China’s Box Office Surges Ahead; On Pace to Nearly Double Japan This Year


By Robert Cain for China Film Biz

February 28, 2012

Several weeks ago I published an article asserting that China has surpassed Japan in box office revenue and is now, on a week-to-week and month-to-month basis, the 2nd largest theatrical market in the world after the United States. I forwarded this article to friends and acquaintances at several publications, including “The Los Angeles Times,” “The Wall Street Journal,” “The Wrap” and “The Atlantic Monthly.” To my disappointment and dismay not one of them picked up the story. I suspected that they and others doubted my figures were correct.

Over lunch in early February an acquaintance who runs international production for a major Hollywood studio confirmed my suspicion. He said he’d spoken with several of his executives and they told him that the numbers I was relying upon were wrong.

So I went back and double-checked my figures, and during the past few weeks while traveling in China I conducted further investigation. Having carefully studied the data and having interviewed a handful of experts in China, I must report that the studio executives were right, that my numbers were off. But not in the way they think.

My numbers for China, it turns out, were low; China is ahead of Japan by an even wider margin than I had thought, and it has been ahead for quite some time.

One major reason for the discrepancy is that I had failed to take into account China’s massive box office skimming. As I reported last week, according to most of the experts I consulted, as much as 40 percent of movie ticket revenue in China never makes it back to its rightful recipients, the distributors. If the ticket sales don’t get reported then they’re not captured in SARFT’s official figures, and so SARFT’s figures are too low.

But even if we disregard the skimming and rely on official figures—after all, the number that distributors care about is the amount that goes into their coffers—China still easily beats Japan by virtually every measure.

Comparing officially reported weekly box office results, China beat Japan in 7 of the first 8 weeks of 2012 (it also beat Japan in each of the last 3 weeks of 2011).  All told, China’s total gross for 2012 so far is 64 percent higher than Japan’s, at US $426 million vs. US $259 million.

2012 Weekly Box Office Results, China vs. Japan

Source: Pacific Bridge Pictures research

If skimming was indeed equal to 40 percent of gross receipts last year, then China’s real box office total for 2011 would have been close to US $3 billion, far ahead of Japan’s reported $2.2 billion.  While there may be some under-reporting in Japan, it is almost certainly modest compared to China’s, and there is little doubt that China has been out-grossing Japan for several quarters and possibly longer.

And why shouldn’t it? China now has more than 10,000 movie screens, with the number increasing daily. Japan, on the other hand, has only 3,400 screens and virtually zero growth. China’s box office for the first 8 weeks of 2012 was up by 49 percent relative to the same period in 2011; Japan’s was down by 3 percent .

Most important to those Hollywood studio executives I mentioned is how their own films fare in each market. And by this measure there’s no contest: China beats Japan hands-down. Each of the last ten Hollywood films to play in both markets earned more in China than in Japan, in most cases a lot more. The aggregate gross for the ten films in China was US $330 million versus $175 million in Japan.

Source: Pacific Bridge Pictures research (Note: Mission Impossible 4 ultimate China gross estimated at $107mm)

Assuming that Japan continues at its zero-growth pace for the rest of this year, and that China reaches $2.8 billion in officially reported revenues, the actual, unreported totals for 2012 would put China at $3.9 billion (2.8 billion plus 40 percent) and Japan at $2.2 billion.

So the question of whether China is bigger than Japan has been long settled. The real question now is how long it will take China to catch up with the U.S. It will happen faster than most realize, and when it does it will be too late for many to do much about it.

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.

Hands In the Cookie Jar: Chinese Box Office Skimming Said to Reach 40 Percent


By Robert Cain for China Film Biz

February 26, 2012

Back in the mid-2000’s when I spent three years in Russia setting up and running movie production companies, I often heard stories about exhibitors skimming revenues from the box office and reporting considerably shrunken figures to distributors. One audacious Moscow theater operator actually told me he’d decided that weekend revenues were his alone to keep, and that he shared only in the weekday receipts.

Having observed numerous similarities in the ethics (or occasional lack thereof) between the Russian and Chinese film industries, I’ve often wondered whether a similar phenomenon exists in China.

So when I traveled to the People’s Republic in mid-February I made a point of visiting several people who are in a position to know, and I asked them. Their unanimous consensus was that extensive exhibitor cheating exists in China, and those who are closest to the source assured me that under-reporting runs as high as 40 percent of total box office takings.

My interviewees included a theater owner/operator, a distributor, several entertainment attorneys, and most significantly, two box office reporting software company executives. Because box office skimming is a crime punishable by severe penalties, these individuals spoke with me with the understanding that they would remain anonymous.

Although I have no access to the underlying data, enough experts independently confirmed the 40 percent figure that I can publish it with some confidence, as outlandish as it may seem. Only the distributor thought this figure was too high—they were convinced that skimming runs no higher than 20 percent—but they admitted to having no real basis for backing up that assertion.

The parties closest to the data, the box office reporting software company executives, claimed to have deep knowledge of cinema sales and operations. They told me they have direct access to actual ticket sales figures and also to the numbers reported to distributors. They said that, although SARFT requires cinemas to install sophisticated point-of-sale reporting systems at all box office locations, there are several ways in which exhibitors can short-change distributors on rental revenues.

One software executive said that his company, which has a significant share of the market, actively helps theater operators to cheat. He builds ‘back-door’ mechanisms into his tracking software that allow monies to be diverted out of the officially reported revenue figures. He said that SARFT officials hate the cheating because it robs them of tax revenues and also, presumably, of the ability to funnel more money into their own accounts.

Another executive told me that online ticket selling, which accounts for a considerable share of movie ticket sales, also offers opportunities for mis-reporting. His company provides a platform for marketing, sales facilitation, tracking and delivery of tickets to end users, so he sees every aspect of the transactions. He said that theater owners offer bundled combos where a moviegoer can buy two tickets, two popcorns, and two drinks for say, 200 renminbi (RMB) (around US $32). The tickets would be worth 120 RMB if purchased separately, but the theater operator allocates 140 RMB in revenue to the popcorn and drinks, leaving just 60 RMB to the value of the tickets, thus cheating the distributor of 50 percent of their rightful revenue.

Sometimes the under-reporting is highly transparent and official. A theater operator told me that China Film Group collected 1.1 billion RMB from ticket sales for Transformers 3. But, as the story goes, when it came time to pay Paramount its share, CFG told the studio that because it had already made more than enough money on the movie, its revenue share would be limited to the first 900 million RMB in receipts. CFG would be keeping all the revenue on the last 200 million, and there was nothing Paramount could do about it.

Apparently China’s film industry officials have a strong sense of fairness about their business. But oddly enough, it only runs one way. I’ve yet to hear a story about a Chinese official saying they’d made too much money on a picture and consequently feeling compelled by a sense of fairness to give some back.

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.