The scheme rewards theaters that derive more than 55% of their box office revenues from Chinese films, allowing them to keep half of a 5% tax they pay on ticket sales. There are bigger bonuses for those that score 60% and 66%.
This is not the first time that China has announced such a scheme. In March last year it said that theaters earning 66% could keep half the tax.
“I don’t think the Chinese government reduced the target because they were feeling generous. They wanted results, and they weren’t getting them at 66%,” said lawyer Matthew Dresden at law firm Harris Bricken. Boosted by the $860 million gross for “Wolf Warriors II,” market share for Chinese films stood at 52% as of mid-November.
The scheme has numerous potential problems. These include the creation of an additional incentive for theaters to engage in fraud. Chinese cinemas have a long-established history of distorting results and diverting revenues from one film to another. The requirement to use a government-controlled box office reporting system is supposed to eliminate this.
It also contradicts other systems and structures. The major exhibitors are privately owned, profit-maximizing companies. And the country’s dominant distributor of imported, revenue-sharing movies is state-controlled China Film Corp.
The scheme adds another wrinkle to the ongoing negotiations between China and the U.S. over quotas, revenues and distribution conditions. China currently operates a range of tight controls over foreign films. These include regulators who decide release dates and two or three blackout periods per year when only Chinese films can be released.