Unofficially Relaxing Film Quotas in China
The unofficial expansion of the Chinese film quota system is taking place right now.
The official number of revenue-sharing films permitted by the Chinese government to be imported and distributed is 34. Before 2012, only 20 films were granted distribution on a revenue sharing basis versus a flat-fee.
As of mid-November 2016, there have been over 40 revenue-sharing films distributed.
A spokesman for the Chinese film bureau contested that the quota had been expanded since some of the films were deemed “cultural exchange projects.”
Once Oscar-nominated and independent films start screening, China would have allowed at least 50 foreign films to screen in 2016, although not officially.
China’s Box Office Slump
The reason for the government’s liberal attitude towards film quotas is plummeting box office receipts on the mainland.
After the box office had grown 49% from 2014 to 2015 to reach $6.79 billion, many projected that 2016 receipts would reach $9-10 billion.
Box office revenue in China is likely to remain flat compared to last year.
The film market correction is a sign of oversupply and slowing consumer-spending trends. Anti-corruption measures have also had an impact on box office revenue reporting.
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Quota System Background
Under the current quota system, 34 foreign films are granted a 25% revenue share of box office receipts. More films beyond the official 34 can be exhibited, but only using a flat-flat calculation.
In recent years the number of slots available for non-Chinese films has nearly doubled with a much-lobbied-for agreement in 2012 expanding the number from 20 to 34.
All but a handful of the slots go to Hollywood franchise films.
Arbitrary Business Practices
In the United States, distributors typically receive 45-52% of box office receipts from exhibitors, i.e. theaters. In Europe and most of the world, the theatrical split can shrink to 35-45%
However, China’s 25% is the lowest and least transparent; and having a revenue-sharing agreement is not guarantee to share all of the revenue.
During the exhibition of Transformers 3, China Film Group (CFG) refused to split the last 200 million RMB in receipts with Paramount. CFG informed the U.S. studio that because it had already made more than enough money, their share would be limited to the first 900 million RMB.
CFG retained the last 200 million without splitting with Paramount.