China has always taken extraordinary measures to protect its massive market from Hollywood content, but 2021 truly put its World Trade Organization obligations to the test.
Only 21 revenue-share Hollywood imports were released in China in 2021, far fewer than even the 34 title quota set out by the U.S.-China Film Agreement signed in 2012 by then-vice presidents Xi Jinping and Joe Biden.
That agreement was then hailed as a significant breakthrough. It expanded the number of revenue-sharing films that China would import from 20 with the addition of 14 more 3D, digital or large-format titles. It also increased foreign films’ share of their box office income from 13% to 25%.
Nearly a full decade later, however, the memorandum is not only out of date – it was to be renegotiated in 2017 – its terms stand in increasingly stark contrast to the reality of China’s contracting film landscape for both foreign studio movies and foreign independent films.
China was the world’s biggest box office market in both 2020 and 2021 as COVID-19 restrictions and China’s early economic recovery allowed it to overtake the North American market. And, at the same time the Chinese theatrical industry became, more focused on local movies. These gained market share due to both the reduced supply of Hollywood releases and the Chinese government’s growing political controls over the movie sector.
That meant that politically troublesome Disney films such as “The Eternals” and “Shang-Chi and the Legend of the Ten Rings” were not granted release permits. Diplomatic tensions with Asian neighbors also meant that South Korean and Indian films were also subject to import bans that only softened in December.
“China is a market which is now totally unreliable, replete with exactly the same barriers if not worse that existed before 2012 — a black hole,” said Independent Film & Television Alliance (IFTA) head Jean Prewitt. “We don’t know how to access it. We don’t know how to influence it. We’re waiting really on our own government to develop a game plan that includes the services industry, and includes dealing with the 2012 agreement and the issues that have sprung up since then.”
China has limited U.S. film imports since its very first revenue-share title, “The Fugitive,” in 1994. In 2009, the WTO ruled against those limits, but an annual 20-film revenue-share quota and unofficial 60 overall film quota (the balance being titles imported and distributed on a flat-fee basis) have continued.
Renegotiations of the landmark 2012 Film Agreement bumping the revenue-share quota to 34 were curtailed in 2018 amidst a massive administrative reorganization of China’s Film Bureau that placed the department under control of the party’s powerful central propaganda bureau, miring its already slow processes under even greater opacity, red tape and political control. Discussions supposedly resumed in 2019 as part of the Trump administration’s broader U.S.-China trade war negotiations, but film has not been a top priority.
In reality, talks have stalled since, with those familiar with the situation describing the situation as “bleak” and set to “further deteriorate.”
Representatives from the MPA, IFTA and the International Intellectual Property Alliance (IIPA) describe themselves as doing their best to advocate for their members amidst geopolitical circumstances far above their pay grade that are shaped by ultra-nationalism and hyper-politicization roiling far more than just the film industry.
“On a certain level it’s really beyond our control and we’re just along for the ride,” said one person involved in the matter.
Some progress benefiting Hollywood has been made on the intellectual property front since since June, 2021 when China’s new Copyright Law came into effect. Key changes include a tenfold increase of the maximum punitive fines for movie piracy, raised from RMB500,000 ($78,700) to RMB5 million $787,000), and a shift of the burden of proof to the accused infringer.
But key elements of the 2012 agreement have still not come to fruition. The IIPA describes China’s implementation as “inadequate, incomplete or delayed” in a September filing to the office of the U.S. Trade Representative (USTR).
IIPA called on the USTR to push Beijing to: liberalize the distribution market for private third-party Chinese distributors; finalize a new MOU; substantially increase U.S. producers’ share of box office revenues from 25% to a level consistent with international norms; give U.S. producers more control over release dates in China; make the censorship review process quicker and more transparent; and eliminate informal restrictions on the number of flat-fee films, among other stipulations.
Currently, the primary tangible way forward to advocate for greater market access is via Jan. 2020’s Phase One bilateral U.S.-China trade deal. In it, China committed to substantially increasing its purchases of American intellectual property-intensive products and services, such as content for video-on-demand services.
The hope is that impelling Beijing to live up to its purchasing obligations will help counteract its soft ban on U.S. product ongoing since mid-2019, which in practice has kept foreign content far below than the official target for the sector.
The push for movement via the Phase One deal comes as industry players increasingly agree that attempting to renegotiate the quota upwards may anyway be pointless, or even counterproductive.
Some, like former DMG Entertainment head Chris Fenton, see Chinese demand for Hollywood content as a zero sum game.
“I’ve never felt that the more titles that can get in the more market share can be reaped. There’s a certain amount of market share that’s going to go to the foreign titles and pushing open the quota just means that they’re going to cannibalize themselves that much more,” he assessed.
Others, like Colby College sociologist and Chinese film industry ethnographer Philip Fang, point out that each Hollywood studio’s ability to supply more than a half dozen films a year is anyway limited.
“I don’t think the quota is a real problem — most movies won’t make money in China anyway, and the marketing departments for the studios [inside China] are too busy to deal with more than six films a year,” he said. While continuing negotiations on revenue share terms would bring tangible benefits, opening up the quota remains “primarily symbolic,” Fang says. A collaborative political environment across the Pacific is currently nowhere in sight.
And with U.S. films accounting for less than 12% of China’s total box office in 2021, Hollywood has never had less leverage. Only two studio titles grossed more than RMB1 billion ($157 million) in 2021, the lowest count in the past seven years.
Faced with declining sway, studios would do better to band together and present a united front, Fenton says. Doing so would allow studios to build up the leverage needed to push for an increase in box office receipts, as well as push back on cross-border censorship issues and restrictions on freedom of speech.
“A huge opportunity exists if Hollywood is unified, but successful unification needs leadership — and that could be the MPA,” says Fenton.