China is quickly catching up to the United States in box-office ticket sales and, with its massive population of 1.35 billion, potentially could surpass America as early as next year.
As its appetite for domestic films grows, China also is trying to enhance the sector’s credibility by trying to rein in practices that artificially inflate box-office numbers.
China's legislature recently publicized draft legal revisions aimed at stiffening penalties for box-office cheats. On Monday, members of the National People’s Congress (NPC) proposed minimum fines — ranging from 50,000 Chinese yuan ($7,393) to 500,000 yuan ($73,932) — on film companies that fudge their ticket sales.
Moreover, fines can be extended by up to five times the amount of any "illegal proceeds" exceeding 500,000 yuan, state media reported. In some cases, local regulators could even suspend violators’ business operations or revoke their business permits, according to the draft legal revisions.
The government crackdown began in March, after local media speculated that box-office results for “Ip Man 3” — a Hong Kong martial arts film released late last year — were exaggerated. Chinese movie regulators began investigating.
Industry insiders expect the heightened penalties, once implemented, will help turn around the murkiness behind China’s box-office numbers and increase business credibility.
"Cheating is pretty rampant. That is, some movies use manipulative methods" to promote sales, an insider who requested anonymity told VOA.
For example, distributors may bribe movie theaters to issue tickets to moviegoers for a film other than the one they saw to inflate that movie’s sales revenue, according to the insider.
Movies with rosy box-office numbers can entice more moviegoers or increase the possibility of a sequel. Strong numbers also can stimulate the interest level of investors in securitization products, whose earnings bank on movie revenues.
In some cases, it is the theaters that skew movie revenue numbers by underreporting sales to avoid taxes or repaying film companies their share of the revenue. They then redistribute the unreported sales to the box-office tallies of other movies, whose film companies ask for a smaller share. Some of these tactics aim to maximize the theaters’ own incomes, the insider added.
Such under-the-radar practices add to the distortion of China’s box-office figures. Official statistics show the total movie revenues in China grew nearly 50 percent to 44 billion yuan ($6.5 billion) in 2015, compared to $11 billion in the North America markets.
The government’s investigation into "Ip Man 3" — which reportedly grossed $72 million its opening weekend — found its box-office tally had been artificially boosted by 32 million yuan ($4.7 million) through "ghost screenings" and by another 56 million yuan ($8.3 million) through ticket subsidies.
Ghost screenings refer to the scenario in which theaters sold out screenings of "Ip Man 3" every 10 minutes after midnight — impossible for a movie that lasts 105 minutes. Tickets for those screenings were priced higher than for other showtimes.
Film companies often subsidize tickets as a marketing strategy, including offering tickets at online sites for discount or bulk buying. The practice is legal and considered more cost effective than advertising, but it further distorts ticket sales.
Chinese movie regulators already have cracked down on box-office manipulation, according to Jiang Tao, who heads a national committee that manages the movie industry’s development.
The film bureau under China’s State Administration of Press, Publication, Radio, Film and Television "has come up with measures to blacklist managers of those movie theaters who are found to have cheated on ticket sales," Jiang told CCTV. "Once you’re put on the blacklist, no other movie theaters will hire you."
The bureau also has installed monitoring devices in movie theaters to verify moviegoers’ actual turnout against the number of tickets sold. "Any discrepancy higher than 1 percent will be immediately reported to the police," Jiang said.
China’s box-office numbers have been on a downward slope since the government crackdown began in spring. After enjoying 50 percent growth in the first quarter, ticket sales in the second and third quarter declined over the previous year by 9 and 15 percent, respectively, according to Mtime, a social networking website for movies.
Another factor in declining box-office sales is that China’s four major online ticket sellers, which last year offered huge discounts, have cancelled subsidies.
Inflated ticket sales also helped boost stock prices for many film companies, including Wanda Cinema Line Group. The country’s largest cinema operator has now seen a downward correction in its stock.
In January, parent company Wanda Group — founded by Wang Jianlin, the country’s richest tycoon — sealed a $3.5 billion deal to acquire U.S. film studio Legendary Entertainment.