry Potter” and “Avatar” allowed into China, there are many other studio films rejected due to the decades-old quota on foreign pics.

According to a Warners spokesperson, China will have to lessen its current quota system if the country is expected to reach triple-digit growth by 2015.

When Rupert Murdoch took aim at China’s restrictions on foreign movies while attending the Shanghai Film Festival last month, his remarks rekindled the debate on if or when the country’s quota system on foreign pics may finally bite the dust.

The quota — which limits to around 20 the number of foreign movies allowed into the Mainland annually on a revenue-sharing basis — is a source of frustration for the Hollywood studios, which see China as a vast potential audience for their fare, if only it can be effectively accessed.

Last year, Chinese B.O. was up 64% at $1.53 billion. “Avatar’s” take was the second biggest outside North America. “Inception” took $69 million. This means China is becoming a big factor in the 67% of the studios’ revenue generated abroad last year.

There have been rumblings that the quota may be loosened. A just-published report by the China Film Assn. Research Center suggested there could be some easing of the quota system as the industry opens up. Family movies, especially, could gain more access to the market, driven by a need for content to meet demand from the rapid rise in the number of screens.

This will probably translate into an additional 10 or so movies allowed in per year. With just 10 more titles, another half-billion dollars from Hollywood pics annually would vault the fast-growing territory into a position as the second biggest after the U.S.

Last year the country added 313 theaters and 1,533 screens for a total of just over 6,200 screens. Three-quarters of Chinese cities still don’t have decent facilities, but roughly three 450-seat theaters were constructed every day, and in five years the country will have 60,000 screens. Foreign companies should benefit from that.

But don’t expect the quota to be abolished outright anytime soon, biz sources say.

“What we’ll probably see is a slow increase in the number of foreign movies allowed on a revenue-share basis. But it won’t be a major increase, and the quota system won’t be stopped,” one industryite said.

The Chinese won’t allow faster change for political and commercial reasons. China is helping its own growing biz (using blackout periods to give local pics time to breathe) while also stopping politically suspect Western culture from flooding into the country.

At the Shanghai Film Festival last month, Murdoch said there was no other film market as exciting as China, but “the promise of investment is not being fully realized … because market access remains so restricted.”

The roughly 20 foreign pics (mostly from Hollywood) that come into China each year make up nearly half of the revenues generated in the country, with the 500 or so domestic movies competing for the rest. A big percentage of local pics’ overall B.O. comes from co-productions with Hong Kong.

Chinese movies are drawing more of the homegrown audience — Jiang Wen’s “Let the Bullets Fly” took $134 million here last year — but inroads have been slow, and the Chinese government is seemingly eager to protect domestic fare from foreign competition at the box office.

There is a certain amount of pressure on China to do more about film distribution since it missed the March deadline to comply with a World Trade Organization ruling to loosen state controls on foreign media.

However, a complete lift of the quota is unlikely given China’s political system — it says it restricts foreign films because it has strict cultural rules on what can be shown.

Albert Lee, chief exec of Emperor Motion Pictures in Hong Kong, which co-produced “Let the Bullets Fly,” believes an end to the quota would open the floodgates and allow Hollywood studios to destroy the local biz. His nightmare is a flurry of “Avatars” wreaking havoc on the Chinese biz.

“The Hollywood studios are extremely competitive. No Chinese company is equipped to go to Holly-wood and compete,” Lee said.

MPAA chief Chris Dodd, in his maiden voyage to China at the Shanghai fest, skirted the issue and did not specifically call for an end to quotas, which suggests there are negotiations going on behind the scenes about possible changes.

But Dodd did say that opening up the market could help the Chinese biz reach its own full potential — the MPAA is keen to avoid the “floodgates” idea.

“China’s movie market is a success story in the making,” Dodd told a panel. “All the ingredients are there for China’s film industry to become a major player on the world stage, just as China has always been a major player on the world cultural stage.”

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