China the world’s most populous country, is all set to maintain that rank again. And this time it’s for being the world’s biggest film market, likely to happen within next five years. This in turn would make China a potential source of vast profits for Hollywood studios. Here is the pun: This will happen only if Chinese decide to pay Hollywood studios.
As per recent reports, China had stopped paying Hollywood for its movies months ago. But in-spite of not receiving a penny of their box-office takings since the end of last year, Hollywood studios have been sending their big releases to Chinese cinemas. In many cases the withheld payments are supposed to total tens of millions of dollars. All this is an outcome of a dispute over a new tax.
Last year US Vice-President Joe Biden and China’s Vice-President Xi Jinping, had negotiated a landmark World Trade Organisation deal, relaxing strict restrictions on foreign film releases in China. As per the agreement, two things were decided upon. First is Beijing agreed to allow more overseas movies to be screened in Chinese cinemas than the previous years. Secondly the share of box-office takings to be returned to US studios was increased to 25%.
However towards the end of 2012, the state-run China Film Group informed studios that it intended to charge a 2% value-added tax on each film release. Hollywood studios refused to pay the VAT, stating that it breaches WTO deal. As a result of this, Western studios have not received the agreed 25% of Chinese box-office earnings for some of this year’s biggest releases. Warner Brothers is yet to receive more than $31m for blockbusters including Man of Steel and The Hobbit, while Sony has not received anything for its James Bond movie Skyfall. Some more examples include Disney that is supposed to receive $30m for Iron Man 3 alone that made over $121m in China. Similarly 20th Century Fox is still waiting for an estimated $23m return for Life of Pi.
Over the years, dealing with China has been difficult for Hollywood film-makers who are now forced to abide by the fancies of Chinese censors. Several films have been banned with little or no explanation at all while others have been withdrawn from screens in a moment’s notice. Nevertheless, US studios are more anxious than ever to please the Chinese audiences who are becoming crucial with time, and the censors who control what they see. Several Hollywood blockbusters are even altering their content to make them more attractive for Chinese market. Latest example of this is Iron Man 3.
The question arises for how long will this go on? Will it ever be solved? Chris Dodd, who now chairs the Motion Picture Association of America (MPAA) has taken the initial steps to resolve this dispute. He has reportedly reached the US Trade Representative. A source at USTR has reported that it’s working with MPAA and counterparts within the Chinese government to resolve the issue. Hollywood studios now have a new ray of hope in reviving their shares from Chinese market and enthrall Chinese audiences with even more better and bigger blockbusters.