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By Firedeep and Robert Cain for China Film Biz

November 7, 2012

This is the first part of a two-part article. Part 2 can be found here.

Today marks the one-year anniversary of the launch of China Film Biz, and this is the 100^th China Film Biz post I’ve published.

In honor of these events, I’m publishing a comprehensive set of articles about China’s film distribution ecosystem, which I think you’ll find useful. I’ll publish the article in two parts, with today’s post offering a glossary of concepts and definitions and an overview of the industry’s major players; a subsequent article will discuss such topics as release dating, releasing, marketing and advertising, box office reporting and revenue sharing.

In part 1 we’ll begin with a few concepts and definitions.

SARFT and the Film Bureau
The State Administration of Radio Film and Television, referred to as SARFT, is the executive branch under the State Council that oversees all Radio, Film and Television content within China. More on Wiki…

Sarft is a giant government institution. It has a Film Bureau that specifically focuses on motion pictures.
China Film Group Corporation (CFGC or CFG)

China Film Group Corporation, often referred to as CFG, is a stated-owned conglomerate that has the exclusive right to import foreign movies to China. CFG is also the biggest producer of local and co-production films and the biggest distributor of local and foreign movies in the country.

Huaxia Film Distribution Co.,Ltd
Launched in March 2003, Huaxia is the second and only other distributor of foreign movies aside from CFGC. Huaxia Film cannot import movies, and its distribution strength is not as great as China Film Group’s.

Revenue-shared movies
Imported by China Film Group and distributed by CFG or Huaxia Film or both, a revenue-shared movie is a film imported from abroad under terms that allow the foreign supplier to receive a defined share of the film’s Chinese theatrical gross. Usually only major Hollywood movies can be imported as revenue-shared movies. The first revenue-shared movie, Harrison Ford’s The Fugitive, was released on November 12^th, 1994. After that there were 10 revenue-shared movies allowed to reach Chinese theaters every year. In 2002, this annual quota was raised to 20 revenue-shared movies. In 2012, the quota expanded to 34, 14 of which must be 3D or IMAX films.

Buyout movies
A buyout is a foreign movie acquired by a Chinese local distributor at a fixed price to be released in China. The buyout prices usually range from tens of thousands to hundreds of thousands dollars.

The first movie buyout occurred in the mid-1980s when China Film Group bought the theatrical release rights for Superman (1978) from Warner Brothers at a price of $50,000. Most buyout movies are handled by Chinese local film distributors. China Film and Huaxia Film also do a few buyout deals each year. Usually local distributors seek foreign films via film festivals and markets like Cannes and AFM, or oversea producers offer their films to local distributors seeking cooperation, and the local distributors submit the film to China Film for import licenses. After receiving the import license, the local distributor hands the movie over to China Film or Huaxia Film for the distribution. That being said, it is the local distributors who who do the actual distribution work. China Film or Huaxia Film do little more than to provide the distribution authorization, for which they receive about a quarter of the movie’s gross.

There are two kinds of buyout movies: 1) one-time buyout ones (as introduced above); most buyouts belong to this category; 2) revenue-shared buyout movies, which are handled the same way as above but the foreign producers can receive revenue share in addition to the buyout price when the films’ Chinese theatrical gross reaches a certain level. This September’s hit, The Expendables 2, and Relativity Media’s Immortals and Mirror Mirror were all revenue-shared buyouts.

Buyout movies weren’t common until 2005 when the buyout quota expanded to 30. Only 4 or 5 of the buyout quota films can be Hollywood/American films; the rest must come from Europe, Hong Kong and Taiwan, South Korea, Japan, Australia, India, Latin America, etc, or from multinational co-productions.

CHINA FILM DISTRIBUTION AND EXHIBITION ASSOCIATION
A subsidiary body of SARFT referred to herein as the ASSOCIATION, made up of over 3,000 local distributors and exhibitors, is in charge of dating all films and overseeing the entire run of all films.

Hollywood Majors in China
Disney, Paramount, Sony, Twentieth Century Fox, and Universal all have branches in Mainland China, while Warner Bros does business in Mainland through its Hong Kong based branch. Among the majors Universal is the weakest in China.

Disney is building a $16 billion theme park in Shanghai while DreamWorks Animation is planning a $3B studio in Shanghai too.

Currently, Disney, Paramount, Sony and Fox all are doing strong business in China. In the long run, it appears that Disney might be the biggest player here. 

The Office of China Film Special Funds
This subsidiary body of the Film Bureau, referred to as China Film Special Funds, is responsible for box office statistics in China. It collects 5% from every film’s theatrical gross as special funds for supporting local film production and theater construction. One thing to note is that the 5% they collect is not counted as part of theaters’ business tax.

More to come in Part 2.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.