Theatre Executives Downplay China Box Office, DOJ Anti-Trust Probe

There’s a lot of heat around the Chinese box office, with experts predicting the People’s Republic will overtake the United States as the preeminent market for film by 2020.

But U.S. studios make a fraction of what they bring in domestically because of revenue sharing agreements and tightly enforced quotas on the number of foreign films that are granted entry into China, executives from the National Association of Theatre Owners said Thursday at the Gabelli & Company Movie and Entertainment Conference in New York.

In 2014, U.S. studios generated $2.16 billion at the Chinese box office thanks to massive hits such as “Transformers: Age of Extinction” and “Interstellar.” However, those companies took out only 25% of those receipts, amounting to roughly $540 million.

“That’s one tenth of what they’re taking out of the North American box office,” said Patrick Corcoran, vice president and chief communications officer at NATO.

China allows only 34 foreign films a year into the protectionist market. In the U.S., theaters and studios split ticket receipts roughly in half, giving distributors a bigger share of the spoils.

As a trade organization representing the exhibition industry, NATO does not take an official position on certain competitive issues, but the group’s president John Fithian downplayed the importance of a recent Justice Department investigation into the practice of clearances. That piece of industry jargon refers to a process that some theater companies use to prevent certain movies from appearing at rival locations in specific geographic areas. Two of the country’s largest chains, Regal and AMC, have received inquiries from federal investigators, who are trying to determine if the practice is anti-competitive and unfair to smaller players.

“There are not that many locations in which clearances are an issue,” said Fithian. “The numbers are really small.”

He noted that it’s not only a case of bigger theater chains using their size and scale to beat up on smaller, independently owned venues. In many cases, it’s major exhibitors going head to head, making it less an issue of unfair competition, Fithian argued.

“You’ve got to prove you’ve got the best mousetrap,” he said, adding, “We’re just a very sexy, popular industry and the federal government likes to look at us.”

In a separate talk, Regal CFO David Ownby said his company will comply with the Justice Department investigation. He noted that the courts have previously looked into the issue of clearances and upheld their legality.

“We believe clearances are good for customers, good for exhibitors and good for distributors … we look forward to the day when this is behind us,” said Ownby.

Fithian and Corcoran both predicted that the domestic box office will hit record numbers in 2015 and 2016 because there are more tentpole productions such as “Jurassic World” and a greater number of family titles such as “Inside Out” and “Minions.”

Families tend to buy more concessions, making them valuable to theater owners, who make much of their revenue by hawking popcorn and soda. Studios are helping with that effort as most of the major players have opened their own animation or family film labels. In order to avoid cannibalizing each other, studios are opening films such as “Jem and the Holograms” and “Hotel Transylvania 2” in September and October instead of clustering them all in the summer months.

“As more and more studios are making family titles, they’re dispersing them,” said Fithian.

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