Update: Auditing China After $12M Paramount Fraud

China Film Group

Fraud Allegations

The MPAA is pushing for new auditing policies that will allow internationally recognized firms to audit box office receipts in China after Paramount uncovered fraud worth $12 million on Terminator: Genisys.

Over the last months, the Motion Picture Association of America (MPAA) and China film regulators have been locked in closed-door negotiations to address two concerns – box office fraud and expanding the number of non-Chinese films permitted to be distributed on the mainland.

The largest fraud to date was discovered on Universal’s Furious 7, which exceeded $32 million. In both cases, revenues were diverted to the balance sheets of local films to inflate their value. The distributors involved are government-backed (China Film Group and China Film Distribution, respectively), which makes monitoring and enforcement a diplomatic minefield.

On Transformers 3, China Film Group (CFG) didn’t split on the last 200 million RMB in receipts with Paramount. When it came time to split the receipts, 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 kept the last 200 million.

Rate Cards for Pay-TV and SVOD licensing agreements between Starz and Sony Pictures Television for past, present and future content.

The SPC Advance Report includes licensed guarantees for 175 films released by Sony Pictures Classics, spanning all major genres.

Independent Film Audits

A comprehensive film auditing agreement is planned for early 2016, but neither side has openly discussed the matter. As China’s market slows, business executives, especially those with close ties to the government, will be under intense pressure to maintain revenues. It would not be surprising if the talks break down, thus negating independent auditing rights.