Chinese cinemas punished for box office fraud

More than 300 cinemas across China have been punished for lying about box-office receipts in what appears to be the first wave of an effort to clean up the film industry.

The targeting of cinemas for under-reporting proceeds comes as the government has been taking steps to boost China’s official box office takings, which were stagnant last year after a decade of galloping growth.

China has the second largest film revenues in the world and studios in Hollywood and elsewhere are counting on the country to drive global ticket sales. But China’s announced domestic ticket sales increased just 2.4 per cent by value in 2016, compared with a 49 per cent jump in 2015, according to Entgroup, which tracks film box office performance. 

According to some estimates, fraud by cinemas has erased 10 to 20 per cent of China’s total box office revenues. Tackling such fraud could correspondingly help China hit higher box office targets in 2017.

Cinemas have long been known for gaming the box office system — under-reporting sales in an effort to keep more of the proceeds, or transferring revenues from popular blockbusters to lesser-known films which provide a bigger cut to theatres.

Many cinemagoers in China will buy a ticket to one film only to find the ticket bears the name of another. Others are sold handwritten tickets, while some cinemas use special software to change details of their sales totals online.

Anecdotal evidence suggests foreign blockbusters suffer the most from such fraud to the benefit of lesser-known domestic films.

In one case in 2011, a woman posted on social media site Weibo a photo of a ticket she had purchased for Rmb80 to the film Transformers 3. The ticket actually consisted of a Rmb20 ticket to the Transformers film, and a Rmb60 ticket to Yang Shanzhou, a little-known documentary about the life of a highly honoured civil servant which she had not been to see.

In 2015 Huayi Brothers and Bona Pictures, the two largest private film production houses in China, announced via social media that the box office takings of films they had distributed, such as Terminator Genisys, had been siphoned off in order to pump up the total of the patriotic second world war film Hundred Regiments Offensive.

Film producers were pleased with the crackdown by China’s media regulator. Yu Dong, president of Bona Pictures, said that roughly 20 per cent of China’s box office went unreported because cinemas were hiding revenues. “This is just the tip of the iceberg. Box office fraud is a tumour of the industry,” he said on his account on social media app WeChat.

However, just as China’s cinemas try to artificially lower their sales numbers, production houses have been known to inflate their sales through bulk buying of discounted tickets and “ghost screenings”. Last year the film Ip Man 3, with Mike Tyson, was accused by the official media of orchestrating such an effort to pad its sales. 

The Communist party mouthpiece People’s Daily said the clean-up “marks the arrival of a legal era for the Chinese film market”.

It was not entirely clear how the government investigators had gathered evidence against the cinemas, which were ordered to return stolen proceeds to the movie producers and distributors who had lost out. Sixty-three of the cinemas punished were charged with fraud in excess of RMb1m in 2016 and had to close for at least 90 days as punishment.