Chapter 881: Box-office Theft

The Summer Season had ended, and Duke remained on vacation. He hadn't left North America, however, instead frequently visiting Lucasfilm in San Francisco to discuss the plans and script for the next Star Wars movie with a team of screenwriters.

Just as he had said before, Duke wasn't asking for innovation or originality; he wanted the safest possible plan. For an extremely successful franchise like Star Wars, the risks of innovation far outweighed those of playing it safe.

Aside from this, Duke also accompanied Scarlett Johansson on a trip to Tennessee. Scarlett was preparing to invest in the Regal Cinema Chain Company based there, which was one reason Duke cared so much about ticket prices.

At present, the Regal Cinema Chain Company fell far short of AMG and Regal Entertainment, yet it stood as a prime representative of North America's high-end theater chains.

Older North American audiences might still remember what some of the Regal chain's theaters used to look like: sticky floors, cramped seats, and pitifully small projection screens.

But all of that was completely gone from the Regal theaters Duke saw. In their place were a wide array of advanced screens, completely upgraded audiovisual projection quality, plush seating that could be reserved online, and even in-theater dining services.

The Regal chain began renovating over 600 screens and their related equipment across 50 of its theaters two years ago. The simple act of replacing fixed seats with recliners noticeably increased box-office revenues for those locations.

Meanwhile, according to the chain's plans, the company intended to renovate more than 2,000 movie screens and their related equipment over the next two years.

This was also one of the reasons Regal was seeking external financing.

After accompanying Scarlett on a tour of the company, Duke did not oppose her investment plan. Theaters would remain the foundation of the film industry for decades to come, and for an established chain like Regal, proper management was all it needed to make the investment quite worthwhile.

The company was not only renovating its existing locations but also opening new ones. Duke and Scarlett took a look at these new theaters, all of which offered the newly launched "Regal Grand Premium Viewing Experience."

This brand-new premium service included the latest oversized IMAX movie screens, fully upgraded theatrical lighting, completely updated Dolby Atmos 3D surround sound, real-time online seat selection, and priority purchasing rights for tickets at theaters in prime locations.

Naturally, all these upgrades meant higher ticket prices.

In these luxurious, high-end theaters, the chain had also begun piloting a limited-edition, black-anodized steel movie ticket. Audiences who purchased this ticket could watch any movie at that theater throughout the day without any limits on frequency or time.

At the same time, the chain was updating its membership rewards system to further enhance the derivative services of awarding points after ticket purchases. After rolling out in numerous theaters across Knoxville, Tennessee, this new membership system would be expanded to Regal locations nationwide.

Furthermore, treating them as a key source of profit, Regal was making a major push on concessions. All theaters under the chain now offered in-house bars, adjustable leather recliners, and in-theater dining with servers available at all times...

Because of this, the Regal chain had gradually become the "diamond tier" of high-end theaters in the North American market in recent years.

Originally, Duke had intended to accompany Scarlett on tours of more theaters and participate in their investment negotiations, but some new information from Warner Brothers forced him to return to Los Angeles early.

Fortunately, Tina Fey had come along as well. With an experienced hand like her assisting Scarlett in the negotiations, Duke was perfectly at ease.

The reason Duke had rushed back to Los Angeles was that his film had gotten caught up in a storm in the market across the Pacific Ocean.

It seemed that The Dark Knight Rises simply couldn't catch a break. A few days ago, a "box-office theft" scandal had broken out in the market across the Pacific. The Dark Knight Rises, which had earned nearly 1.6 billion RMB in a massive box-office run, had been passively dragged into it, with a portion of its revenue siphoned into the box offices of other films.

"Duke, you understand the market in China better," Doug Walter said, his brow tightly furrowed in the Warner Brothers conference room. "Do you think there's a better solution?"

"No..." Duke shook his head. "That's not our turf."

He thought for a moment before saying to Jamie Jensen, "When you leave for there tomorrow, take my letter of protest with you. Also, report this to the MPAA so they can apply pressure through diplomatic channels. We need to put an end to this so it never happens to our films again."

Having worked in the relevant industry across the Pacific, Duke knew perfectly well that box-office theft was not an isolated incident by any means.

"Stealing" the box office of Hollywood movies and reallocating it to domestic films was a frequently used tactic.

Jamie Jensen, who was about to fly across the ocean to resolve the incident and lodge a stern protest on behalf of Warner and Duke, couldn't help but sigh. "This market is indeed massive, but it's also incredibly chaotic."

"Don't forget, they've only just started." Duke walked over and patted him lightly. "We went through a phase like this too."

Since this was happening across the Pacific Ocean, they really didn't have many options. Unless clear, targeted legal measures were introduced over there, similar things would keep happening.

Furthermore, Duke knew better than the two Warner executives that the situation was actually far more chaotic and severe than they imagined.

The current film market in China was flourishing, setting new records for total box-office revenues every single year. But beneath the prosperous surface of the market were turbulent undercurrents. Anyone who cared about the industry had heard terms like box-office theft and Box Office Buying.

Having once been a member of this industry, Duke had looked into it, and some of the practices were truly shocking.

To discuss the details of box-office theft and Box Office Buying, one had to first understand the distribution and revenue-sharing systems for films across the ocean. The players in the market could generally be divided into three parties: producers, distributors, and theater chains.

It wasn't hard to understand. Producers made the films; distributors handled release work like making copies, scheduling release windows, and negotiating contracts with the chains; and the theaters mainly handled the actual projection.

So how did these three parties split the box-office revenue?

If someone bought an 80-yuan movie ticket, that 80 yuan was generally distributed like this: five percent went to the special fund for the development of the film industry, and 3.3 percent went to taxes.

After deducting those, the remaining 73.36 yuan was split between the producers and the theater chains at a ratio of 43 to 57. In other words, for an 80-yuan movie ticket, the producers and distributors would get 31.54 yuan, and the theater chain would get 41.82 yuan.

Of course, this was just a broad, foundational framework, and not every movie strictly followed it.

From this, it was clear that a film's box office, minus the portion that had to be handed over to the state, was split between the producers and the theater chains. Although there was an agreed-upon revenue-sharing ratio, nothing could escape the pursuit of profit. Sometimes, in order to make more money, theater chains resorted to box-office theft.

This was one of the reasons why box-office theft occurred.

For example, for a film with a 1-billion-yuan box office, the producers and distributors' rightful share would be nearly 400 million yuan. If the theaters used a series of methods to lower the reported box office to 800 million, then that hidden portion would be exclusively enjoyed by the theaters without needing to share it with the producers.

This meant the film's producers would lose their rightful profits. To explain box-office theft in a simple sentence: theaters used abnormal methods to steal the revenue share that rightfully belonged to the producers.

To achieve their goals, theaters could use a variety of methods.

For instance, handwritten tickets, entry without a ticket, and entry using voided tickets were some of the most basic methods among the many ways theaters hid box-office revenue.

Of course, this didn't rule out the possibility of a bug in a theater's ticketing system preventing normal ticket printing, leading to the temporary use of handwritten tickets. But the chances of that happening were infinitesimally small. If a certain theater saw a massive surge in handwritten tickets and ticketless entries, it could basically be concluded with certainty that box-office theft was taking place.

When encountering handwritten tickets, one could demand that the theater print a machine ticket. But did that guarantee the prevention of box-office theft? Of course not.

Things like handwritten tickets were only the most rudimentary forms of box-office theft. Now that distributors often employed monitoring tactics, handwritten tickets were easily discovered. Thus, a more advanced method became popular: the structured ticket.

What was a structured ticket?

For example, distributors would generally agree on a minimum ticket price for a movie with the theater chains. Say the agreed minimum ticket price for Movie A was 30 yuan. In reality, it certainly wouldn't be sold at the minimum price, but rather priced according to the market.

Suppose a theater set the price at 80 yuan based on actual conditions. If a moviegoer bought an 80-yuan movie ticket, then that entire 80 yuan would have to be shared with the producers, leaving the theater with no extra profit to steal.

So, theaters came up with a method: the bundled combo.

The theater would instead sell an 80-yuan combo: a movie ticket plus popcorn and a drink. Out of the 80 yuan, 30 yuan was counted as the movie's box office—since 30 yuan was the minimum ticket price—and the remaining 50 yuan was entirely counted as income from the popcorn and drink.

What was the benefit of this to the theaters? Revenue from popcorn and drinks didn't need to be shared with the producers; it went entirely into the theater chain's pockets.

In the pursuit of profit, the ingenuity of businessmen was limitless. There was an even more advanced method of box-office theft gaining popularity than the bundled combo: theaters using a dual-system for accounting and reporting.

The theater's reporting system was connected to the box-office monitoring network, and the box-office figures known to both the theater and the producers came from this system. However, the other box-office system was an accounting system secretly set up by the theater. It could also print machine tickets, but the revenue from those tickets was pocketed by the theater itself.

As everyone knew, theaters weren't the only ones committing box-office theft; often, the producers would join in as well. Capital inherently chased profit, and combined with the rather imperfect regulatory measures across the ocean, all sorts of box-office manipulation tactics born out of greed emerged in an endless stream.

For example, the most typical one was box-office siphoning.