Until recently, international sales companies were showing little interest in China. The market's rampant piracy and censorship were major turn-offs, as was the fact that unless a film is selected as one of China's 20 annual revenue-sharing imports, it can technically only be sold for a flat fee to state-owned China Film Group.

This indifference started to change last year when China's market recorded growth of 30% for the second year running, and the box office of imported films increased by around 40%. In the past three years, at least 10 private distribution companies have emerged. Companies such as Polybona, Avrio Films and Domo Media have become regular buyers at Cannes, Berlin and the AFM, sourcing non-Hollywood product.

In fact, competition in the distribution market increased so much last year that many films have had to push their release dates back to 2008 because of government restrictions on import numbers. Under Chinese regulations, the total number of films imported each year should not exceed one third of the overall number of releases.

'We began exploring this market mainly because the policy has loosened in the past two years,' says Johnny Liu, president of Avrio Films. Because of the success of its debut release - UK animation Valiant, which grossed $1.6m (rmb12m) last year - Avrio has since acquired four films to be released in 2007.

Officially, only two state-owned companies, China Film Group and Huaxia Film Distribution, are allowed to distribute foreign films. However, from 2005, China began to allow private companies to handle the distribution of flat-fee imported films under the banner of 'assisted promotion', ie: helping China Film and Huaxia in the promotion and marketing of foreign releases.

China currently imports 40-45 films a year: 20 are revenue-sharing and the rest are flat-fee films. In other words, the loosening of policy opened room for new distributors to 'assist promotion' of up to 25 films a year, with each company releasing two to three films a year on average.

European, Asian and US independent films are among the favourites as the new policy is designed to diversify the market through the introduction of non-Hollywood films. Also China Film and Huaxia usually handle the larger US films, even those that are not from a Hollywood studio.

For example, 10 French films were released in 2006 and their combined box office of $9.6m (rmb74m) was up by 50% on the tally for French films the previous year, according to statistics from Unifrance. In general, action, sci-fi and disaster films are the priority for Chinese buyers, which look at films budgeted at around $30m-$70m in these genres, while also looking for comedies or dramas with budgets of around $10m.

Although the films can technically only be sold on a flat-fee basis, some local distributors are finding loopholes - using a foreign-registered company or partner, for example - through which they can offer revenue-sharing deals and minimum guarantees to sales agents.

The flat-fee option

The benchmark for box-office success is $1.3m-$3.9m (rmb10m-rmb30m). Dramas or comedies can usually gross from $650,000 (rmb5m). It is generally estimated that the total box-office gross of flat-fee films accounts for 10%-15% of the market, under the restriction of the import quota.

Among the major players in this new area, most companies are experienced film distributors or film marketing service providers. Polybona, for example, has been successful in distributing Hong Kong films or Hong Kong-China co-productions. Avrio Films has previously worked with Hollywood studios promoting more than 30 films in China, before stepping into acquisition and distribution.

'Before the policy is completely open, this is still a risky area. If the film is banned by censorship, you cannot get a refund. Also because the Chinese audience is unfamiliar with these films, you need a very effective marketing strategy to make sure you make money,' says Liu.

'At this stage, flat-fee films function to enliven the market and provide diversity to the audience,' says Lan Fang of Eralion Media, a Chinese subsidiary of Hong Kong-listed Era Information and Entertainment. Since its launch in 2005, Eralion has handled six films including March Of The Penguins, which grossed $1.4m (rmb11m) when it was released in August 2005.

For Polybona, Avrio and Eralion, the next step is to invest in foreign films or even co-produce international films. Under Chinese regulations, Sino-foreign co-productions can bypass import quotas and be treated as local films - thus securing wider releases and offering more profitable revenue-sharing schemes.

Another future plan is to invest in China's developing cinema business in order to have better access to screens. Polybona is one of the first distributors to invest in cinemas, both by itself and in partnership with Korea's MK Pictures, and Avrio and Eralion will follow in 2007.

Cinema owners are also stepping into acquisition and distribution. Guangzhou-based Guangdong Film Company, which runs a successful circuit of 70 cinemas with 230 screens, has recently partnered Hong Kong and Beijing-based Light House Productions to acquire and distribute foreign films.


Past releases: Valiant (UK)
Future releases: Babel (US), DOA: Dead Or Alive (US), Step Up (US)
Contact: Johnny Liu, president, johnny-liu@avrio.com.cn
(86) 10 6554 3358

Past releases: Sky Fighters (Fr), Daisy (S Kor)
Future releases: Arsene Lupin (Fr), The Sinking Of Japan (Jap)
Contact: Yu Dong, CEO, polybona@vip.sina.com
(86) 10 6460 0906

Past releases: White Planet (Fr), Arthur And The Invisibles (Fr)
Future releases: Pan's Labyrinth (Mex-Sp)
Contact: Li Lianxia, managing director, domomedia@mac.com
(86) 10 8235 8242

Past releases: March Of The Penguins (Fr), Der Clown (Germany), Duplex (US), Oliver Twist (UK-Fr-It)
Future releases: In The Name Of The King: A Dungeon Siege Tale (Can-Ger)
Contact: Lan Fang, managing director, lanfang@eralion.cn
(86) 10 8584 1115

Looking for action, thriller and documentaries
Contact: Cindy Shyu, CEO, cshyu@worldlighthouse.com
(86) 10 6413 0541

Future releases: Tristan And Isolde (Ger)
Contact: He Zhikai, managing director, bjkai@126.com
(86) 10 5165 9902