MPAA Audit Finds Chinese Theaters Are Shortchanging Hollywood Studios (Report)

At least $40 million in revenue has been kept from studios, investigation finds

China Hollywood MPAA

Chinese theaters have been fudging numbers and withholding revenue due to Hollywood studios, an audit performed by PricewaterhouseCoopers on behalf of the MPAA has found, according to a report from The Wall Street Journal.

As much as nine percent of ticket sales in 2016 were underreported by China’s exhibitors, meaning that studios were kept from at least $40 million in revenue.

According to WSJ’s sources, the audit reviewed the 29 highest grossing American imports from last year and investigated 125 theaters run by 27 different theater chains across China to come up with their estimates. The audit is expected to be the first of several, which are allowed as part of a memorandum of understanding between the U.S. and China regarding the film industry.

During their investigation, PwC found several instances of fraud performed by the theaters, including underreporting grosses and audiences sizes as well as misrepresenting ticket sales as concession sales, which are not included as part of the 25 percent of ticket revenue exhibitors pay to studios.

Theater fraud has been a known issue in China for several years, with the Chinese government making moves to crack down on it. Regulators banned the distributor of last year’s “Ip Man 3,” a martial arts film starring “Rogue One’s” Donnie Yen and boxer Mike Tyson, from releasing movies for a month after the company acknowledged manipulating the box office by purchasing millions of dollars in tickets and faking more than 7,600 “ghost screenings,” according to Chinese government-owned news outlet Xinhua. China also passed an  industry law increasing punishments for companies that “fabricate box office earnings, data or information.”

The investigation comes as Chinese moviegoers demonstrate more and more buying power at the global box office. Last year, Hollywood imports grossed $1.87 billion in China, which translates to $470 million in revenue for studios. Several long-running blockbuster franchises are also becoming bigger money makers in China than in the U.S., where franchise fatigue is setting in.

“Transformers: The Last Knight,” for example, grossed a franchise-low $130 million domestically but grossed $228 million in China. Earlier this year, “The Fate of the Furious” became the highest grossing American film in China with $392.8 million, compared to $225.7 million in the U.S. That success in China was key to pushing the car film’s overseas gross total to $1 billion.