On the Money Trail: Are Chinese Distributors Paying Producers What They Owe?

Follow me on Twitter @robcain or Sina Weibo @robcain, or connect with me on LinkedIn.By Robert Cain for China Film Biz

November 5, 2012

With the American Film Market going on this week, Chinese buyers are in town in L.A., haggling with non-Chinese producers over prices for their films and reportedly making record-breaking offers. As the non-Chinese producers enter into these deals, one thing that is sure to be on their minds is the concern as to whether Chinese distributors will pay them their fair, contractually negotiated share of box office receipts.

No other aspect of the film business is more important than collections, but when it comes to China, Hollywood has been uncharacteristically quiet on this topic. As far as I know there has been no public complaint from the studios, no claims of cheating, no audits.

Does this mean that producers are getting their fair share. The answer, I am certain, is an emphatic “no.”

This is an incendiary topic, one that few producers are willing to address publicly for fear that China’s major distribution companies will take offense and ban them from conducting further business in the PRC. None of the U.S. producers, studio executives or industry representatives with whom I’ve spoken on this issue would do so on the record.

But one bold Chinese producer did speak out, presumably because he felt he had nothing else to lose.

I’m referring to Hao Yaning, Chairman of United Film Investment, which co-financed and produced the Chinese comedy My Own Swordsman. China Film Group (CFG) released My Own Swordsman in 2011 to great success, at least for itself. Hao, who put up 30 percent of the film’s $2 million budget, was entitled to a commensurate 30 percent share of net distribution receipts, after marketing and distribution costs. But Hao claims he was paid only a minute fraction of what he was owed; although the film grossed at least US $30 million according to CFG’s reports (Hao believes the actual figure was more like $48 million), CFG paid him only US $800,000.

To put the numbers in context, distributor rentals in China typically amount to about 40 percent of gross after the exhibitor’s share and box office taxes are deducted. Using CFG’s figure of $30 million, then deducting an estimated $1.5 million for P&A (ad expenditures are typically very low in China), and another 20 percent (again, my estimate) for CFG’s distribution fee, that would leave a pool of at least a $8.4 million for Han and his company to share in. His 30 percent would amount, very conservatively, to over $2.5 million.

Hao believed that the profit pool was actually $16 million, not $8.4 million, and he was understandably less than thrilled with what he felt was CFG’s retention of at least 80 percent of the money it owed him (or at least 68 percent if we use CFG’s own numbers).

Fed up with the situation, Hao did what no one else had done before. In June he sued China Film Group, alleging that the studio violated a number of terms of their agreement for My Own Swordsman, including “severe falsification” of box office profit reports. Hao demanded that CFG pay him a sum working out to more than RMB 102 million, or roughly US $16 million.

A Chinese court accepted the case, which would never have happened unless higher-ups in the Communist Party wanted it to. Apparently, someone at or near the top has taken an interest in this issue.

For its part, China Film Group issued an aggressive statement of its own:

Before the courts have determined the relevant facts and passed judgment, United Film investment has repeatedly publicized remarks on CFG not giving the sufficient percentage to United Film as well as other complaints inconsistent with the facts. This has led to a serious misleading of the public, and has severely harmed the rights and interests of CFG. CFG retains the right to investigate legal liability on the part of United Film for severe infringement of CFG’s reputation.

CFG’s concerns are presumably less about My Own Swordsman and more about the potential grievances that could come from their major foreign suppliers in Hollywood (not to mention CFG’s own pending IPO, which could be negatively impacted by the lawsuit).

For their part those at the studios who spoke off the record had comments like this:

“I’m hearing the same things you’re hearing, that there is significant box office cheating going on.”

“Collection has been very slow in China, typically more than 90 days.”

“Skimming is one of the issues that’s an ongoing anxiety, it’s a reality of what’s going on not only in China but in a number of our territories.”

“China Film Group told us after a certain point that we had made enough money on our picture in China, and that even though the film was still making money they were not going to pay us any more.”

“The common wisdom is that there is skimming and under-reporting. No one knows exactly how much it is.”

As I wrote back in February, what I heard directly from box office reporting company executives was that skimming of receipts runs as high as 40 percent.

It’s not like the studios to stand by and do nothing when they believe they’re being short-changed. So what’s going on here?

For one thing, the studios do understand that this is a fraught and potentially dangerous issue for them in their most important international territory. As one studio executive put it, “The problem is that if you complain, you risk being put out of business in China.”

But the studios also have an ace up their sleeves, and they’re considering when and how to play it. The WTO memorandum of understanding on audiovisual products that was negotiated between China and the U.S. earlier this year includes a provision that allows U.S. companies to audit the records of Chinese distributors. Although they haven’t yet invoked this provision, one well-placed industry representative told me this:

The audit provision was a specific ask we had that was expressed through the United States government. It’s there because we want it and feel it’s important. There have been conversations about what to do and when and how to do it. We want to make sure we are able to conduct an audit in a way that will be definitive and dispositive.

This same individual told me that there have been cases in the past where several studios had concerns about whether full payments were being made, and there is an ongoing concern about the timeliness of payments, but he felt that “the process is getting back to normal.”

2012 has been an unusual year owing to the major changes wrought by the WTO MOU, and also because of the leadership transition that is now under way in the People’s Republic. The timing simply hasn’t been right for raising the collections issue. Once the dust has settled and China’s new leaders are in place, perhaps at some point early next year, the major studios will take action and enforce their rights to ensure that they are being paid properly.

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.

China’s Leading Movie Production Companies


by Robert Cain for China Film Biz

July 29, 2012

With their import quotas, foreign film blackouts, and other methods of market management, SARFT and the PRC government have made it abundantly clear that protection of local films and producers is a major Chinese policy goal.

Since Chinese protectionism is unlikely to go away, U.S. and other foreign producers who seek to participate in China’s booming film business will need to start engaging more with local Chinese companies.

There are several thousand licensed production companies in China (more than 1,500 in Beijing alone), so outsiders need systematic ways to narrow their lists of potential collaborators down to manageable size. One such method is to measure companies by their respective market shares. That’s my purpose here.

I’ve listed below China’s top production companies by their market share during the first 7 months of 2012. In calculating market share I’ve attributed each Chinese language film to a single production company, even though in some cases there were as many as 15 production companies credited on a single film. In such cases I’ve attributed credit for the film only to the company that received the first position credit. Co-productions with foreign companies are attributed to the mainland Chinese partner.

ImageSource: Pacific Bridge Pictures research

Here’s more detail on the top five:

Ningxia Film Group

Ningxia Film Group is the official government owned production company of Ningxia Autonomous Region, a tiny northern Chinese province that borders Inner Mongolia. The company landed at the top of this list by virtue of a single film, Painted Skin: The Resurrection, the only film it has ever produced. Ningxia’s President, Hong Yangtao explained that he had only one chance at making a movie: “We shot this film to survive.” His strategy for producing and launching Painted Skin 2 has resulted in mainland China’s most successful film ever, so it’s very possible that Ningxia may avoid the fate of becoming a one-hit wonder.

China Film Group

With all of its financial strength, distribution clout, and government influence, it’s surprising that China Film Group’s production division has managed only a 3 percent share of its home market this year, far less than any one of the Hollywood studios have captured in China. The Beijing-based company is a government-owned behemoth that is far more influential in the distribution sphere, where it has played a role in releasing 19 of the top 20 grossing films of 2012. Under its Chairman Han Sanping, CFG is preparing for an upcoming IPO.

Huayi Brothers

China’s most powerful independent (i.e., non state-owned) entertainment conglomerate, Beijing-based Huayi Brothers is a diversified company engaged in film and TV production, distribution, theatrical exhibition, and talent management. Huayi Brothers trades on the Shenzhen stock exchange at a market capitalization of US $1.5 billion. The company’s Wang Brothers are skilled at attracting top directors, and they consistently rank among China’s market share leaders. If any Chinese company can challenge Hollywood’s studios for market dominance in China, Huayi Brothers is certainly a top contender.

Bona Film Group

Like Huayi Brothers, Beijing based Bona Film Group is also an independent, publicly traded company engaged in both production and distribution of films. Trading on the US NASDAQ exchange, Bona’s current market capitalization is US $345 million. Under President Yu Dong the company has been a reliable supplier of blockbuster hits in recent years, and usually captures at least a 10 percent share of the domestic market. Bona is one of the more internationally-oriented Chinese companies, with interests in Hong Kong and the United States, and is now 20 percent owned by News Corp. Look to Bona to be one of the next producers of a crossover hit that breaks out internationally.

Enlight Media

Under CEO Wang Changtian, Enlight Media rarely mis-fires in its production and distribution of feature films.  Squarely focused on the action and romance genres, Enlight usually places several films in China’s top 20 grossers, and currently has in release the country’s fourth highest-grossing Chinese language film, The Four. Enlight is also a major player in China’s TV series production and distribution businesses. Under the leadership of its CEO Wang Changtian, the publicly traded, Beijing-based company has achieved a market capitalization of nearly US $1 billion.

Companies that didn’t make the top 15 ranking above but that are worthy of mention include Shanghai Toonmax, Stellar Pictures, Xiaoxiang Film Group, Henan Film Studios, DMG Entertainment, and Dadi Films.

Too many production companies are competing in China for scarce resources—and for even scarcer quality scripts. If the PRC’s film regulators are serious about making their domestic industry more competitive, they should focus less on protectionist measures and more on encouraging consolidation and cooperation among the industry’s disparate players.

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.

Interview on Hollywood’s China Aspirations

July 14, 2012

China Business Review,” the magazine of the US-China Business Council, recently published a feature story written by Editor Christina Nelson titled “Hollywood’s Script in China: Three experts discuss China’s rapidly evolving film industry and opportunities for US entertainment companies.“  In addition to attorney Mathew Alderson of Harris & Moure, pllc, and Brent Reynolds of distribution company Q Global Entertainment, I was also interviewed for the article, which reviewed recent developments in China’s film industry and in the U.S.-China film trade.

With the author’s permission I have re-published below the segment of the article in which Christine and I discussed co-production, piracy, and the challenges and benefits of producing in China.

There has been a lot in the news about Hollywood studios doing co-productions in China. Is there actually an uptick in this trend, and why would a film studio decide to pursue a co-production?

Cain: There’s certainly been an uptick in talk and announcements. The reality is there have been very few real US-China co-productions. You can really count on one hand the number that have been done in the last three or four years. What people tend not to know or talk about is that there’s a huge co-production business in China with companies from other places like Hong Kong, Taiwan, and [South] Korea.

The reasons for doing a co-production are pretty clear. There’s still a—and I think there will be one for a while— quota on the import of films into China. Even with the increased number of slots that are expected to open up this year, [the Chinese government is] still restricting the number of films that can get in. So doing a film as a co-production is a way of getting around the quota. If films qualify as approved co-productions then they are treated just like any domestic production with open access to distribution. And the other important reason is the economics are better. You get a better share of the box office.

Are American companies trying to model themselves after companies from Hong Kong and Taiwan that have done co-productions before?

Cain: No, in fact I’m not sure how aware they are of the existing, pretty successful approaches. Particularly in Hong Kong and Taiwan, there’s such a cultural affinity and understanding. They speak the same language, and it’s easier for them to work with each other. They also, in my experience, come with more of an attitude of meeting the Chinese producers at least halfway and making an effort to understand what their needs and the needs of the marketplace are. They really tailor their films and their approach to be successful in China. The Hollywood studios are still trying to figure that out.

Are we going to see more Chinese characters or plotlines that fit with Chinese traditions of storytelling in Hollywood films?

Cain: I think there’s an awareness in Hollywood that they need to figure out how to cater better to the Chinese audience. What I’ve been hearing is there’s been more activity around US-China co-productions. I don’t know what the result is from those conversations. But generally speaking, I think the studios are at least at the point where they now understand how quickly China is growing, and how important it’s becoming. You can’t ignore the numbers because they’re growing so fast. How that’s translating into effective action, I’m not sure. I haven’t seen very much of it yet.

Is piracy still a big industry concern? If so, what can you do about it as a foreign company?

Cain: There’s been a huge amount of pressure applied for many years. It is still a concern. It’s interesting that where online piracy is also a big problem at least there is a lot of spending and legitimate acquisition of film titles by online distributors. So where there was no money coming back to the studios from that, at least there’s some revenue stream [from online sources] and it’s one that’s growing from China. So much of the viewing in China has shifted from physical media to online—that change is happening really quickly.

What is it like to work with a Chinese company to make a movie? What are some of the challenges and benefits of doing this?

Cain: I’ve really enjoyed the experiences I’ve had working with the Chinese producers and crews. I can’t really say I’ve had any more problems or challenges than I’ve had elsewhere. The difficulty in working there is the infrastructure for making films is still at an early stage of development, and the talent pool is not very experienced yet. There are great film-makers and great writers, but there just aren’t many of them. It’s hard to find people at the level of skill and professionalism that you’re accustomed to finding here in Los Angeles. And that goes all the way down the line, sourcing cameras and equipment and sound stages. But that’s changing; there’s been a lot of investment in China so it’s getting better. It’s an issue that’s going to go away as they make more films there and get more experience. The opportunity, of course, is just to show a part of the world that people are eager to learn about and understand. They are also phenomenal locations. I made a couple of productions in Beijing and Shanghai, and they are really spectacular locations. Just having access to such a big and growing market is a real plus.

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.

SARFT’s Toothless Censorship Salvo


By Robert Cain for China Film Biz

July 12, 2012

In the past few years China’s streaming video sector has grown into a huge, nearly censorship-free entertainment zone, the platform of choice for hundreds of millions of viewers who have turned away from the watered-down, propagandized—and for many, unwatchable—fare that fills the PRC’s broadcast airwaves. China’s equivalents of Youtube, Netflix and Hulu comprise a multi-billion dollar industry that thrives on offering genuine entertainment, replete with the sex, violence, swearing, and other sins and vices that offend the Chinese Communist Party’s (CCP) notions of what is ‘appropriate’ for its citizens.

It came as no surprise, then, when China’s morality watchdog, the State Administration of Radio Film and Television (SARFT), proclaimed this week that websites must henceforth pre-screen all videos—particularly made-for-web dramatic series, ‘micro movies,’ and user generated content—before making them available online. In its “Notice on the Further Strengthening of Regulations on Online Dramas, Micro Films and Other Online Audiovisual Programs”, SARFT expressed its concerns and its rationale for tighter controls:

“In recent years, online dramas, micro films and other online audiovisual programs have developed rapidly as a new form of online culture. But problems of vulgarity, tastelessness and dramatization of violence and sexuality have appeared in some programs, some are full of vulgar language, and some intentionally pander to base interests . . .”

SARFT goes on to say that it holds site administrators responsible for violations of its policies, and that it expects these administrators will remove “all violence, pornography and some swearing.”

SARFT’s pronouncement, which was articulated in a published series of answers to reporters’ questions, was not so much a statement of new policy as a reiteration of an old one. Everyone who can click on a web video link knows that salacious content is prohibited, and the providers of such videos are well aware that they have been trafficking in contraband. But the rewards for distributing such populist content have been so bountiful, and the risks so minimal, that web vendors have seen no reason to curtail the flow of illicit entertainment. Without it, they wouldn’t have much of a business.

As I see it, SARFT’s proclamation is really a giant admission of failure and frustration that it has become impossible for the censors to do their job, that the task of policing video on the internet is just far too big. As David Bandurski wrote for the University of Hong Kong’s China Media Project, “It remains to be seen how SARFT intends to enforce these regulations, particularly in the case of user-generated content. “If followed to the letter, [compliance] would require massive resources.”

The tension between the CCP’s desire to shut out all undesirable content, and the general population’s desire to access information and entertainment, has clearly reached a critical point. Although SARFT justifies its regulations by citing the concerns of unnamed “netizens” who had urged it to take action to protect young people’s mental health, a review of China’s blogging sites in fact reveals a heavily negative reaction to the SARFT pronouncement. As a reporter for Guangzhou’s Southern Metropolis Daily newspaper vented on Weibo: “You even want to concern yourself with the number of flies in the latrine! What is there that you don’t want to control? There’s not a single thing you can manage properly! And you still think the world will stop spinning if you don’t control it.”

Something’s got to give. Either SARFT shuts down the Chinese Internet completely, a highly improbable scenario, or the CCP learns to make peace with the fact that it can’t possibly exercise control over every single human impulse of its 1.3 billion people.  With a new leadership regime set to take power starting this Autumn, we’ll soon see which way the PRC’s political winds will blow.

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.

“Painted” Skins the Competition with Sophisticated Strategy and Superior Marketing


by Robert Cain for China Film Biz

July 5, 2012

Bang the gong, break out the champagne, and set off some extra fireworks, because China finally has a bona fide, home-grown blockbuster hit.  Painted Skin: The Resurrection (画皮2, or Painted Skin 2), the $18 million sequel to the 2008 smash Painted Skin, last weekend became the first non-Hollywood film in nearly 6 months to beat out the foreign competition and place first at the Chinese box office, with a record-breaking gross of $47 million in its first 4 days.

Set in the late Qin-early Han period in China’s history, Painted 2 is an action-fantasy-romance based on a classic Chinese story about a female demon whose great desire is to become human, even though the transformation must come at great cost. “The Hollywood Reporter” called Painted 2 visually impressive, albeit uneven in its storytelling: “The result is a roller-coaster of a film that will divide audiences particularly along gender lines, having greater appeal for female viewers both because it is fundamentally a love story with a noble, long-haired, romantic hero, and thanks to the presence of four strong and powerful women characters who run the show.”

Even though there were no new Hollywood releases last week to stand in the way of Painted Skin 2, the film’s box office performance was nevertheless impressive on many levels. Skillful packaging, an enlightened production approach, and solid marketing combined to generate the best opening day, best single day gross, and best weekend ever by a Chinese language film. In PRC box office history only Titanic 3D and Transformers 3 have opened more strongly than this new China-Hong Kong co-production. Chinese producers would do well to study and emulate Painted 2’s overall strategy, which included the following elements:

1. Astute packaging. The film features an array of top Chinese stars—Zhou Xun (The Great MagicianFlying Swords of Dragon Gate), Zhao Wei (Eternal Moment, Love), Chen Kun (Let the Bullets FlyFlying Swords…), and Feng Shaofeng (White Vengeance)—who together deliver large, complementary fanbases across a wide range of ages and demographics. And director Wuershan, who last directed the martial arts comedy The Butcher, The Chef and the Swordsman, also brings a following as an emerging director to watch.

2. Adroit audience targetingPainted 2 was developed to target female Chinese moviegoers, who are largely underserved and who had proven their attractiveness as an audience for films like Love is Not Blind (US $55mm gross) and Eternal Moment ($31mm). With its themes of romance and beauty, and with its story centered on two female friends, Painted 2 admirably filled a lucrative niche in the marketplace.

3. “Producer-centric” model. Painted 2 producers Pang Hong and Huayi Brothers chose to avoid the usual Chinese director-centric filmmaking approach, which places ultimate control and decision-making authority in the director’s hands, in favor of a more Hollywood-style approach. They executed a market-oriented strategy in their selection of director, their screenplay development, their choice of release date, and their investment and production management. The film’s success makes it a shining example of the advantages of the “producer-centered” model and its applicability in China, and it could have a long-lasting impact on Chinese film production.

4. Production Value—on a budget. With their $18 million budget, Painted 2’s producers had enough money to make an ambitious film by Chinese standards, but not enough to compete with the world-class effects and production values of the Hollywood films that have attracted—some would say ‘spoiled’—so many Chinese moviegoers of late. So they opted for what they termed an “Oriental Magic” look, an impressionistic visual effects style that allowed them, in the words of director Wuershan, to “make Harry Potter on a Black Swan budget.”

5. Sophisticated marketing. The marketing campaign for Painted 2 began when the cameras started rolling, with the release of a popular phone and ipad app that allowed fans to apply to their favorite photos the golden half mask worn by Zhao Wei’s character, Princess Jing. Additional tactics included wide distribution of teaser trailers in November 2011 and in March and May of 2012, high profile, buzz generating screenings at Cannes and the Shanghai Film Festival, outdoor advertising on the world’s largest LED screen (a 63 meter high screen on the side of a Shanghai skyscraper that was seen by as many as 1.5 million people every day), a 3D only wide release strategy on over 3,000 screens, and heavy social media promotion through Sina Weibo and other online platforms. The marketing team even took advantage of publicity regarding the reported on-set tensions between the two female leads, and of public speculation about who might be the mother of the leading actor’s illegitimate son. Finally, Painted 2 benefited from fortuitous release timing, opening at the beginning of a three-week window that will have no competing Hollywood releases, until the belated Twilight: Breaking Dawn – Part I opens in late July.


After months of nail-biting over their shockingly shrinking share of the domestic market, Chinese filmmakers can breathe a little easier this week in the knowledge that all is not lost. The lessons of Painted Skin: The Resurrection are that, by using innovative approaches to producing and marketing their movies, and by selectively adapting Hollywood tactics to the realities of the Chinese market, producers in the PRC can regain their share of the Chinese box office.

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.

China Exhibits Modest Appetite For “Hunger Games”


by Robert Cain for China Film Biz

June 21, 2012

Lionsgate’s Hunger Games debuted last week to a middling $10.4 million box office total over its four-day opening in Chinese theaters, edging out Madagascar 3 ($8.8 million in its second week) for the #1 spot during the week ending June 17th. This marked the 22nd week in a row that a Hollywood film has topped the Chinese box office, and the 7th week in a row in which the top 3 spots were all occupied by American movies.


During the just ended 13-week Spring quarter, U.S.-made films dominated the Chinese market like never before, taking 82 percent of all box office receipts. Domestically made Chinese films barely managed to eke out a 10 percent share, with only one local film, Galloping Horse’s action comedy Guns ‘N Roses, qualifying as a bona fide box office success, ranking 7th among all releases in the quarter with a total gross of $24.4 million.

The rapidity with which homegrown Chinese films have been marginalized in their own market has been truly startling, and has left local producers, financiers and exhibitors confused and nervous for the future. Speaking this week at the Shanghai Film Festival, prominent film director Lu Chuan, (The City of Life and Death) warned that “2012 is a very dangerous year for the Chinese film industry. What if we are defeated in every season by foreign films? Nobody would like to invest in our films anymore.”

The trend should be equally worrisome for foreigners exporting their movies to China. Even though they may be winning the box office battle in the short term, there will be deleterious long-term effects if the domestic Chinese film production industry is suffocated by imports. On the one hand, theatrical revenues will only continue to grow if there is a balanced mix of local films and foreign ones; if there are just 34 imported films each year that draw meaningful business, then revenue will plateau as commercial breadth stagnates.


And on the other hand, backlash from the sensitive state-run government movie administration seems ever more likely as frustration grows over China’s inability to reliably make films that anyone wants to see. State measures designed to crimp the dominance of Hollywood films could be quickly and easily implemented as a way to quell the Communist Party’s persistent concerns about the encroachment of western culture.

Censorship continues to be a major handicap for Chinese filmmakers, who are severely limited in their choices of topics, genres, and overall permission to portray truly human characters and situations that reflect life as audiences recognize it.  In a recent article for China’s “Global Times,” screenwriter Xiao Yezi explains that he often feels he is “dancing in chains” because of the severe restrictions that shadow his choices of story topics. As Xiao puts it, “Without breaking the hidden rules that damage the authority and rights of writers, it’s impossible for Chinese entertainment to satisfy even the domestic audience, let alone become popular elsewhere.”

As of this writing, it has been 8 weeks since a local Chinese film opened with even $2 million in nationwide receipts, and the numbers continue to fall at an alarming rate as Hollywood’s film releases predominate. But far from congratulating themselves, American producers and distributors should be scrambling for ways to help jump start the local Chinese cinema before they find they have completely worn out their welcome.

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.