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China’s Box Office Fraud: How Phony Ticket Sales Hurt the Film Industry

A crackdown on fraud in China's film industry is shining a light on companies that cook the books.

Ng Han Guan/AP/REX/Shutterstock

Hollywood and China are finally working together to crack down on box office cheats. The Motion Picture Association of America recently hired an accounting firm to audit China’s box office data, the first time the country has allowed the lobbying group to inspect its numbers, Bloomberg reports.

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Fraudulent activity in China’s film industry has been suspected for years, but only recently has the country begun cracking down on companies that have cooked the books. Last November, China’s National People’s Congress established new fines for companies that misreport box office sales, ranging from roughly $7,000 to $74,000, VOA News reported. In 2015, the makers of the Chinese film “Monster Hunt” admitted to giving moviegoers 40 million free tickets in order to boost its numbers and beat out Universal Pictures’ “Furious 7” for the distinction of highest-grossing title in mainland China.

While handing out free tickets to help set a new record may not add up to actual fraud, other illegal practices that can have a significant negative impact on Hollywood have been documented in recent years.

In 2016, the distributor of the martial arts film “Ip Man 3” inflated its ticket sales by around $4.7 million through so-called ghost screenings — sold out shows with higher ticket prices that never actually took place — and by an additional $8.3 million by buying up tickets in bulk, VOA News reported. Chinese regulators immediately suspected the film’s numbers were off after its distributor reported $72 million in sales its first three days. Inflated numbers for a Chinese film can have a negative impact on U.S. titles, as moviegoers can be motivated to see certain films based on strong box office performance. Theaters can also decide against showing U.S. titles in favor of local movies that come with bribes from distributors.

Theaters that underreport their sales can pocket the extra cash themselves or use it to report higher numbers for other titles, whose producers agree to take a smaller cut of the proceeds. In March, the country’s State Administration of Press, Publication Radio, Film and Television issued penalties to more than 300 theaters that under-reported their sales data. Exhibitors that under-reported their figures by more than 1 million yuan — equivalent to around $146,000 — were shut down for 90 days, Bloomberg reported.

READ MORE: Why China’s Box Office May Not Save the Film Industry After All — CinemaCon 2017

The results of the MPAA’s audit of China’s box office are expected to be announced in the third quarter of 2017, but its possible that a significant amount of damage has already been done. Zhang Hongsen, head of China’s film bureau, told the L.A. Times last year that an estimated 10 percent of box office sales — $680 million — could have been stolen in 2015.

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