China's box-office figures to be audited

SHANGHAI • The lobbying group for Hollywood's top studios is auditing China's box-office figures amid concern that ticket sales have been reported inaccurately, according to a person familiar with the matter.

The Motion Picture Association of America (MPAA), which represents the six major studios, hired an accounting firm to audit sales of selected films for the first time, said the source, who asked not to be identified as the matter is private.

The results may come as soon as the third quarter.

Results of the audit are important for studios such as Walt Disney Co and Viacom Inc's Paramount Pictures because hundreds of cases of revenue misreporting have been documented in China.

In revenue-sharing deals, studios receive 25 per cent of box-office sales, so getting accurate figures is vital.

In addition to films shown in China under revenue-sharing agreements, Hollywood studios export movies to the country on a flat-fee basis.

Ticket-sales growth slowed to less than 3.7 per cent in China last year, compared with an average of more than 35 per cent in the previous five years.

China is still growing faster than the rate of about 2 per cent for North America last year, according to MPAA data.

Hollywood's biggest studios have been counting on growth in China, where consumer spending on movies is expected to surpass that of the United States in coming years.

For example, Comcast Corp's Universal Pictures, Sony Corp's Sony Pictures and Paramount have struck deals with local partners to fund movies and help market them in China.

Others such as Time Warner Inc's Warner Bros, in collaboration with mainland companies, have started local-language productions.

Yet, the figures do not always add up.

In November, China approved new fines for falsifying box-office sales, in some cases as much as five times the illegal gains.

China's State Administration of Press, Publication Radio, Film and Television penalised more than 300 theatres in March for under- reporting ticket sales, the regulator said at the time.

The biggest penalties were 90-day suspensions of operations for exhibitors that understated revenue by more than 1 million yuan (S$203,000).

Theatres and distributors face revocation of licences in "very severe" cases, according to the law, which took effect in March.

The audit is part of a market- access agreement Chinese officials reached with the MPAA almost two years ago, details of which have not been disclosed to the public.

It would also fulfil a promise by the Chinese industry to American film-makers in 2015, during Chinese President Xi Jinping's US visit.

China Film Group, the state- owned giant in charge of importation and distribution of Hollywood films in China, pledged at the time to allow international auditing of box-office sales.

The check-up also comes as the US and China are set to revisit a 2012 World Trade Organization (WTO) joint memorandum on film distribution rights and as the MPAA seeks to increase the number of US films available to Chinese viewers.

Under the previous agreement, if this year's consultations fail to produce a deal by Jan 1, the US could pursue procedural action against China in the WTO.

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A version of this article appeared in the print edition of The Straits Times on June 28, 2017, with the headline 'China's box-office figures to be audited'. Print Edition | Subscribe