Hollywood Is Said to Be Shortchanged by Chinese Exhibitors

(Bloomberg) -- Chinese theaters under-reported ticket sales of U.S. movies by 9 percent last year, according to an audit that found the operators in the world's second-largest film market are shortchanging Hollywood studios, two people with knowledge of the matter said.

The Motion Picture Association of America, representing the large U.S. movie studios including Walt Disney Co. and Comcast Corp.'s Universal Pictures, hired PricewaterhouseCoopers LLP to conduct an audit as part of a U.S. agreement with China setting the terms for imports of Hollywood movies. The people asked not to be identified because the findings aren't public.

China has been cracking down on box-office fraud, approving fines to curb misreporting in the country's booming cinema industry. Authorities allowed Hollywood to conduct its own audit as the two countries prepare to renegotiate a 2012 deal that gave U.S. movie studios better access and compensation.

The audit was revealed by Bloomberg in June and had been expected to be completed in the third quarter. The results were first reported by the Wall Street Journal. A call Wednesday to China Film Group, the state-owned giant in charge of the import and distribution of Hollywood films, wasn't answered amid a weeklong national holiday.

Ticket revenue grew less than 3.7 percent in China last year, slowing from more than 35 percent average growth in the previous five years, according to researcher Artisan Gateway. Still, the box office in the country is growing faster than in North America, according to MPAA data, and China remains an important market for Hollywood, with $6.6 billion in annual sales.

The number of imported U.S. films has been limited by quota to 34 a year, and the studios behind those releases only get a quarter of box-office revenue, rather than the more typical half in most other countries.

More than 300 theaters were penalized in March for under-reporting ticket sales, China's State Administration of Press, Publication Radio, Film & Television 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 ($150,000). Theaters and distributors face revocation of licenses in “very severe” cases, according to the law, which took effect in March.

--With assistance from Sterling Wong

To contact the reporter on this story: Anousha Sakoui in Los Angeles at asakoui@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Rob Golum, Bruce Rule