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China, China, China and the Power of Money in Hollywood

September 15, 2017

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Viacom has had enough of China

January 18, 2019

The New York-based company is in talks with at least one group in China to sell some or most of the company’s mainland assets.
Any deal will likely involve selling a majority stake in channel brands, such as Nickelodeon. Last year, Viacom offloaded its channels in India in a similar deal with Reliance Industries.
Early Bird Fallacy

Viacom was a pioneer into China’s media market when MTV launched a Mandarin-language channel featuring international and local content twenty-five years ago.

In 2005, Viacom was also the first media company to enter into one of China’s infamous 51-49% joint ventures with state-owned Shanghai Media Group to produce and broadcast children’s programming under the Nickelodeon banner. The agreement is no longer in operation, but it opened the door for other divisions, including Paramount Pictures. 

Effects-driven films produced by Paramount have performed extraordinary well at the local box office. The Transformer franchise is the most notable example. 

In spite of Paramount’s perceived success in China, complaints about government imposed distribution quotas, access to broadcasting networks, and box office accounting practices grew louder.

After numerous setbacks for Disney and Netflix in China’s streaming market, Paramount chose the path of least resistance by licensing film and television content directly to Baidu-owned streaming service iQiyi. Learn more about streaming rates and terms in China.

Box Office Fraud

Foreign film distributors operating in China have long endured government imposed restrictions and deceptive practices by state-backed enterprises. But eventually home field advantage gave way to blatant box office fraud.

Perhaps the most audacious case was on Transformers 3 when China Film Group decided not to split the last 200 million RMB in receipts with the studio. China Film Group informed Paramount that because it had already made more than enough money, their share would be limited to the first 900 million RMB. China Film Group kept the last 200 million solely. 

The MPAA started pushing for auditing policies in 2016 to allow international firms access to audit box office receipts in China after Paramount uncovered fraud worth $12 million on Terminator: Genisys.

One of the largest frauds reported exceeded $32 million and was discovered on Universal’s Furious 7. 

In both cases, revenues were diverted to the balance sheets of local films to inflate their value. The distributors involved, China Film Group and China Film Distribution, are government-backed.

 

 

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