Innovative Financial Services for the Film Industry

22 August 2012

The film industry is one of China’s most closely-followed and fast developing cultural creative industries, with newly emerging industry models and box-office revenue reaching Rmb13.1 billion (US$2.06 billion) in 2011. However, deficiencies still exist in securing funding for domestic film production, promotion, and distribution. With the exception of listed companies that can depend on the issuance and allotment of stocks, the majority of companies can only turn to internal funding because they have difficulty securing the credit support of banks and trusts. In order to stimulate the development of the film industry, the government has promoted the Guidance for Economic Support of Cultural Development and Prosperity policy and drafted the Film Industry Promotion Act for public comments, giving institutional protection for the film industry as well as credit products and services for film production, distribution, and cinemas. This active stimulation of synthesis between the film industry and finance sector will increase the speed and quality of industrialization in the film sector, creating a group of highly competitive companies.

Problem Areas in Innovative Financial Service

The Bank of Beijing has actively responded to government policy and started to offer credit products directed towards cultural development. These new models of credit services no longer demand immovable property as collateral in mortgage registration, but accept copyrights as a replacement. This is better suited to the film industry’s inherent nature of having limited fixed assets and plentiful copyright assets. Run Ming has successful experience in securing credit services for film and television companies.

We believe that companies should pay attention to the following points in offering copyright as collateral for credit services:

Clearly define property shares. Film copyright-holders are usually numerous, and property right sharing

agreements are often unclear or conflicting, making securing loans difficult in the future. If the content of

contractual agreements is found to be problematic, we advise the related parties to make formal addenda

or modifications in order to clarify copyright ownership or status issues.

Copyright ownership should be agreed upon by all parties involved. If the copyright-holders are connected under associate companies, the pledge will not often be opposed. However, if copyright-holders have opposing interests, and disagree with the pledge, then securing loans in the future will be difficult. We advise that all parties involved should undertake written agreement regarding copyright ownership, insofar as to agree upon the pledge as the precondition for cooperation.

Assessment of copyright value. A reasonable, objective, and accurate assessment of copyright value is a tool for banks to control risk, as well as a basis for consideration. Upon the foundation of due diligence regarding copyright issues, we advise banks to also take advantage of professional assessment by accountants to take precaution against risk.

Copyright registration and pledge registration. The owner of a copyright must apply for registration with the National Copyright Administration (NCA) of the PRC. Once the copyright has been registered, it must be pledged to the NCA. The pledge will be affected after this process has been completed.

Joint and several guarantees, countersecurity. Professional security companies can provide joint and

several guarantees for pledge loans, minimizing the bank’s risk. We advise copyright-holders to first understand security companies’ rates, and then confirm the concrete requirements of countersecurity, objectively assessing one’s overall financing costs and the likelihood of obtaining securities.

Government subsidies on loans and security. In order to minimize industry pressure, the government has provided subsidies for credit and countersecurity services. We advise companies to take advantage of subsidy policies as much as possible to gain the best benefit.

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