Chinese movie theatres may appear to be sold out online, but in reality could be completely empty
Published in BBC, Aug 31st, 2018 By Stephen McDonell
For a country which will soon assume the mantle of the world’s largest cinema audience, China comes out with a surprising number of big budget B-grade flops.
Some blame this on censorship, others on a lack of creativity but there are also those who see a more sinister force at work, which has nothing to do with film-making.
It also has nothing to do with selling tickets: at least not real ones.
Some investors are apparently financially backing movies with the sole goal of boosting their stock price that can shift on the perception of a movie’s performance, irrespective of its true popularity.
Chinese film critic and industry observer Raymond Zhou has been digging into the darker side of film financing in his country.
“When you have a hit film, your stock price will go up several times in terms of market valuation compared with the grosses from the box office so some ‘financial genius’, came up with this idea: Why don’t I have fake box office numbers so that I can make much more money from the stock market?” he said.
I asked if it could really be true that producers were seeking to make money in ways that had nothing to do with putting bums on seats in theatres; nothing to do with making beautiful films?
“The natural way is to make a good movie and then your stock price will go up right?” he responded.
“But some people have reversed this equation. They have seen the rise of the stock price as the ultimate goal and have just used the making of the movie as an excuse.”
So what is actually happening?
According to Chinese government investigators, certain production and investment companies have developed ways of faking box office results.
Then, if these publicly available figures appear to show that a film is doing well, people will buy shares in the companies which paid for the movie.
So a film might be on in the cinema and one of the companies which paid for it might buy out entire late night screenings. These will register as full houses when they are, in reality, entirely empty theatres.
Regulators have been catching onto this so producers have allegedly started just buying all the bad seats across many hours of screenings.
Yet the authorities have now worked out that if a showing is somewhat empty in the middle and for some reason all the seats around the walls have been purchased something must be amiss.
You might wonder, if box office manipulation has been a broad problem within the Chinese film industry, if it’s still worthwhile financially.
How many hundreds of thousands of seats would a company need to buy to boost the figures enough to make a difference to its own stock price?
Well what if the cinema chain is also an investor? It can just sell itself the phantom tickets for free.
Cinema journalist John Papish is an expert in the Chinese box office and says considerable conflicts of interests in this country would be illegal in, say, the United States.
“An owner of an exhibitor can also distribute their own movies and use their cinemas as a launching pad,” he said.
“They can manipulate the number of screenings in their own cinemas. Often times the third party ticketing apps also have their hands in the promotion of the films so they can push a film that they have an interest in; that they have invested in themselves.”
So, in effect, a company – or connected companies – can distribute the film, have ownership of the theatres and then maybe also involve those selling the tickets. Even those apps rating the film could potentially have a financial stake.
‘Cook the books’
Some films are also suspected of being used as a method of getting around China’s laws designed to restrict capital flight.
This country has an annual international transfer limit per person of $50,000 (£38,921) without official clearance.
But you can “cook the books”, according to Mr Zhou, if your movie is hiring international actors or even set and costume designers.
For example, in your budget, you might say you are paying a Hollywood star $10m but you’re really only paying them $2m.
The other $8m you can transfer offshore without questions. And most importantly without the need to collect official Chinese receipts.
“Inside China we have this very strict invoice system,” says Mr Zhou.
“Receipts can be checked and double checked using the super computers of the tax bureau. But once a lot of overseas talent or overseas service providers are involved then the system doesn’t work and money can legally be moved off shore.”
He thinks the authorities must be onto this and are likely to be looking at ways of closing the loophole.
This is not to say that China no longer has honest, committed filmmakers producing quality work.
The low budget drama “Dying to Survive”, about a group of hapless criminals trying to smuggle cheap cancer drugs, has been described as showing what’s best about this country’s cinema, as well as being hugely popular.
Yet the Chinese government knows there is something rotten going on which needs to be cleaned up.
The National People’s Congress has introduced fines for misreported box office figures ranging from $7000 to $74,000 and the authorities are allowing the Motion Picture Association of America to use an accounting firm to audit box office data here.
Communist Party anti-corruption investigators say they are now chasing a high-profile producer, who they’ve accused of fraud, claiming that he is currently on the run in the United States.
However there still seems to be no move to break up the vested interests in Chinese movie making, which many analysts believe will continue to pump out poor quality fare as long as there is money to be made – irrespective of how many actually people go to see the film.