Biz defining strategies to profit from country's booming box office

As Sony looks forward to grosses from “Skyfall’s” opening Monday in China, others in Hollywood are figuring out their own strategies for profiting from the country’s booming box office.

China’s B.O. eclipsed Japan’s last year to become the No. 1 theatrical territory outside the U.S., in large part due to the country’s seemingly insatiable appetite for Hollywood-style fare. But producers without the muscle of a major studio have had difficulty taking advantage of that appetite, and even some of the bigger U.S. companies have found creative ways to make inroads into the Chinese marketplace.

With a mandate to increase its local film industry, some Chinese production facilities have begun to offer incentives to lure foreign production (Marvel, for example, recently dropped ILM for a Chinese vfx company). The use of local infrastructure can also mean a shot at better distribution — notable in a country known for its “blackout periods” for foreign films.

And more and more indies have begun to ask for high portions of minimum guarantees from those distribs upfront. In part, that provides more cash to make the film to begin with. It also helps boost the faith of banks and other lenders who must loan against those foreign deals.

That was the case with “Ten,” QED’s Arnold Schwarzenneger actioner that unspools in China this year. QED sold the film to Chinese distrib Bona Film Group for around 30%, according to knowledgeable individuals. And that gave QED a little more cash up front.

China’s box office rose 31% in 2012 to $2.75 billion, according to media regulator State Administration of Radio, Film and TV. And that’s led to a delicate balance for the Chinese government: How to support a booming exhibition business and grow the local movie industry at the same time.

“We’ve been noticing lately, for competitive titles, that distributors are willing to put up a larger deposit than is customary in order to make the deal,” QED’s VP of sales John Friedberg said, noting that films must still pass a labyrinthine censorship system that often turns films away at the last minute. “In turn, (banks) are able to lend at higher collateral rates.”

Banks like the added security of a Chinese distrib with skin in the game. Sporadic reports of box office graft and difficulties collecting profit participations have added to the country’s reputation of being a difficult place to do business, especially for the indies.

But the majors aren’t immune to trouble either. Last year, for example, reports surfaced that Chinese exhibs issued tickets for propaganda film “The Beginning of the Great Revival” when auds came to see other pics, and that such practices could have affected grosses for films including Warner Bros. “Harry Potter and the Deathly Hallows: Part 2.” Warner Bros. declined to comment.

And in 2012, the chairman of independent Beijing-based studio United Film Investment Hao Yaning filed suit against distrib China Film Group claiming it hadn’t paid him his fair share of profit participations.

“There are lots of motivators for exhibitors to do that because the government is pushing for a greater share of the Chinese box office and they’re providing incentives for that,” said producer Robert Cain. “Unless you’re a big company distributing a steady flow of pictures, where China wants what you have to offer, it’s very very difficult to collect anything The way to go as an independent is to do a flat deal, get your money upfront and don’t expect anything after that.”

There are three official ways for a non-domestic film to play in China: It can be one of 34 imported films, a co-production (where one party is a Chinese company) or it can get in as what’s commonly referred to as a “buy-out film,” where producers get an upfront payment and no share of the revenue. While prices for these films typically range in the tens to hundreds of thousands of dollars, some observers say that those figures are going up. In part, that’s due to an increased demand for foreign product, even as the Chinese government mandates a growth in its own industries.

And some observers have noted that the Chinese government may start allowing for profit participation in buyout films on a limited basis.

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