MCLC: SEC investigates Hollywood bribes in China

[Denton, Kirk]

MCLC LIST
From: kirk (denton.2 at osu.edu)
Subject: SEC investigates Hollywood bribes in China
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Source: NYT (4/24/12):
http://www.nytimes.com/2012/04/25/business/global/sec-asks-if-hollywood-pai
d-bribes-in-china.html

S.E.C. Asks if Hollywood Paid Bribes in China
By EDWARD WYATT, MICHAEL CIEPLY and BROOKS BARNES

The Securities and Exchange Commission has begun an investigation into
whether some of Hollywood¹s biggest movie studios have made illegal
payments to officials in China to gain the right to film and show movies
there, according to a person with knowledge of the investigation.

The inquiry creates a potential roadblock for the industry¹s plans to
expand in one of the world¹s largest markets.

The S.E.C. investigation has so far focused on at least three studios, the
person said, but all of the largest and some smaller studios have been
contacted or made aware of the inquiry, according to the person, who has
direct knowledge of the investigation but who spoke on the condition of
anonymity because the matter could end up in court.

In the last year, both the S.E.C. and the Justice Department have
increased investigations under the Foreign Corrupt Practices Act, known as
F.C.P.A., which forbids American companies from making illegal payments to
government officials or others to ease the way for operations in foreign
countries.

Government investigators have been particularly interested recently in the
practices of United States companies in China, one of the largest
potential markets and one that Hollywood executives have been particularly
keen to enter.

An S.E.C. spokesman declined to comment on Tuesday.

The investigation was first reported on Tuesday by Reuters, which said
that five companies had been contacted by the S.E.C., including 20th
Century Fox, which is owned by News Corporation, the Walt Disney Company
and DreamWorks Animation.

Officials at those companies declined to comment, as did a spokesman for
the Marvel Entertainment unit of Disney, which recently said it would film
part of ³Iron Man 3² in China.

Spokesmen for the other major Hollywood studios, none of which are known
to be under investigation, either declined to comment or did not respond
to a request for comment.

Hollywood has been trying to get more films into the Chinese market for
decades, but efforts have picked up in recent years in large part because
China has identified cinema as a growth priority. China is racing to build
more modern theaters to entertain an expanding, cinema-loving middle
class. The country is also escalating local film production, partly as a
way to spread its culture across the globe.

In February, Xi Jinping, China¹s vice president and likely future leader,
visited politicians in Washington and movie executives in Hollywood. Soon
after, China raised the number of foreign-produced films that can be shown
there each year and increased the portion of box-office revenue from China
that the movie studios get to keep.

Under the agreement, China agreed to allow 34 foreign-produced films to be
shown annually, up from a quota of 20, as long as the additional films use
either Imax or 3-D technologies. China also agreed to let studios keep
about 25 percent of the box-office revenue; currently, Hollywood gets
about 15 percent.

The discussions leading to the deal were conducted at a high level, as
Vice President Joseph R. Biden Jr. joined Mr. Xi in personal negotiations.
Given the level of diplomacy involved in reaching the agreement, the
S.E.C. inquiry could be an embarrassment to the Obama administration.

Jeffrey Katzenberg, the DreamWorks Animation chief executive, and Robert
A. Iger, Disney¹s chief executive, also helped forge the agreement.

China currently has about 6,000 movie screens, up from roughly 1,500 three
years ago, according to studio distribution executives. The Chinese
government has said it expects 20,000 screens to be operating by 2015 and
40,000 by 2040, bringing it on par with movie exhibition in North America.

Ticket revenue in China is expected to reach $5 billion by 2015, up from
$2.1 billion last year, according to box office tracking companies.

Hollywood is facing a slowing movie market at home. Last year, attendance
in North America dropped to its lowest level since 1993. Studios,
contending with a dying DVD business, are more reliant than ever on
showings in theaters and see China as a major antidote to their various
economic problems.

All of that means that movie and entertainment deals in China have become
a routine occurrence in Hollywood. DreamWorks Animation has announced
plans to build, with a trio of Chinese partners, a $330 million offshoot
studio called Oriental DreamWorks focused on family-friendly
entertainment. Disney has its own partnership to develop and produce films
and television shows; Disney is also building a major theme park in
Shanghai.

Imax, the large-format film company, is teaming with China¹s largest
theater operator, the Wanda Cinema Line Corporation, to spent $100 million
to build 75 theaters by 2014. Imax currently has 45 theaters open in
China, with an additional 57 in the works.

Even as they covet the Chinese market, however, executives and filmmakers
in Hollywood have remained wary of Chinese censorship rules, which are so
restrictive that most of the films being made and shown there are heavy on
fantasies to avoid being perceived as commentaries on political affairs.

In an interview earlier this month, Peter A. Chernin, the chief executive
of the Chernin Group, a media company that joined in producing ³Rise of
the Planet of the Apes² for Fox, said he was more inclined to deploy his
own company¹s next investments in India or Indonesia. The chase for media
investments in China had become ³overheated,² he said, and heavy
regulation has made China less attractive to him than other Asian markets.

Government officials have contended that American companies might be
cutting corners to enter the growing Chinese market. As part of a
reorganization at the S.E.C. over the last two years, the commission
created a specialized investigative unit devoted to violations of the
Foreign Corrupt Practices Act.

The S.E.C.¹s crackdown on foreign bribery grew to 20 cases in the year
ended last September, up from 16 the previous year and 13 in 2009. The
commission has brought seven cases so far in the current fiscal year.

Kara Brockmeyer, the chief of the S.E.C.¹s Foreign Corrupt Practices Act
unit, said in February that the commission had begun receiving better
cooperation recently from financial regulators in other countries, noting
that new antibribery laws had been passed in Russia and China.

Foreign bribery allegations have recently touched some of the largest
companies doing business in the United States, including Aon, Siemens and
Johnson & Johnson.