China Still Not Complying With WTO Distribution Deal, Says IFTA

China

An expanded Chinese presence at this week’s AFM and the recent finalization of the ‘long form’ agreement between China and the Motion Picture Association does not mean that film trade relations between China and the rest of the world have been normalized, says the Independent Film & Television Alliance.

IFTA president and CEO Jean Prewitt said that the Chinese presence at this week’s AFM had “exploded,” and that companies are still doing deals — albeit under old deal terms.

This year some 46 mainland Chinese executives were accredited as buyers, hailing from 23 companies. A further 12 companies took exhibition space as buyers.

The long form deal – essentially a crystallization of the 2012 agreement hammered out by the then vice presidents Xi Jinping and Joe Biden – was confirmed earlier this week by the Motion Picture Association, the organization which represents the six Hollywood ‘majors.’ The long form deal establishes rules on auditing, explanation of censorship rulings, and confirms the payment terms for revenue sharing imported films distributed by China Film Group.

IFTA, which represents the independent sector of the film industry beyond the six MPA members, says that the Chinese government is still not fulfilling other obligations.

“Right now we have limited implementation and limited efforts to adapt regulations along with the growth of the market,” said Prewitt. “China is failing to meet its obligations to its trading partners. We firmly believe that more choice will strengthen the [Chinese] market.”

One area where IFTA says China is failing is its requirement to promote new distribution licenses to allow private Chinese companies to compete with China Film Group in distributing imported films. This was one of several commitments made by China in the 2012 U.S. – China film agreement to resolve deficiencies in China’s compliance with its WTO obligations.

IFTA says that it also remains unclear how well the new rules on auditing of Chinese distributors will be implemented. And IFTA worries that recent clarifications of the censorship process, which reportedly remove state owned enterprises from the process and put SAPPRFT firmly in control — may not yet have been passed on to distributors in China.

As an example of how trade relations seem stuck in the past, it seems clear that the final six movies approved for revenue sharing (or quota) import and release in China this year will not benefit from the audit rights enshrined in the long form agreement, and that the long form will only take effect from Jan. 1, 2016.

“Nobody we know has been able to use this agreement yet,” said Prewitt. The final six include five MPA member films, and one “The Hunger Games – Mockingjay Part 2” from IFTA member Lionsgate, which releases on Nov. 20. All six must be released in November, ahead of a new ‘blackout period’ in December, when only Chinese-made films will be allowed access to Chinese theaters.

“What makes me seethe is that we spent seven years negotiating this agreement to settle the WTO complaints which still leaves the Chinese government with a lot of control, and yet China is not acknowledging that this agreement exists,” said Prewitt. “It is not like we are dealing with a developing country. [China] has a solid economy, solid production companies and outlets that can only benefit from increased trade.”

Under a recent bi-lateral commitment in the U.S.-China Security & Exchange Dialogue, China again confirmed its promise to enable private Chinese companies to engage in national theatrical distribution. “Again, this has not been implemented.” said Prewitt.

“China confirmed that any licensed film distributors in Chiba can contract directly with U.S. film producers for the distribution of imported films (other than those distributed on a revenue sharing basis) and further confirmed that these distributors can distribute these films entirely on their own, without any involvement by China’s SOEs, including China Film Group,” the S&ED wrote in a memorandum circulated to IFTA members in July this year.

China Film Group must remain the importer of record, though under new rules it can only charge a nominal administration fee, rather than a distribution fee, IFTA also explained.

That leaves plenty of topics open for further discussion between the world’s two largest film markets when the current agreement can begin to be renegotiated in January 2017.

“We will ask if there is justification for any quotas. And we’d prefer that the SOEs move out of the equation,” said Prewitt.

Prewitt said that Chinese buyers at the AFM typically seek to buy all rights to a title, even if they are only seeking to release the property online. Recent expansion of Chinese regulation of the streaming video industry appears to have crimped the buying of TV series, which now have to be censored in their entirety before transmission, though it has done little to dent acquisition of feature content.

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  1. John says:

    What a surprise. I’ve been to China theaters and a theater manager had personal disclosed to me that U.S. distributors are getting no more than 7% distribution fee compared to the standard 30% – 40% distribution fees the U.S. studios are getting elsewhere around the world. That’s not including the marketing cost of $40 – $50 million per film that the U.S. studios are spending on in China. So in reality the U.S. studios are taking losses distributing films in China.

    • herrumph says:

      I can tell you don’t have personal knowledge of what goes on in China. Why would a theater manager tell you when he or she makes money from it? Also it does not cost $50 million to advertise in China. They don’t advertise movies in China like they do the US. Someday but certainly not now. If it cost that much why does Hollywood bother in China? Oh maybe China is pointing a gun to American’s head just like it’s China, not corporate America looking to make every penny they can, that forces jobs to be outsourced. That would be called an act of war yet you don’t see anyone crying that.

    • Logan says:

      Studios are not stupid, they keep saying the HUGE Box Office market in China is the main reason but that is bullshit as the fact you just stated is correct. Studios are taking losses.

      Why keep doing it? The main reason is to ensnare Chinese companies to finance their movies!

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