Government Investigates Studios For Possible China Bribes

The Security and Exchange Commission is suspicious of some of the major film studios in the United States. That’s because in February, China’s state-owned China Film Group suddenly agreed to loosen their restrictions on international media playing in China.

Before February, there was a limit of 20 foreign movies allowed in China, but the new rules allow 14 IMAX or 3D films to play in China without counting as part of the 20. 

The SEC’s watchdogs awakened because DreamWorks announced plans to build a production studio in Shanghai concurrent with the China Film Group’s announcement, and they have sent letters to some major companies, including  20th Century Fox, Disney and DreamWorks Animation, inquiring whether inappropriate payments were made to the Chinese government.

Michael Corty, an analyst who covers the big movie studios, said:

We’re speculating here in terms of what brought about the inquiry, but essentially, Dreamworks and Disney recently have reached agreements with the Chinese government for joint ventures, to essentially have film businesses and movies made in China. For perspective, these media companies have been trying to get into China legitimately for a long time. Obviously in China, piracy is rampant. But all U.S. media conglomerates really want to get into that China market, and they’ve really been thwarted because China has their own designs on creating their own media companies at some point.

The SEC is inquiring because there may be breaches of the Foreign Corrupt Practices Act. China’s interest in movies has skyrocketed in recent years: in 2007 their total box-office receipts were $528 million, and in 2011 they were $2.1 billion. Because of the previous restrictions, in 2010, “Avatar” was yanked for a state-sponsored biography of the Chinese philosopher Confucius.

The U.S. studios will also increase their percentage of ticket sales from what was between 13.5 percent and 17.5 percent to roughly 25 percent. But films co-produced with a Chinese company don’t restrict the American companies percentage, which is intended to stimulate more co-productions.