Hollywood studios under investigation for bribery in China: report


The U.S. Securities and Exchange Commission has launched an investigation into a number of major Hollywood studios over accusations of bribery, reports Reuters. The alleged bribes were supposedly paid to authorities in China’s government, as a way for the studios to show more movies in the country, whose movie market is booming.

The studios who have reportedly received letters from the SEC include 20th Century Fox, Disney, and DreamWorks Animation, according to an unnamed source. The letters apparently contained questions about “inappropriate payments” and how the studios dealt with “certain government officials in China.”

The SEC refused to commented on the matter. The studios have not commented.

As the middle class in China has grown, so has the movie market. However, it has been difficult for Hollywood to make many inroads in China because the government-run China Film Group limits the number of foreign films allowed to play in the country to 20 per year. This recently changed, however, after China’s upcoming leader, Xi Jinping, visited Washington. Following that visit, Vice President Joe Biden and U.S. Trade Representative Ron Krik announced that China would allow 14 Hollywood films to be exempt from the limitation, and be allowed to play in a variety of formats, including IMAX, 3D, and 2D, throughout the country.

In addition, DreamWorks hatched its own deal with China Film Group, which involves launching its own production studio in Shanghai, along with some Chinese entertainment companies.

Expanding in China is clearly an important goal for the movie industry, which saw box office sales drop 5 percent last year to $10 billion, while ticket sales in China skyrocketed 35 percent to more than $2 billion.

As Mike Masnick at TechDirt points out, it is interesting that Hollywood see so much potential in China, which is supposed to be the piracy capital of the world. Clearly, people in China are choosing to see movies if given the opportunity, even if they have cheaper options available.

“Once again, this seems to demonstrate why the problem is not piracy,” writes Masnick. “If consumers are offered what they want in a reasonable manner, they are more than willing to pay.”

Of course, once could argue that more people are willing to pay because, for the first time in their lives, they can afford to go see movies in the theater; the activity is still novel, while it is simply old news here in the U.S.

Regardless of the ironies in the story, it would seem that studios under investigation will have to answer some difficult questions in the coming months. The SEC and the Department of Justice have recently ramped up their investigations of bribery, which is illegal under the Foreign Corrupt Practices Act — the same law that landed WalMart in hot water (and caused it to lose $10 billion in market value on Monday) following an article from The New York Times that exposed a high-level bribery scandal in WalMart’s Mexico subsidiary.

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