Flat-rate distrib deals enable more U.S. pix

Fee covers theatrical, TV, DVD rights for five years

SHANGHAI While Hollywood studios push to get their films included in the official quota of 20 imported revenue-sharing films a year, indie U.S. producers are getting a piece of the China action by selling flat-rate movies to the mainland’s distribs.

“The Cider House Rules” and “Spy Kids” were imported this way.

“In a normal flat sales deal, we would pay something like $50,000 for all China rights –including TV, cinema, DVD, hotel and airline screenings – for five years,” says an exec with China Film Group (CFG), which until recently had a monopoly on distribution of foreign pictures.

“If you aren’t on that list of 20 films and you want to access this market, your only option is flat sales,” he says.

In other words, it’s a buyer’s market until the official quota rises, a prospect that is less than certain.

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Despite recent reports that the quota will be lifted to 50 by 2005, the World Trade Organization agreement that brought the number up from 10 two years ago does not specify higher figures.

Even revenue-sharing has its downside.

A typical deal with CFG will net a foreign studio just 12% or 13% of B.O. grosses.

A CFG spokesman is quick to point out the pluses of the arrangement, however: “We cover all costs in China, including taxes, import duties, and marketing.

“Some studios choose to invest further in promotions, but that is up to them. So the money they make is net profit. The risks are all ours.”

China’s film laws stipulate that no more than a third of all films screened nationwide in any given year can be foreign. In a typical year, domestic films number around 90, leaving 45 slots free for foreign fare. Of these, up to 20 will be big rev-sharing hits like “The Matrix Reloaded.”

The remainder are flat sales.

At $50,000 a pop, it doesn’t take much for the Chinese importer to reap a return on even the smallest film.

Chen Qingyi, marketing manager at the Shanghai Arts Cinema, says, “We are not allowed to play more than 35% foreign films in our schedule. But they earn us more than 60% of total box office. There are some domestic films, like Zhang Yimou’s “Hero,” that do very well, but on the whole, foreign films make more money.”

The CFG exec confirmed that “most flat-sales movies make us a profit,” but box office figures are not available, since, unlike rev-sharing films, they are sold on to individual cinemas at a flat rate, too.

Next up for flat-sale release are Yossi Wein’s “Octopus 2: River of Fear” and “Virginia’s Run,” starring Gabriel Byrne.

The recent launch of Hua Xia, the first rival to CFG in foreign film distribution, could shake up the system.

Mao Yu, publicity director at Beijing’s Film Bureau, says Hua Xia’s first film depends on how quickly the company fills key personnel positions.

There remain worries, however, about the new distribution system.

While CFG and Hua Xia are officially equal and in competition, the actual importing of foreign films, and the responsibility for selecting which distributor gets them, lies with the CFG-run Film Import & Export Corp.

There are concerns about early reports that CFG and Hua Xia will share distribution duties on major releases, a scenario that some say makes a mockery of competition between the two companies.

Mao Yu insists these worries are due to a misunderstanding.

“A lot of Americans think the Chinese film industry is a big market just waiting for more films. This is not true. Our film industry is still in its early stages. There are still very few good cinemas around. We are trying to get things right,” he says.