As the entertainment industry seeks a greater presence in China’s ever-increasing movie market, the Obama administration is investigating some of the major Hollywood film studios for possible inappropriate payments to Chinese officials.
The Securities and Exchange Commission (SEC) has sent letters of inquiry, seeking to obtain answers about whether or not some major Hollywood movie studios tried to buy their way into what is quickly becoming the world’s largest entertainment market.
Reuters, The New York Times, and the Los Angeles Times, all of which are citing anonymous sources, have reported that the SEC sent inquiries to 20th Century Fox, Disney, and DreamWorks Animation.
However, it now appears as though the SEC may be in the midst of an industry-wide probe. Recent reports indicate that letters from the agency were sent to all six major Hollywood studios, and additionally to DreamWorks Animation, in an apparent effort to search for possible violations of the Foreign Corrupt Practices Act with regard to the studios’ dealings with Chinese officials.
Paramount, Sony, Universal, Disney, 20th Century Fox, Warner Bros., and DreamWorks Animation are all members of the Motion Picture Association of America (MPAA). The entertainment companies played a significant role in recent trade negotiations, which resulted in some dramatic changes taking place with regard to the rules of access that China had imposed on Hollywood.
The state-owned China Film Group had previously limited film imports to a maximum of 20 foreign films per year; however, in February 2012 restrictions were abruptly eased.
China’s Vice President Xi Jinping, who next year is expected to succeed Hu Jintao as president of China, traveled to the U.S.
After the Chinese leader’s visit to Washington, D.C., Vice President Joe Biden and U.S. Trade Representative Ron Kirk announced that China was going to permit 34 films to be shown annually as long as the additional movies utilize either IMAX or 3-D technologies. Hollywood will be allowed to keep about 25 percent of the box-office as well, which is an increase from the previous 15 percent.
Xi Jinping also made a visit to Los Angeles, where DreamWorks Animation made the announcement that a $2 billion breakthrough deal had been made to build a production studio in Shanghai with some of China's biggest media companies.
Hollywood movie studios have for a while now been seeking to loosen China's restrictions on foreign films, which the entertainment industry has viewed as potentially fueling the demand for pirated materials.
U.S. box-office sales in 2011 had taken a drop of about 5 percent, landing at approximately $10 billion, while Chinese movie revenues had grown to $2.1 billion, an astounding 35 percent increase. The number of movie screens in China had doubled in five years to 10,700 at the end of last year, and are expected to reach 13,000 by the end of 2012, according to the MPAA.
This kind of growth is extremely attractive to Hollywood studios, and consequently the entertainment companies have rushed into China to take advantage of the situation. “Avatar” brought in $207 million, “Transformers: Dark of the Moon,” $159 million, and “Titanic 3-D” so far has grossed more than $100 million in Chinese box-office revenues.
Disney recently announced that “Iron Man 3” will be co-produced in China with DMG Entertainment in Beijing.
Filmmaker James Cameron, who did so superbly with “Avatar” and “Titanic 3-D,” has contracted to provide 3-D technology for a Chinese produced film, “The Art of War.”
As for the expectations of the Chinese government, film official Tong Gang told Xinhua, the official press agency of China, that the country's long history could serve as a database for American filmmakers and could draw in huge audiences, if stories are properly developed.
The action of the SEC in probing the Hollywood-China connection appears to be part of the Obama administration’s increasing interest in the use of the Foreign Corrupt Practices Act, (FCPA) which prohibits the payment of bribes to officials of foreign governments.
Because of the accelerating growth of foreign markets, anti-bribery laws pose a threat to the entertainment industry particularly when federal investigators view Hollywood as a target-rich environment for potential probes.
The SEC generally maintains a focus on the provisions of the FCPA that pertain to accounting and, should violations be proven to have occurred, results typically involve the imposition of a fine.
If the Department of Justice were to join in the future with the aforementioned SEC-movie studio probe, the stakes would be raised to include possible criminal violations and more substantial penalties.
James Hirsen, J.D., M.A., in media psychology, is a New York Times best-selling author, media analyst, and law professor. Visit Newsmax.TV Hollywood. Read more reports from James Hirsen — Click Here Now.
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