China may open theaters to the sale of movie-themed merchandise

The head of China’s powerful state-run movie enterprise that supervises film imports wants to strengthen ties with Hollywood by selling merchandise in that country’s theaters.

La Peikang, chairman of China Film Group, has launched a new initiative aimed at spurring consumer product sales at theaters in China’s fast-growing exhibition sector.

To test the project, the group has already selected 1,500 top-ranked theaters in China that will have their own shops selling movie-themed merchandise, such as toys, clothing, games and DVDs, La said in an interview with The Times.

The initiative could give major Hollywood studios a potentially lucrative share of ancillary revenue in the world’s second-largest film market. The Chinese box office raked in $3.6 billion last year and is projected to reach $4.6 billion this year.

The country is in the midst of a multiplex building boom. The number of movie theaters has more than doubled to 4,409 as of June, up from 2,000 in 2010.

Despite the box-office growth, market restrictions and rampant piracy of toys and DVDs have frustrated Hollywood executives eager to tap into the country’s vast market and expanding middle class that has a strong appetite for U.S. movies.

“In Hollywood, box office accounts for just 20% of total revenue, and the other 80% comes from consumer products, merchandise, theme parks or other businesses,” La said. “In China, most of the film revenue comes from the box office, and consumer products is nearly zero. We need to expand that in order to build a mature film industry in China.”

Under the plan, China Film would set up licensing deals with studios and find manufacturers to design and produce the merchandise. Profits would be shared between China Film Group and the studios based on the level of sales, La said.

“If a new film is going to be released in China by Disney, we can introduce some of the consumer products to be sold in our shops,” he said.

La said he had already discussed his plan with major studio executives in Hollywood in March. “Of course, they showed their enthusiasm and interest in this project,” he said.

Analysts say it’s difficult to predict how much money studios would collect from in-theater stores, given that theater owners and Chinese distributors also are likely to seek a share in the retail business. What’s more, studios currently collect only about 25% of box-office revenue from foreign movies imported into China.

Nonetheless, the strategy could help combat the piracy problem by creating a legitimate outlet for merchandise and giving the state a stake in protecting intellectual property.

“It remains to be seen what kind of merchandise will be sold, but certainly that’s something that Hollywood would be interested in, given that the theatrical market [in China] is growing about 35% a year,” said Stanley Rosen, a professor of political science at USC who specializes in China. “This is a concession to Hollywood, which is always clamoring for a chance to get additional revenue.”

In January, La took over as head of China Film Group, which produces and distributes mainland movies and oversees the export and import of films. He replaced longtime Chairman Han Sanping, who presided over a period of rapid growth in China’s film industry.

A former deputy to Han, La is a 31-year veteran of China’s film and TV industry with extensive international experience. From 2008 to 2013, he served as deputy director of State Administration of Press, Publication, Radio, Film and Television

La was in Los Angeles this week to attend the 10th annual Chinese American Film Festival and U.S.-China co-production summit organized by EDI Media Inc.

His visit comes during a period of growing business ties between Hollywood and China. Major studios have been expanding their investments and partnerships with companies in China, while Chinese investors such as Jack Ma, founder of e-commerce giant Alibaba, are also eager to do deals in Hollywood.

But studio executives have bristled over China’s quota system, which limits the number of foreign movies allowed into the country under a revenue-sharing agreement and how much ticket sales they can collect in the world’s most populous country. Only 34 films are allowed into China each year.

Additionally, China may also be taking steps to restrict foreign television shows. Starting in 2015, Chinese Internet companies that plan to carry foreign TV shows on their websites will be required to submit the entire season with subtitles to local authorities for approval, the Beijing News and other state-run media outlets reported Monday.

La said he could not comment on when the country would ease or remove current quotas on foreign productions, but he expressed optimism that ties between the countries’ film industries would continue to grow.

“Cooperation between China and American film communities should be more and more close,” he said. “I have to believe we will have a broader and expanded cooperation between the two countries.”

Twitter: @richardverrier