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China: Hollywood Studios Still Face Headaches

Amid massive opportunity, China remains a reluctant partner despite increased access for their movies, and a territory that continues to grow

With more and more foreign films now being allowed into China, and potential revenues that can be earned having risen to 25% (from as little as 13%), one might think that doing business in China is getting easier for Hollywood.

But that’s simply not the case.

The U.S. Trade Representative had to intervene when China Film Group — which distributes Hollywood movies in China — tried to pass on a national value-added tax by withholding money on revenues earned by American films that played in the territory. And while that dust-up seems to have been resolved, plenty of other tensions remain.

A recurring migraine is the selection of release dates, determined by China Film Group and industry regulator the Film Bureau. The Hollywood studios maintain they have little advance notice of dates, that slots change suddenly, and that many movies don’t fulfill their potential because they are intentionally programmed in close proximity to each other.

And even though the studios now conduct marketing alongside China Film, the murkiness of release dates makes it is difficult to build sustained promotional campaigns, which in turn makes media-buying tricky.

SEE ALSO: Chinese Hit ‘Tiny Times’ Taps Internet Generation Via Audience Research

Moreover, the Film Bureau still appears to be operating blackout periods, in which foreign films are not allowed to open. While this year’s summer blackout was comparatively limited, the studios expect October and December to be largely out of bounds for their films. December sees the release of at least three big Chinese films — “Police Story 2013,” starring Jackie Chan in the sixth film of the franchise; Feng Xiaogang’s “Personal Tailor”; and “The Monkey King” with Chow Yun-fat.

The job of the studios’ Beijing offices remains, crucially, a lobbying effort, trying to persuade China Film and the Film Bureau which pictures to pick for import. And although the quota has expanded from 20 revenue-sharing movies per year to 34, with the additional titles being in 3D or Imax formats, gaining entry into China does not appear to be getting much easier.

China Film seems to be intent on cherrypicking movies that do well at the U.S. box office rather than choosing evenhandedly among all of the studios’ offerings.

And China’s government organizations aren’t the only ones that have been dogging the studios. In April 2012, the U.S. Securities and Exchange Commission sent a letter of inquiry to 20th Century Fox, DreamWorks Animation and Disney regarding their dealings with the Chinese government. The SEC was probing the possibility of bribes paid to Chinese officials by the Hollywood companies looking to secure distribution. But there has been little further movement in the investigation.

SEE ALSO: PHOTOS: China’s Top 20 Films Since 2012

Slowly, other distributors and rights owners are grabbing small pieces of the pie in China. Bona Film (now 20% owned by 21st Century Fox) is releasing Summit’s “Red 2” and Constantin’s “Mortal Instruments,” and Huayi Brothers Media will distribute QED’s “Fury.” Legendary Pictures, IM Global and Lionsgate are among the larger independents also seeking Chinese deals on specific titles.

Whatever the situation, it rarely pays for foreign players to complain too loudly. That’s never more true than in the case of Hollywood, which experienced a bumper year for its films in China in 2012, with $100 million grosses for the 3D reissue of “Titanic” and for “Mission: Impossible — Ghost Protocol” and $90 million performances for “The Avengers” and “Life of Pi.” By year end, foreign films had amassed a 55% market share, with Hollywood accounting for all but 6% of that total.

This year, Hollywood’s China returns have been less triumphant. Although more titles have entered, and overall market size has grown, Hollywood’s revenues slipped, and first-half market share tumbled. That may reflect the paucity of effects heavy sci-fi movies and animation that Chinese audiences still feel nobody does better than Hollywood. “Skyfall,” “Iron Man 3” and “The Croods” were the standouts in the first half of the year. And helping the biz stage something of a second-half revival have been “Pacific Rim” ($110 million), “Fast & Furious 6” ($66.5 million) and “Jurassic Park 3D” ($29 million in its first week).

Tantalizingly though, China remains a mega-market in which profits can never seem to be maximized.

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