Exploring the way to divide the accounts at the box office of movies

Author: Music Entertainment Law

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On February 17th, 2021, the 2021 Spring Festival ended with a box office score of 7.822 billion yuan, which set a new record in China film history and created the "strongest Spring Festival in history". On February 18th, Alibaba Pictures Lighthouse Research Institute released the Insight Report on Market Data of Spring Festival 2021. According to the report, in addition to the 7.822 billion total box office performance, which increased by 32.5% compared with 2019, the 2021 Spring Festival file also set a new record of 160 million total movie attendance.

Billions of movie box office, without making people curious, who have entered the pocket? Today, let’s explore the "playing method" of the movie box office. Today, we are going to explore the development of the movie’s box office billing from a historical perspective, and combine the early billing model with the dynamic billing model in Hollywood, hoping to provide new development ideas for the film industry under the rapid development of modern Internet and digital media.

oneLooking back at the growth history of box office billing

1, the first government under the guidance of accounting rules.

In 1993, the State Administration of Radio, Film and Television issued "Several Opinions on Deepening the Mechanism Reform of the Film Industry at Present" ("Document No.3"). Under the promotion of this document, the then Beijing Film Studio and the first joint-stock film production company in China, namely Shanghai Yongle Film and Television Co., Ltd., jointly signed an accounting agreement for the release of the film "The Lion King" in April 1993. The film became the first film in the mainland to be settled by box office accounts after the founding of New China. At that time, after more than half a month of negotiation and negotiation, the two sides implemented two rounds of settlement on the specific distribution income sharing: "Four months after the premiere of the film, the first round was divided. Within one million yuan, Beijing Film Factory accounted for 60% of the distribution income, and Yongle Company accounted for 40%; Four months after the premiere to the expiration of the release period, the second round is divided, with Beiying Factory accounting for 42% and Yongle Company accounting for 58%. " Because the distributor occupied a dominant position in the distribution relationship under the historical conditions at that time, most films produced by mainland studios had to bear the copy fee and part of the publicity fee on the basis of only sharing less than 35% of the box office income. Therefore, in reality, the final box office income of the film side only accounts for about 24% of the total box office.

In addition, in 1994, the domestic film industry began to introduce 10 overseas blockbusters every year in the form of box office accounts. After the promulgation of Document (3), China Film Company has the policy of exclusive distribution of overseas "blockbusters". With the support of the cultural department, in order to smooth the distribution network, provincial film distribution companies use measures such as property rights connection, joint operation, contract system, monthly rent system and single-chip bidding system to divide profits downwards.

2、After the reform of the cinema, the modern box office accounting mode

Before understanding the box office accounting model in the modern film industry, we must first make it clear how the box office of the film is constituted.

The total box office of a movie actually refers to the sum of the box office receipts of all the movies shown in the cinema, including the divisible box office and some non-divisible box offices.

The inseparable box office mainly refers to the basic costs such as special funds and taxes, that is, before the box office accounts are divided, 3.3% of the business and its additional taxes (which may include urban construction tax and education additional tax) and 5% of the special funds for the development of the national film industry should be deducted from the total box office income of the cinema, and the remaining box office income should be distributed among the film producers, distributors, cinemas and cinemas.

Divided box office is owned by producers, distributors, cinemas and cinemas:

Producers, that is, investors or producers, can be companies or individuals, and producers, as investors in film production, will invest a lot of money as production costs in the early stage, which is the main beneficiary of the box office revenue of the whole film.

The distributor refers to the film distribution and publicity company, which is mainly responsible for film publicity, food stalls, advertising purchase, signing contracts with cinemas, etc.

Cinema refers to the alliance formed by many affiliated cinemas. At present, there are more than 50 cinemas in China, such as Jinyi, Hengdian and Wanda. The cinema will distribute films and promotional materials to various cinemas, and uniformly arrange film arranging guidance and advertising space sales in cinemas.

Cinemas are the most common cinemas that people choose to go to when watching movies every day. For cinemas, the main costs are venue rental fees, labor costs, promotional materials and other expenses.

In 2008, the State Administration of Press, Publication, Radio, Film and Television (now revoked) issued the Guiding Opinions of the Film Bureau of the State Administration of Press, Publication, Radio, Film and Television on Adjusting the Accounting Ratio of Domestic Films, which explicitly mentioned the guiding opinions on the accounting ratio of domestic films, that is, "the producer should not be less than 43% in principle and the cinema should not exceed 50% in general." At the same time, it also stipulated in principle the proportion of account sharing between cinemas and cinemas, and made it clear that cinemas connected with the assets of cinema companies need to negotiate the proportion of account sharing with their cinema companies on the premise of "ensuring the proportion of account sharing by producers". That is to say, in any case, the producer should be guaranteed to share no less than 43%, and the remaining 57% should be shared by the cinema and the cinema line. At the same time, if a film is invested and co-produced by several companies at the same time, then each investment company will divide the accounts according to the proportion of investment and the investment agreement.

At present, the box office settlement in China is mainly completed by the third-party authoritative settlement organization. The movie ticket revenue is first in the hands of the platforms that sell movie tickets online, and these platforms deduct the service fee and then transfer it to the theater. The theater will combine the online movie ticket income received with the movie ticket income directly sold by the offline theater, which is the total box office of the movie in the theater. In this link, the cinema will first pay the corresponding special fees and operating and additional taxes, and then keep the corresponding box office income that the cinema should get according to the agreed proportion, and transfer the remaining fees to the cinema. Finally, after the cinema deducts its due in proportion, it will hand over the remaining money to the third-party settlement center. In China, there are only two authoritative third-party settlement centers, namely China Film Group Corporation and Huaxia Film Distribution Co., Ltd. When the money arrives at the settlement center, it will stay for several months, because the arrangement of the same movie in different theaters may be quite different, so after the movie is released, it will receive the box office of each theater one after another, and the settlement center will wait until the box office collection is basically over before putting the money into the film’s account. Therefore, in fact, the average producer will not receive the corresponding income after the film is released for several months.

Second,The "Platform" Account-sharing Mode of Online Movies

With the continuous upgrading of network technology, digital technology and video and audio technology, the advantages of three-dimensional audio-visual experience of cinema compared with network cinema are no longer outstanding. Since the end of 2016, major domestic video websites have successively announced their own platform accounting mode. Video websites are transplanting the "separation of production and broadcasting" mode in the past TV station system into the Internet ecosystem, and began to unite content producers to create their own "platform accounting" strategy. It is also these platform accounting rules that have entered the mode operation, which has brought revolutionary development to the domestic media ecology.

Compared with cinema movies, online movies have also broken the traditional mode of sharing accounts, and replaced it with a multi-in-one, flexible and combined benefit sharing mode of "guaranteed copyright fees+new accounts+viewing accounts+advertising accounts". Moreover, the accounting mode of each platform is not the same. For example, iQiyi pays attention to various forms such as movies, variety shows, animation, etc., and pays attention to copyright development and original works; ; Youku is a shop that has set up online movies and started a brand-new self-operation mode. In 2017, it even proposed an "open platform plan" to connect with online cinemas.

((Image from Li Min. Media Ecological Change Brought by Platform-based Accounting [J]. Audio-visual, 2018(02):5-6.))

On the whole, although the production cost of a few online movies has exceeded 10 million yuan since 2017, for example, the cost of "Heroes of Huang Feihong’s North and South" is 15 million yuan, reaching the level of small and medium-sized cinema movies, but the production cost of most online movies is still one million yuan. At the same time, low cost means that the entry threshold of online movies is also low, which is also an important reason for its large output. The production cost of online movies is low, so it can have a large space for capital operation, and it is also possible to obtain higher profits.

Like cinema movies, an online movie will break through a million hits in a short time. Click on the peak concentration, explosive. For example, the box office of the cinema movie Dying to Survive (2018) was 159 million yuan on the first day of its release, and the click-through rate of the online movie Huang Feihong’s North and South Heroes (2018) was 147 million yuan on the first day of its launch; The first day of the cinema movie Fanghua (2018) was 76.1047 million yuan, and the first day of the online movie Bride of the Dragon (2018) was 20.6439 million yuan. However, the box office continuity of cinema films is weak, and it is difficult to continue to arrange films in cinemas after the screening. However, the box office continuity of online movies is strong, and there will still be a long click-through period after the concentrated click-through period. For example, The Hero of Huang Feihong’s North and South is a movie released on May 15, 2018. On August 11, 2018, it still had a click-through rate of 158,000. Sister-in-law is a film released in 2017, and it still has 787,000 hits on August 14th, 2018. Click-through rate is the "box office" of online movies, and it is the most direct income of movies, and the Internet has given movies a longer life. At the same time, cinema films will turn to online platforms for distribution after screening, which will expand the box office revenue of cinemas. The cinema films entering the online platform still form a new round of box office benefits according to the click-through rate law of online movies.

Therefore, no matter whether it is a movie mainly distributed on the Internet or a movie first shown in the cinema and then shown on the Internet, it can get lasting attention on the Internet platform and extend the life of the movie. The non-regional and cross-spatial nature of the network platform has created a fully free living space for online movies. Excellent online movies can maximize their life cycle in the internet space, ensure their online rate, and even endure for a long time. The continuity of the click-through rate of online movies has broken through the economic constraints of traditional box office and opened up new possibilities for the film industry.

New things are always in the pipeline. On the first day of the New Year’s Day in 2020, under the impact of the first wave of COVID-19 epidemic, all cinema films stopped, cinemas closed, and all Spring Festival films were suspended. Under such circumstances, Joy Media cooperated with ByteDance to let the movie Lost in Russia, which should have been shown in the cinema, be broadcast on several platforms under ByteDance’s banner for free, which opened the "first online premiere of the Spring Festival movie in China film history" and was also the first traditional cinema movie to be premiered online. Lost in Russia’s online broadcast won unanimous applause from the movie audience, but it was boycotted by most traditional cinema companies. Different views have different attitudes towards Lost in Russia. Some people think that Lost in Russia’s choice of network premiere is neither illegal nor ethical. There is also a view that there is some breach of contract in Lost in Russia’s method of changing the online premiere, which should be solved by the losing party through legal means instead of relying on the public power of the competent department. Lost in Russia’s free network premiere contributed to a win-win situation for the film, the video website and the audience. The film side stabilized the production cost with a copyright fee of 630 million yuan, and the video website won with the business model of "word of mouth+traffic". The audience who could not enter the cinema to watch the New Year’s film in the country enjoyed the online free viewing experience on the video website. However, the free online premiere of cinema films in Lost in Russia during the Spring Festival broke the long-standing industry rules, which directly caused huge economic losses to cinemas and cinemas. This is because as a box office blockbuster in the Spring Festival,Before the epidemic has come, the goal of the film Lost in Russia has always been the cinema release, which is a traditional cinema film. Many cinemas and cinemas across the country have shared a lot of film publicity and distribution work and invested a considerable amount of money. The temporary cinema line change in Lost in Russia is equivalent to directly bypassing the downstream links in the conventional cinema billing system, movie ticket sales platforms, settlement centers and many other stakeholders, and the filmmakers directly benefit from copyright sales, which is equivalent to directly converting the original cinema box office income into copyright income. The cinema and the cinema not only failed to get the due income under the original accounting system, but also suffered huge losses because of the previous investment in publicity and development. In fact, this split-account model has broken the industry rule that "the income of producers should not exceed 43% of the box office in principle, and that of cinemas should not be lower than 50% of the box office", which makes Lost in Russia a traitor to the film industry and is boycotted by the industry.

Third, HollywoodFilm accounting mode

At present, the "accounting system" we are discussing was actually born in the United States, where the film industry is the most developed. As early as around 1948, the eight major Hollywood film companies began to integrate all aspects of the film industry chain, and went to the road of vertical integration between producers and distributors. Barry littmann, an American scholar, shows the income flow chart of the American film industry in his book The Big Film Industry, and introduces the box office share of the American film industry after vertical integration.

From this figure, we can see the respective proportions of the three links of the film industry in the box office distribution process. First of all, the projection industry can get about 10% of the box office income after deducting the expenses needed to run the cinema. After deducting the costs of producing and distributing films, the remaining income will be distributed by all the shareholders (usually the main distributor can get 50% of the net profit), and then the producer will get all the remaining profits.

American scholars Swanmy, Sanjay, etc. further dynamic the income flow chart displayed by Barry littmann in the article "A Model Approach to Film Screen Management", pointing out that American film publishers and exhibitors will sign special screening contracts before the film is released, and their income share will change in different screening weeks.

Usually the ratio of the former to the latter in the first week is: 70%: 30%;

Second and third weeks: 60%: 40%;

The fourth week: 50%: 50%;

The fifth week: 40%: 60%;

Balance point: 35%: 65%.

In the first few weeks of the film’s release, the distribution of box office is beneficial to the distributor, but as time goes by, the projectionist will get a larger proportion of the box office share.

The biggest advantage of this dynamic distribution model is that the profit and income of the film producers and the projectionist are more closely linked, which can not only effectively reduce the production risk of the producers, but also encourage the cinemas to extend the screening cycle of films (mainly high-quality films) and maximize the box office profits of films.

Fourth, look to the future

With the structural reform of the film industry and the rapid development of digital economy, the profit space of cinema films for online screening will gradually increase, and the cooperation between traditional film industry and emerging video websites is likely to be a win-win situation in the future. Although the innovative exploration of the digital transformation of the film industry must respect the basic market norms and industry rules. However, in order to maximize the profits of film producers, cinemas and cinemas, I think it is worth looking forward to whether new industry rules can be formed in the future when the Internet and digital media are developing at a higher speed, and whether the online and offline integration of the film industry and the Internet industry can be accelerated.

Reference note:

[1] Xiang Yong: "<囧妈>Whose cheese did you move? -On the Development Pattern of China’s Cinema Lines in the Era of Digital Creativity, published in Art Review, 20203, pp. 88-95.

[2] Shi Xiaoxi: "Study on the Distribution Pattern of Box Office in Domestic Film Industry", master’s degree thesis of Communication University of China in 2013.

[3] Fan Lizhen: "Disputes over the proportion of movie box office accounts-looking forward to rationalizing the relationship between system and distribution", in the April 2012 issue of Contemporary Film, pp. 15-19.

[4] Ding Lei, Xing Dachuan: "The Composition and Features of the Online Film Industry", in Film Literature, No.24, 2018, pp. 4-9.

[5] Li Min: "The Media Ecological Change Brought by Platform-based Accounting", Audio-visual, No.2, 2018, pp. 5-6.

[6] (America) Barry littmann (Litman, B.R.): "Big Film Industry", 2007 edition, Tsinghua University Publishing House, p. 49.

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