Independent filmmakers are joining Hollywood's major studios in praising a new trade agreement that eases restrictions on distributing movies in China.
"We do think it's a breakthrough," said Jean Prewitt, president and chief executive of the Independent Film and Television Alliance, a trade association representing independent production, distribution and sales companies. "For the first time we really have the building blocks to begin to work competitively in that marketplace."
The accord reached Friday increases the number of foreign movies allowed into China under its current quota system and gives foreign studios a larger slice of box-office revenue. But the biggest beneficiaries of the deal could be independent film producers and distributors.
About 40 independently produced foreign movies are distributed in China each year outside of the quota system. Instead of sharing in box-office revenue, filmmakers and sales agents negotiate through third parties to receive a license fee, 2% to 3% of the film's budget. That's well below the 6% to 10% fee that is standard in other countries such as France and Germany. Under the new rules, filmmakers and distributors would be able to negotiate license fees closer to what they get in other countries.
"For independents whose lifeblood is negotiation, that's significant," Prewitt said.
Brad Kembel, head of international distribution for Summit Entertainment, the Santa Monica-based producer of the hit "Twilight" movies, called the agreement "a really important step forward for independent studios and producers to get a fairer share of what is potentially the largest audience in the world."
The agreement was finalized Friday in down-to-the-wire negotiations between Vice President Joe Biden and Chinese Vice President Xi Jinping, who was visiting Los Angeles on a trip to promote more trade between the countries.
The deal for now resolves a bitter trade dispute that began in 2007, when the U.S. filed a complaint with the World Trade Organization, alleging China was unfairly restricting access to its market. The WTO ruled that China had violated international trade rules, but China had disagreed with the ruling.
The agreement gives each side something it wants: China gets to import more movies and feed its expanding theater business, which is amid a multiplex boom. And for major U.S. studios, the new rules could significantly expand business in a potentially vast market while lessening the spread of widespread piracy in China by providing more legitimate access to popular American movies.
The accord doesn't eliminate China's film quota — a long-sought goal of the studios — but increases the number of foreign films allowed into China each year by 14 under a revenue-sharing agreement, at least for so-called enhanced films that are shown in IMAX or 3-D. Currently, China allows only about 20 foreign films to be imported each year in a revenue-sharing arrangement with the state's film distributor. The pact, however, increases the amount of revenue foreign studios can receive under the quota from an average of 13% to 25% of ticket sales.
It also establishes practices that are standard elsewhere, including the right to audit box-office ticket sales, review marketing materials, and it sets up a more transparent system for appealing decisions by government censors.
Some U.S. movies now gross well over $100 million in China, so the change in the revenue-sharing formula will make a substantial difference to studios' bottom lines. Last year's "Transformers: Dark of the Moon" grossed more than $159 million in the country. Under the new policy, distributor Paramount Pictures would have taken home an additional $11.9 million from the film.
"I'm not sure I'd call this a big win, but it's definitely a win," said Andrew Cripps, a former president of Paramount Pictures International. "Given how many blockbuster films are made in 3-D nowadays, this means the industry will be able to get a lot more movies into China and earn more money on each one."
But the trade deal also gives independent filmmakers, most of whom distribute their movies in China without any revenue sharing, something they've long coveted: the ability to negotiate license deals on commercial terms comparable with other markets. China has agreed to allow other commercial distribution companies — not just China Film Group — to distribute movies, creating the ability of independent producers to negotiate more competitive rates.
Nicolas Chartier, the Academy Award-winning producer of the "The Hurt Locker," said the new rules would make it easier for independent producers to finance their movies and distribute them in what could become the world's largest theatrical market. "We're all hoping the prices in China are going to end up at the level of Germany and the U.K.," he said. "I think it's a great step."
Times staff writer Ben Fritz contributed to this report.