Film News

Holy Tax Fraud! China’s Box Office Grosses May Be Under-Reported By At Least 10%

You know how China reported a collective box office gross of $3.6 billion from all films playing in the territory last year, marking a 28% improvement over the prior year?  Okay, maybe you didn’t know those exact figures, but it has become common knowledge over the past couple of years that at its current rate of growth China will overtake the U.S/Canada as the leading market for film around the world in the next decade or so.  Funny thing about that: they’re actually making more money from movies than they’ve let on.

That probably makes it sound more conspiratorial than it actually is.  The truth of the matter is this comes down to old fashioned tax evasion.

According THR, since the start of 2014 the China Film Producers’ Association and the China Film Distribution and Exhibition Association have been forced to punish 22 different theaters for “manipulating revenue data, viewership figures and other forms of fraud related to ticket sales.”  It turns out this type of thing has been a problem for a while, but it’s only this year that China has started to seriously crack down on it, with the State General Administration of Press, Publication, Radio, Film and Television (SGAPPRFT) releasing a new standard for box office reporting to the theaters this past January.

It’s rather simple, really: China is an insanely booming market for film right now, and some of its local theaters would rather keep as much of the profits from ticket sales as possible instead of submitting it to local taxation laws.  So, they’ve been reporting artificially reduced ticket sales.

Eventually we’re going to have to start  giving our big Chinese film stars actual lines in their big budget American film cameos

Hollywood would very much like them to stop doing that because as impressive as it sounds to say that something like X-Men: Days of Future Past has grossed $79 million in China alone you have to remember that it’s impossible to know for sure how much of the money ever makes it back to the studio.  As per a recent article, super-analyst Edward Jay Epstein “went through the studio books and found that distributors only get one out of six dollars made overseas,” though that might be undergoing a slight improvement as of late.

We are already in an era where Hollywood is not so concerned about how well a film will play in middle-America but how well it will play in places like China, the U.K., Japan, France, South Korea, India, and Russia (the 7 leading foreign markets).  This is a time when a $200 million budgeted blockbuster like Pacific Rim can struggle to reach $100 million in the United States/Canada but do so well everywhere else to most likely warrant a sequel.  As a result, we’re getting stuff like X-Men: Days of Future Past setting most of its future story line in China and highlighting Chinese megastar Bingbing Fan as one of the film’s coolest characters, or Iron Man 3 featuring entire scenes which were only shown in China.

So, with such a premium being placed on foreign gross the studios would sure like it if they could actually trust the box office figures they’re hearing come out of China.  As it stands, THR’s cites unnamed experts who believe China’s total box office figures were under-reported by at least 10% last year.  Remember that Hollywood films accounted for 40% of China’s official $3.6 billion collective gross for 2013.  So, if that $3.6 billion was not an accurate reflection of just how money was made from films in the country the Hollywood studios were cheated out of millions, and the same goes for the Chinese government and local Chinese film industry.

That seems like kind of a big deal, but has thus far remained a rather quiet story.  The same thing happened just last year when THR revealed in August that due to a tax dispute the China Film Group had been refusing to release the profits owed to the Hollywood studios since as far a back as October 2012.  The Hollywood studios were so loathe to anger China they just kept releasing their films in that country all the while hoping that someday they’d get their share of the profits for big hits like Man of SteelThe Hobbit: An Unexpected Journey, Skyfall, Iron Man 3, Star Trek Into Darkness, Life of Pi, and Fast & Furious 6.  By the time the dispute was settled the China Film Group had to pay out over $150 million in accrued gross to the various Hollywood studios.

That’s behind us now, but considering this news of illegal skimming by the local theaters we have to look at the increasingly impressive numbers for Hollywood films in China and wonder, “That sounds impressive, but how much money did it actually make?”  Not even the Hollywood studios know that for sure.

Sources: io9, THR

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