China is poised to overtake the U.S. as the biggest movie market in the world, but how many people are really in the audience?
After "Ip Man 3"—a Chinese martial-arts movie in which Mike Tyson plays a crooked property developer—pulled in 470 million yuan, or $72 million, over its opening weekend, Chinese regulators said this week they are investigating whether the distributor tried to boost the movie’s box office by buying tickets for "ghost screenings."
Ticket buying in bulk to create buzz around a movie is a marketing strategy widely used in China, according to interviews with nearly two dozen industry insiders. The practice adds to the murkiness around China’s box-office numbers, much of which tends to put foreign films at a disadvantage.
Though now under scrutiny, insiders say bulk buying has been an under-the-radar practice by Chinese companies to get a leg up in a market which in February reached $1.05 billion, overtaking North American ticket sales by almost $250 million for the month, according to China’s State Administration of Press, Publication, Radio, Film and Television.
Global film studios increasingly look to China for growth even though foreign movies are subject to strict quotas and barred from screening during peak periods such as the Lunar New Year, which this year was a big factor in the high box office in February.
The restrictions are aimed at giving Chinese films a larger share of the box office. Regulators recently extended the screening of "The Mermaid"—the top-grossing Chinese film of all time, with a box office over $500 million—to an unprecedented three months beyond the typical month of screening that films get in China, virtually ensuring that no foreign film will surpass “The Mermaid” in China in the near future.
Despite the restrictions, foreign films accounted for more than half of box-office sales as recently as 2012. Since then, Hollywood has lost ground and accounted for only 38% of $6.7 billion in Chinese ticket sales last year, according to China’s movie regulator.
The Chinese regulator in January announced a renewed crackdown on box-office cheating. On Monday, in a rare move, it asked to see ticketing contracts between "Ip Man 3" distributor "Dayinmu" Film Distribution and online ticket sellers, according to a notice seen by The Wall Street Journal. The official Xinhua News Agency also said the regulator has questioned the distributor about the film’s sales revenue.
"Dayinmu" didn’t respond to requests for comment on the regulators’ probe. The regulator didn’t immediately respond to requests for comment.
The move came after local media posted screenshots of film-ticketing sites purporting to show that some theaters had sold-out screenings of "Ip Man 3" every 10 minutes after midnight in the same theater—an impossibility for a movie that lasts 105 minutes—and that tickets had sold for as much as $31 a seat, several times the price of tickets at other showtimes, with such prices helping to drive up the total box office.
The theater-management branch of China Film Group, the largest state-backed distributor, acknowledged in a statement that one of its theaters in the central Chinese city of Wuhan launched overlapping, "invalid" screenings of "Ip Man 3" on Sunday, and said it will punish the theater owners.
Industry insiders say many film companies believe bulk buying is more cost effective than advertising, because tickets are often resold to online discounters so that some of the distributors’ outlays are recouped.
"It’s a short-term strategy," said Christopher Bremble, chief executive of Beijing-based visual-effects company Base FX, who works closely with studios and distributors in film releases. "Audiences do eventually decide a picture’s success."
In November last year, China’s Le Vision Pictures in a letter to theater owners reviewed by The Wall Street Journal about the release of its film "The Vanished Murderer" said it had spent 10 million yuan to purchase tickets, roughly 13% of the film’s final gross. Le Vision declined to comment on the letter.
The practice has created concern in Hollywood, where studios that don’t bulk buy are worried their movies are being pushed off Chinese screens by local movies whose producers are artificially boosting their box office.
The opaqueness is an extra challenge for Hollywood as its market share in China drops, said Rob Cain, a film producer and entertainment industry consultant to Hollywood studios operating in China. "It’s impossible to know what the exact box office numbers are," he said.
Foreign distributors and studios also have complained to regulators of losing out on revenue when Chinese theaters underreport revenue to avoid paying taxes or to avoid paying film companies their share of the box office.
Theaters, especially those in smaller cities, regularly underreport ticket sales, according to blacklists released by the state-backed China Film Distribution and Exhibition Industry Association. Some cinema chains say that digital and mobile ticket purchases have resolved the issue of underreporting.
Last year, Hollywood studios struck a deal with the Chinese regulator and China Film Group for a new auditing mechanism to help ensure they get the correct share of box-office revenue.
The movie regulator’s mouthpiece newspaper, China Film News, reported on its social-media account on Sunday that "individual films and several theaters have recently launched fake screenings and box-office inflating." The agency will investigate the situation and said that any ticket sales through "rule-breaking measures" will be excluded from the movie’s box-office statistics, according to its newspaper.
Some industry executives believe transparency will improve as smaller film companies are weeded out and bigger studios gain prominence. "It is getting better," said media mogul Li Ruigang, founder of private-equity media empire China Media Capital, in a recent interview with The Wall Street Journal. "The market will gradually move into a situation in which everyone will be more transparent and more reasonable."