U.S. Scrutinizes Hollywood Deals in China

By Edward Wyatt; Michael Cieply; Brooks Barnes | International Herald Tribune, April 26, 2012 | Go to article overview

U.S. Scrutinizes Hollywood Deals in China


Edward Wyatt; Michael Cieply; Brooks Barnes, International Herald Tribune


A Securities and Exchange Commission inquiry is focused on at least three companies and creates a potential roadblock for the industry's plans to expand in China, one of the world's biggest markets.

The U.S. Securities and Exchange Commission has begun an investigation into whether some of the biggest Hollywood movie studios made illegal payments to officials in China to gain the right to film and show movies there, according to a person with knowledge of the investigation.

The inquiry creates a potential roadblock to the industry's plans to expand in China, one of the world's largest markets.

The S.E.C. investigation has so far focused on at least three studios, the person said, but all of the largest and some smaller studios have been contacted or made aware of the inquiry, according to the person, who has direct knowledge of the investigation but who spoke on the condition of anonymity because the matter could end up in court.

In the past year, both the S.E.C. and the U.S. Justice Department have increased investigations under the Foreign Corrupt Practices Act, which forbids U.S. companies from making illegal payments to ease the way for operations in foreign countries.

U.S. investigators have been particularly interested recently in the practices of American companies in China, one of the largest potential markets, in which Hollywood executives have been particularly eager to expand.

A spokesman for the S.E.C. declined to comment on Tuesday.

The investigation was first reported Tuesday by Reuters, which said that five companies had been contacted by the S.E.C., including Walt Disney, DreamWorks Animation and 20th Century Fox, which is owned by News Corp.

Executives at those companies declined to comment, as did a spokesman for the Marvel Entertainment unit of Disney, which recently said it would film part of "Iron Man 3" in China.

Spokesmen for the other major Hollywood studios, none of which are known to be under investigation, either declined to comment or did not respond to requests for comment.

Hollywood has been trying to get more films into the Chinese market for decades, but efforts have picked up in recent years, in large part because China has identified cinema as a growth priority. China is racing to build more modern theaters to entertain an expanding middle class. The country is also increasing local film production, partly as a way to spread its cultural influence across the globe.

In February, Xi Jinping, China's vice president and most likely its future leader, visited politicians in Washington and movie executives in Hollywood. Soon afterward, China raised the number of foreign-produced films that are allowed to be shown there each year and increased the portion of box-office revenue from China that the movie studios get to keep.

Under the agreement, China agreed to allow 34 foreign-produced films to be shown annually, up from a quota of 20, as long as the additional films use either Imax or 3-D technologies. China also agreed to let studios keep about 25 percent of the box-office revenue, up from about 15 percent today.

The discussions leading to the deal were conducted at a very high level, as the U.S. vice president, Joseph R. Biden Jr., negotiated with Mr. Xi. As a result, the S.E.C. investigation could be an embarrassment to the administration of President Barack Obama, given the level of diplomacy involved in reaching the agreement. …

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