China box office audit is ‘leverage’

You could call it a preview of coming attractions.

Hollywood’s move to audit China’s box office may not turn up surprising new results about ticket sales, but it could give US lobbyists stronger leverage during renegotiations on how the US film industry does business with China, experts said.

“At this point because there is the film renegotiation on the table, this may be something that could provide the MPAA with additional leverage in future negotiations,” said Aynne Kokas, assistant professor of media studies at the University of Virginia and author of Hollywood Made in China. “If it appears that the Chinese box office is smaller than reported, that gives them additional leverage.”

“If it appears that they’re receiving less of the box office than they should be receiving, then that also gives them additional leverage. I think it’s largely a negotiation tactic, but also reflects widespread uncertainty about the Chinese box office numbers,” she said.

The move to audit Chinese cinemas was previously agreed to during President Xi Jinping’s visit to the US in 2015, and the Motion Picture Association of America, which represents the six major US studios, has hired an accounting firm to audit sales of selected films, according to Bloomberg.

“Unless there’s some kind of smoking gun or highly egregious misreporting, I don’t see the audit having a huge impact,” said Kokas. “But what we’re seeing more broadly in US trade negotiations with China is that the US government and trade organizations are looking for any possible leverage for their negotiations with China.

“It’s important to the membership [of these organizations] to at least try,” she added.

China’s State Administration of Press, Publication Radio, Film and Television (SARFT) had already taken steps last year to penalize entities that underreported ticket sales, approving fines for theaters that falsify sales figures.

In March about 300 theaters were penalized, with those that understated their revenue by more than $146,000 (1 million yuan) having their operations suspended for a 90-day period. The laws also stated that theaters in “very severe” cases could lose their license.

“I’m sure MPAA is facing studio pressure to ensure that the second — and soon to be first — biggest box office in the world is playing fair,” said Michael Berry, a Chinese cinema professor at the UCLA.

“If the audit reveals a large lag between reported box office takes and actual box office earnings, I think we will definitely see a stronger lobby from Hollywood for China to play fair, but we will have to wait for China’s response,” he said.

Under the current fiveyear agreement between the two countries, which expired in February, US studios receive 25 percent of box office sales in revenuesharing deals, so inaccurate box office numbers could mean less money for US moviemakers.

“Studios are getting 25 percent of the box office now, but if they negotiate for a larger figure they could use the argument that they’ve been cheated out of rights in terms of what the box office has been in the past, and they can ask for a bigger percentage that will counter their past losses,” said Stanley Rosen, a politics professor at the University of Southern California who specializes in China.

China’s box office slowed 3.7 percent in 2016 in part reportedly due to a crackdown on inflated ticket sales and stricter ticket subsidy rules. SARFT’s bureau head said last year that inflated sales harm both producers and movie theaters because profits rely heavily on box office sales.

The US government and trade organizations are looking for any possible leverage.”

Aynne Kokas, assistant professor of media studies, The University of Virginia