Audience members wear 3D glasses while watching a movie. (Photographer: Luke Sharrett/Bloomberg)

Hollywood Said to Be Auditing China's Box-Office for First Time

(Bloomberg) -- The lobbying group for Hollywood’s top studios is auditing China’s box-office figures amid concern that ticket sales have been reported inaccurately, according to a person familiar with the matter.

The Motion Picture Association of America, which represents the six major studios, hired an accounting firm to audit sales of selected films for the first time, said the person, who asked not to be identified as the matter is private. The results may come as soon as the third quarter, the person said.

Results of the audit are important for major Hollywood studios such as Walt Disney Co. and Viacom Inc.’s Paramount Pictures because hundreds of cases of revenue misreporting have been documented in China. In revenue-sharing deals, studios receive 25 percent of box-office sales, so getting accurate figures is vital.

In addition to films shown in China under revenue-sharing agreements, Hollywood studios export movies to the country on a flat-fee basis.

Hollywood Said to Be Auditing China's Box-Office for First Time

Ticket-sales growth slowed to less than 3.7 percent in China last year, compared with more than 35 percent average growth in the previous five years. China’s still growing faster than the rate of about 2 percent for North America last year, according to MPAA data.

Hollywood’s biggest studios have been counting on growth in China, where consumer spending on movies is expected to surpass that of the U.S. in coming years.

For example, Comcast Corp.’s Universal Pictures, Sony Corp.’s Sony Pictures and Paramount have struck deals with local partners to fund movies and help market them in China. Others such as Time Warner Inc.’s Warner Bros., in collaboration with mainland companies, have started local-language productions.

Yet, the figures don’t always add up.

In November, China approved new fines for falsifying box-office sales, in some cases as much as five times the illegal gains. China’s State Administration of Press, Publication Radio, Film and Television penalized more than 300 theaters in March for under-reporting ticket sales, the regulator said at the time. The biggest penalties were 90-day suspensions of operations for exhibitors that understated revenue by more than 1 million yuan ($146,000). Theaters and distributors face revocation of licenses in “very severe” cases, according to the law, which took effect in March.

Hollywood’s audit is part of a market-access agreement Chinese officials reached with the MPAA almost two years ago, details of which haven’t been disclosed to the public.

The audit would also fulfill a promise by the Chinese industry to American filmmakers in 2015, during Chinese President Xi Jinping’s U.S. visit. China Film Group, the state-owned giant in charge of importation and distribution of Hollywood films in China, pledged at the time to allow international auditing of box office sales.

The box-office checkup also comes as the U.S. and China are set to revisit a 2012 World Trade Organization joint memorandum on film distribution rights and as the MPAA seeks to increase the number of U.S. films available to Chinese viewers. Under the previous agreement, if this year’s consultations fail to produce a deal by Jan. 1, the U.S. could pursue procedural action against China in the WTO.