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WTO tells China to share the wealth on Hollywood movies

China must break its government monopoly on distribution rights for Hollywood movies, the World Trade Organization (WTO) ruled Monday. The result could be more money for Hollywood, and eventually, a lifting of the 20-foreign-films-per-year limit.

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In July, "Transformers: Revenge of the Fallen" became the first Hollywood film to gross more money in China than in any other territory outside the US. The film's 19-day haul of 423 million yuan ($62 million) boosted it, briefly, to the all-time record set in 1998 by "Titanic."

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But "Transfomers" was quickly supplanted in theaters by "Founding of a Republic," a China Film movie about Mao Zedong's establishment of Communist China in 1949. The film got an unprecedented wide distribution push.

Spurring China’s movie business

Still, just as other local Chinese film companies are learning to tell better stories, raising their production standards to give imports a run for their money, Monday's WTO decision will force upstart distributors to hone the art of marketing movies, something China Film never had much stake in doing since it controlled the release calendar.

"This decision will be good for us theater owners and good for the marketplace," says Jiang.

The WTO decision not only cracks China Film's iron grip on distribution, but also weakens the 20-films-per year import cap that remains in place, says David Wolf, coauthor of a recent report on the WTO ruling for Beijing-based consultancy China Media Monitor Intelligence.

"With the monopoly broken by the WTO appeal ruling, there will be a need to ensure that China Film continues to make its accustomed money even as more state-owned or joint venture film importers start to take a piece of the pie," Wolf says.

One way to do that might be allowing more Hollywood films into the marketplace. To encourage this, the Motion Picture Association of America (MPAA) may point to the many big Chinese-made films to be released next year to argue that it helped to create a movie-going public interested in local product. By the end of 2009, China's box office is expected to chalk up its sixth straight year of growth averaging 25 percent. Last year, ticket sales rose more than 30 percent to $635 million.

More pressure to come

MPAA Chief Policy Officer Greg Frazier says the WTO's decision is "a breakthrough by any definition, but it does not mean the work is finished. Getting the ruling implemented successfully will be a challenge."

Even after the trade victory, the MPAA will likely up the pressure on Beijing again, as both Chinese and Hollywood filmmakers continue to lose out to China's well-established movie pirates and weak intellectual property rights protections.

"We can expect IPR pressure to reach another cyclical crescendo” late next year, says Wolf, doubtful that China will be able to rein in the pirates. Instead, he predicts, "the Chinese will offer a higher theatrical cap as a fillip to the US.”