China’s film production sector might be facing a financial and governmental squeeze at the moment, but not multi-talented Chinese star Xu Zheng. Xu is guaranteed a payday of some $17.5 million (RMB117 million) on his current project, “Lost in Russia,” which amounts to more than half the film’s gross production budget.
“Lost in Russia,” which recently began shooting, is backed by Huanxi Media, the Hong Kong-listed Chinese production and streaming company behind Ning Hao’s recent smash hit, “Crazy Alien.” That film, a comedy about a zookeeper and an extraterrestrial, has made $327 million at the Chinese box office.
Xu starred in “Crazy Alien” and has a stellar list of acting credits, including last summer’s hit “Dying to Survive” and previous “Lost In” franchise films in Thailand and Hong Kong. Xu is set as writer, director, producer and lead actor of “Lost in Russia,” which is expected to be one of the biggest titles in China next year and is already targeting a release in January 2020 for the Chinese New Year holiday period.
China’s film production sector has been in turmoil since last summer, when superstar actress Fan Bingbing was revealed to have used dual contracts to avoid paying full income tax. Fan publicly apologized for her misdeeds and was hit with millions of dollars in fines. Since then, other talent and the production companies that employed them have rushed to put their contracts in order, and have paid $1.7 billion (RMB11.7 billion) in back taxes.
The turmoil also meant that talent valuations became blurred, as many previous contracts had assumed that the performers’ tax was being paid by the producers. But the details of Xu’s payday are clearly set out because he is a 15% shareholder in Huanxi and is considered a “connected person” under Hong Kong Stock Exchange regulations. That means approval for his contracts must be sought from independent shareholders by the end of this month.
A regulatory filing by Huanxi shows that Xu will personally receive $1.49 million (RMB10 million) as “Lost in Russia’s” screenwriter, another RMB10 million as its producer, $4.02 million (RMB27 million) as director, and $5.97 million (RMB40 million) as lead actor. Production company Joy Leader, which is 51% owned by Xu and 25% owned by his wife, will receive a further $4.48 million (RMB30 million) production fee. In each case, the filing specifies that tax is to be paid by Xu.
The film’s production budget, excluding Xu’s multiple services, is set at $14.9 million (RMB100 million). Huanxi gets to exploit the film for a period of 15 years.
The filing gives the film’s title as “Auntie,” though the project also goes by “Lost in Russia.” No plot details are provided. Chinese media say that the story involves a small-time gangster on a train journey to Moscow who must overcome a fractious relationship with his mother while trying to fend off competitors.
Huanxi recently issued an unquantified profit warning for the 2018 financial year, blaming likely losses on share-based payments made to secure talent. The company is controlled by businessman Dong Ping and former banker Steven Xiang, alongside film directors Xu and Ning. Its business model foresees talent owning a significant portion of the rights to the films they make while Huanxi also builds its own streaming platform.
In another recent filing, Huanxi said that it had received the full $104 million (RMB700 million) proceeds of a minimum-guarantee deal it signed with a special-purpose company concerning the theatrical box office of “Crazy Alien” – despite the film falling short of its target.
According to the July 2018 deal with Khorgos-based Le Kai Hua, the guarantee reflected expectations that the film would deliver theatrical grosses of $418 million (RMB2.8 billion). The film has a cumulative gross to date of some $327 million (RMB2.19 billion), having been overtaken by runaway hit “Wandering Earth.” (The film industry’s use of domestic Chinese tax shelters, such as companies in Khorgos, has now also been discouraged by authorities.)
The minimum-guarantee payout ensures Huanxi a healthy profit on “Alien,” which will appear in its 2019 accounts. The filing reveals that Huanxi’s investment in the picture was $60 million (RMB400 million). Huanxi also retains the digital rights for sale or use on its own platform.
Xu was feted in Los Angeles last year at the Asia Society Entertainment Summit, where he was interviewed on stage by Billy Bob Thornton.