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Foreign Films in China: How Does It Work?

BY JONATHAN PAPISH | MAR 2, 2017

If you’re a non-Chinese film producer (a foreign film producer from the Chinese perspective), and you hope to exhibit in China and add its robust market to your revenue picture, there are basically two different ways for that to happen.

Import Quota

Since 1994, the government has allowed foreign films to show in Chinese cinemas as fenzhang pian (分账片), or on a revenue sharing basis. These are films distributed almost exclusively by Hollywood’s Big Six studios (Walt Disney, Warner Bros, Paramount, Fox, Sony, and Universal).

Films selected to show in China and share the local earnings in this model are commonly known as import quota films, because the government limits the number of foreign films that can come into the country in a given year. Originally, from 1994-2002, the quota was ten films per year; in 2002, as China prepared to enter the World Trade Organization, the quota was increased to 20 films per year, and in 2012, it rose again to 34 films annually, 14 of which were to be screened in 3D or IMAX formats.

Per the original mandate governing the import quota, films selected would “basically reflect the finest global cultural achievements and represent the latest artistic and technological accomplishments in contemporary world cinema.” Luckily for the makers of popcorn movies, however, these criteria are less strictly enforced than the quota limit itself. And even that number appears to have some flexibility, because in 2016, a record 39 films were allowed into the China as revenue sharing films.

According to the most recent agreement signed by the MPAA and China Film Group in late 2015, rights holders of revenue sharing imports receive 25% of the net box office revenue without any additional withholding for taxes or marketing expenses. The two sides are scheduled to enter new negotiations later this year, and Hollywood will be pushing for even further increases to the import quota, as well as a higher percentage of the box office

Flat fee/Buy-out

The second means for the importation of films into China is the so-called maiduan pian (买断片) or pi pian (批片) model, otherwise known as flat fee or buy-out films. For films not chosen as imports, Chinese distribution companies can negotiate a fixed price with the film’s producer for local rights, after the payment of which the Chinese distributor gets to keep all Chinese revenue. The buy-out price is rarely that high—the record is believed to be the $7 million paid by Leomus Pictures for Resident Evil: The Final Chapter—but of course it’s better than nothing. SAPPRFT is said to maintain a floating, unofficial release quota for buy-out films, so that these too, are limited in number: in 2016, a record fifty-one films were shown in China this way, up from thirty-three in 2014, and twenty-eight in 2015.

Compared with revenue-sharing films, which typically skew towards megabudget Hollywood blockbusters, recent buy-out titles have included films from other foreign markets such as Russia (I Am Dragon), South Korea (Assassination), Japan (Your Name), France (The Little Prince), and India (PK), as well as Academy Award winners (The Revenant, Hacksaw Ridge) that wouldn’t ordinarily qualify as quota imports.

Recent reports in The Hollywood Reporter and Deadline.com that Wanda had “taken an equity stake” in The Weinstein Company’s awards contender, Lion for distribution in China seemed to fundamentally misunderstand the nature of this model.  The payment from Wanda simply represents the buy-out cost for the film’s Chinese rights.

Flat fee/Revenue Share Hybrid

In recent weeks, a new scheme has emerged, a hybrid buy-out/revenue share model in which the local Chinese company acquires distribution rights, but essentially acts as a conduit for the state-backed China Film Group. Here, in a system that more closely resembles a traditional foreign sales model, the original rights holder is entitled to share box office revenue with China Film Group above and beyond the initial advance, with the local distributor taking a cut as the “distribution agent.” Resident Evil: The Final Chapter, which grossed $92 million on its opening weekend and was allowed to share in Chinese revenue once it passed the RMB 500 million mark, was the first major success to employ this model. Likely, many other films will be following suit.