Hollywood studios gain foothold in China.

But progress in penetrating market remains slow

Over the past year, all of Hollywood's seven major studios have signed agreements with the Chinese government to distribute their current films in China. Despite the agreements, however, most studios are reporting slow progress in penetrating the vast Chinese market of 1.2 billion potential moviegoers.

The situation began unfolding last September, when Warner Bros. signed a landmark agreement to release its films in China.

As part of the agreement, Warner was allowed to receive a percentage of box office gross receipts from its China releases - a first for any foreign movie distributor in the country. In the past, Chinese officials had strongly resisted any percentage-based agreements, insisting on flat-fee payments for all foreign films released in China.

Since the Warner agreement, all the major studios have signed similar contracts with China Film Distribution, Exhibition, Export & Import Corp., China's exclusive agent for international film importation.

London-based United International Pictures - which distributes international releases for Paramount Pictures Corp., MCA Inc. and Metro-Goldwyn-Mayer Inc. - signed an agreement with China Film in January. Meanwhile, the distribution arms of Walt Disney Co., Sony Pictures Entertainment and Twentieth Century Fox have all signed their own individual agreements with China Film.

Chinese moviegoers got their first glimpse of a current U.S. film last November, when Warner's "The Fugitive" was released in Beijing. Since then, Chinese audiences have sampled several recent Hollywood films, including Universal's "True Lies," Paramount's "Forrest Gump" and Disney's "The Lion King." The Fox movie "Speed" is scheduled for imminent release, while MGM's new James Bond movie, "Golden-eye" - slated for U.S. release in November - is slated to be distributed in China around Christmas. Sony Pictures expects to make its first China release in November under its agreement with China Film.

Heavy tax burden

Andrew Cripps, executive vice president of international sales at United International Pictures, said UIP's China releases so far have played well to Chinese audiences, though they have yet to generate big revenues. He blamed the problem partly on high taxes.

"Box office taxes are extremely high in China. Between various city, provincial and state taxes, around 50 percent of box office gross goes to taxes there," said Cripps.

After taxes are taken out, the studio usually receives between 30 and 70 percent of the remaining box office gross for its China releases, with UIP receiving a small percentage of that as its distribution fee, according to Cripps. By comparison, there are no box office taxes in the United States, and the major studios typically receive between 50 and 55 percent of a U.S. release's total box office gross. The other 45 to 50 percent of box office gross receipts for U.S. releases goes to the theater owners.

Cripps said "True Lies" has grossed about $11 million in China since its April release, while "Forrest Gump" has grossed about $3 million in China since its release in June. Both movies are still playing in various parts of China.

"It's slower than we'd like - they (China Film) have only been releasing about one title a month," said Cripps, adding that UIP is currently pushing MCA's "Waterworld" as one of its next China releases (see related story below). He said UIP would like to distribute a total of six to eight U.S. films in China next year.

The small number of U.S. releases in China so far this year is due in part to the country's antiquated distribution system, said Cripps. "There are a lot of people involved in film distribution in China, with lots of small distribution companies," he said.

Another factor that may limit the success of U.S. releases in China is ticket prices. Cripps explained that all ticket prices in China are set by Chinese government-run organizations. He said the average ticket price for U.S. films in major Chinese cities such as Beijing and Shanghai ranges from 20 to 30 yuan, or approximately $3 to $4. By comparison, the ticket price for the average domestically produced Chinese release is closer to 10 yuan, or about $1.20 per ticket.

Still, Cripps said, higher ticket prices should be partially offset by the difference in quality between U.S.- and China-produced films. "I hope that between our product and ire Chinese line of products. we're supplying something different (for the average Chinese moviegoer)," he said.

Choosy censors 

Sources predicted that, even after Warner's breakthrough agreement, censorship would still keep many U.S. films out of the China market. Surprisingly, though, few of UIP's suggested releases so far have been censored due to controversial content, Cripps said.

Instead, he said, piracy has been a major concern for China Film in selecting which U.S.-produced movies it releases.

"They want films that aren't out on video yet," said Cripps. He explained that many video releases are already available as pirated tapes in China, and would therefore not attract crowds as large as those attracted to movies not available on video yet.

Of the three UIP releases in China so far, "The Lion King" has been the best received, followed by "True Lies" and then "Forrest Gump," according to a China Film spokesman who wished to remain anonymous.

"Chinese audiences like action films, and 'Forrest Gump' was a little too Americanized." said the spokesman, adding that despite its less-enthusiastic reception, "Gump" has still been well received in China.

"The United States has a lot of good movies, but they're not all easy to market in China," he said.