China Gives Hollywood an Early Christmas Present

As Bloomberg reported last week, China’s propaganda ministry (now in charge of all media-related activity in China) has approved an additional seven foreign films to play in China this year in excess of the 34 film quota. These newly approved films will play theatrically on a revenue-sharing basis, and include the animated films The Grinch and Spider-Man: Into the Spider-Verse and the John Cho thriller Searching.

We have previously expressed our skepticism about China’s film quota system on a number of levels:

1. As an actual quota (the number of revenue-sharing films each year often exceeds the quota, at the Chinese authorities’ whim).
2. As a meaningful restriction on foreign films (foreign films are also allowed to play in China on a “buyout” basis, and as that market has become more competitive, the “buyout” terms for stronger foreign films have begun to approach the revenue-sharing terms asymptotically).
3. As a useful shorthand for the foreign film business in China (the quota applies to all foreign films, but its slots are largely taken up by Hollywood product; China unilaterally controls release dates and imposes unannounced blackout periods; and China has historically been months if not years late in making revenue-sharing payments).

Increasing the number of quota films is seen as a win for Hollywood and perhaps even a sign of conciliation in the ongoing US-China trade war. But those issues are ancillary at best. China does not care one whit about promoting American films and it is actively trying to bolster homegrown films while weaning Chinese audiences off Hollywood blockbusters. That said, Chinese officials deeply care about economic growth and are invested in the narrative that China will soon replace the United States as the top-grossing territory in the world for theatrical box office. And right now China simply does not have enough quality movies ready for theaters, so to meet its own box office projections, its path of least resistance is to bring in more Hollywood fare, because it knows demand for those movies already exists.

Bringing in more American movies to satisfy latent demand infuriates Hollywood, because it is patently obvious they could have a larger market share if China would only let American films play without restriction. A China free of content restriction will never happen and perhaps it shouldn’t. France and Canada (to name a couple longtime American allies) both have long-established and uncontroversial rules favoring local content. Canadian radio stations are required to ensure that a significant percentage of the content they play is by Canadian artists; for instance, commercial radio stations must have at least 35% Canadian content between 6am and 6pm on weekdays. This is also known as the Bryan Adams Guaranteed Employment Regulation. It cuts like a knife, but it feels so right.

But I digress. The point is that we shouldn’t expect China to grant American films unfettered access to the China film market, even when China does not have enough quality film content of their own.

Why doesn’t China have enough content right now? In part, this appears to be unforeseen consequence of the Fan Bingbing scandal. Once it became clear that China’s film and television productions would be under greater government scrutiny for tax evasion and other financial improprieties, a significant number of productions either postponed or shut down production. I will leave it as an exercise for the reader to divine the reasons, but we are now several months out and the amount of Chinese product is nowhere near what was expected.

The lack of Chinese content won’t last, but Hollywood still owes Fan Bingbing a big thank-you. They can start by getting Jessica Chastain’s 355 back on track.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.