The China Film Industry: An Update

Mathew Alderson, our lead China media and entertainment lawyer out of Beijing, was interviewed recently for a China Economic Review story by Hudson Lockett, entitled, 2015: The Year China’s Film Industry Doubled Down on Content. The full text of the interview is below, with the publisher’s kind approval.

CER: What were the biggest developments in China for cinematic IP during 2015 and in the year to date?
Alderson: In my opinion there were no particular developments. We simply saw the continuation of a trend in which the Chinese are prepared to pay more for the right to distribute foreign content. For instance, 2015 saw a big increase in fees paid for flat-fee imports. These are usually non-studio films outside the 34-film quota for revenue share imports. Tencent provides another example. In 2015 Tencent augmented its earlier purchases of Hollywood content by acquiring catalogues from Fox and National Geographic for streaming in China. In my view, this trend is supported by steady improvement in copyright protection. Chinese companies in particular are reporting greater success in administrative proceedings against pirates. These proceedings are run by government departments and not by the courts. The fines can be quite substantial. Copyright is now becoming a sword in the hands of Chinese rights owners. Chinese companies are not going to spend a lot of money acquiring rights from foreign sources only to let Chinese pirates in the next province free-ride on the investment. Up until quite recently it was only the foreigners that had this kind of attitude.

CER: How has the November release of a draft law on box office regulation changed the industry landscape, and are there any legal ramifications already being felt prior to the final version seeing daylight?
Alderson: It has not changed the landscape and there have been no legal ramifications as far as I can tell. As I said in my blog post on this at the time, “Fundamental changes to the existing regulatory framework, as it affects foreigners, are not proposed in the draft law. Foreigners will still be prevented from engaging independently in film production in China. Foreigners will still be prevented from engaging in film distribution in China. No mention is made of any lifting of the quota on importing foreign films on a revenue-sharing basis. Still, many of the changes would definitely streamline the official co-production process for foreign producers. There is also now express official recognition of the need for improvements in the system of film finance and the need for tax incentives for local producers.”

CER: Recent years have seen improvement in copyright protection — for example with takedown requests for content online. But 2015 saw some high-profile domestic films marred by infringement and plagiarism claims. Where does the disconnect lie in terms of enforcement on these two fronts?
Alderson: China’s takedown system works quite well but it does not compensate copyright owners for their losses. Once infringing content has been taken down that’s usually where the matter ends unless the copyright owner is prepared to initiate court proceedings. In that case the owner will confront the objection that a takedown provided, or could have provided, an effective remedy. It is very hard to prove copyright damages in Chinese court proceedings. A very low statutory ceiling applies if damages are not clearly proven. The result is that the threat of damages is not a deterrent to infringement. At the same time, foreigners have not been as successful as Chinese companies in seeking administrative relief for copyright infringements.

CER: There was some controversy last year when one studio executive suggested screenwriters should take a backseat to other sources of IP on the rise in China, such as online fiction. It may have sounded flip, but to what extent does that sentiment reflect real changes in how new IP is sourced domestically?
Alderson: I frequently hear that there is still a shortage of good screenwriters in China. We have not yet seen the emergence of a professional class of screenwriters supported by a guild, and represented by professional agents, as we have in Hollywood. The secretary general of the Guangdong Film Industry Association reportedly put it this way, “In the future, the model will be: we find out what you want to watch, then we make it for you. Only those investors who understand the Internet and mobile users will be able to turn a handsome profit from filmmaking.” I think he is right. Internet companies can use their access to social media, big data and online ticket sales to pick trends and test audience tastes. Whether the scripts will be of a high standard is another matter.

CER: In addition to the standard Hollywood blockbusters and domestic sequels, a few of 2015’s top performers at the box office had roots in streaming online sketch comedy, and one was actually crowd-funded. Are these reflective of deeper changes in audience interest and, as a result, industry funding?
Alderson: Yes. We are seeing domestic motion pictures emerging rapidly out of so-called online literature. The online space is surprisingly robust and vibrant here. If a relatively small proportion of the population shows interest in a particular idea or topic the population is so large that you are suddenly talking about a massive audience. This is what drives Chinese online innovation. There are about half a billion people online in China. They are all using handheld devices. They leapfrogged desktops and PCs just like they went straight to mobile without fixed line phones. For many of them, consumption takes place entirely online. This is not happening anywhere else in the world.

CER: Does January’s Wanda-Legendary deal represent something bigger for how IP is approached by Chinese firms at the national and global level?
Alderson: I don’t see a unique IP angle but it’s still a big deal.

Legendary Entertainment is a proven Hollywood production company. It’s Hong Kong affiliate, Legendary East, has a co-production deal with China Film Company, a powerful Mainland S.O.E. That same affiliate is now producing, for global release, a big-budget Chinese motion picture with a major Hollywood star and one of China’s most famous directors. A majority stake in Legendary Entertainment would give Dalian Wanda unprecedented production capacity spanning China and the U.S. The potential for the integration of this capacity with the theatrical exhibition reach of Wanda Cinemas and AMC Entertainment is self-evident.