Rules to Be Amended to Permit Sino-Foreign Co-Production of Web Series

In March 2023, the National Radio and Television Administration (NRTA) rolled out a draft amended regulation to solicit public comments. The regulation, Administrative Regulations on Sino-Foreign Television Drama Co-Productions (“Current Rules”, 中外合作制作电视剧管理规定), was first promulgated in 2004, and this newly published version is an amendment thereof (the “Amendment”). There are several features that are worth noting.

The Current Rules and the Amendment both outline three categories of production arrangements for collaboration between Chinese and foreign partners, namely Sino-foreign joint-productions (联合制作), assisted productions (协作制作) and entrusted productions (委托制作). However, in this article, we will focus on the most often seen Sino-foreign co-productions (hereafter "co-productions"), where parties jointly invest in and share benefits and risks of the co-production.

After a few years of signals, the Amendment is now officially putting the co-production of web series (initial broadcasting via internet platforms) under the same regulation as TV series (initial broadcasting via TV stations). The Amendment is expanding Sino-foreign TV co-production to cover web series, which is perhaps the most notable aspect of this round of proposed revisions. There is currently no generally available Sino-foreign co-production channel for web series, yet demand is increasing.

In practice, the transaction parties have used creative structures to make the co-production of web series possible. One of the approaches is to structure the foreign investment as consideration for a pre-purchase/pre-sale of intellectual property rights. In that way, the foreign investor’s money can be paid to the Chinese party as pre-paid consideration for the rights granted by the Chinese party, eg, exclusive distribution rights outside Mainland China or certain other foreign territories. Such approach has an increased tax cost, in that it will be subject to the PRC value added tax (VAT) when the Chinese party receives the money. There is also risk that such a structure may be challenged by the government as a circumvention of regulatory constraints, thus impacting the validity of the contracts.

With the official channel of co-production for web series opened, we can expect to see foreign production funding come in without the VAT cost, with the above-mentioned regulatory risk removed. During the last 12 months we have seen the continued increase in the need for Sino-foreign collaboration in the web series sector. Because of the constraints in the access available to foreign investors, we have seen a tendency for such proposed collaboration to take place outside the PRC. Given the inconvenience in the structure approximating a co-production as discussed above, investors both domestic and foreign do not seem to find it very attractive to follow such an adapted path on a continuous, long-term basis.

This being said, during the past few years there have been multiple projects structured as Sino-foreign co-production web series under a special policy and approval by the NRTA. There do not seem to be publicly available guidelines for these “supported and aided programmes”. Those projects include, among others, co-productions with producers from the Belt and Road countries. These projects are viewed as ad hoc exceptions to the general unavailability of access for foreign investors to fund web series through co-production.

In addition to opening the official channel of co-production for web series, the Amendment also aims to improve and streamline the existing regulatory framework provided by the Current Rules and make it more accessible for both the Chinese and foreign parties:

Moreover, the application documents are substantially simplified, reducing the required documents from eight to four, eliminating, among others, documents of the production plan, shooting locations in China and detailed shooting schedule. The current requirement for foreign partners to provide the certificate of establishment/resume and financial credentials is also removed, and the minimum word requirement for the episodic outline has significantly reduced to 500 (200 for a cartoon series).

In revenue terms, the web series market in China has undergone very substantial growth during the past six years. According to a news report, from 2016–20, the size of this market in revenue terms has a compounded growth rate of 50.9%, ie, from an annual revenue of RMB3.2 billion in 2016 to RMB16.8 billion in 2020. The estimated annual compounded growth rate from 2020–25, diluted by the pandemic years, is reported to be 10.1%. One may anticipate that the Amendment will help substantially in attracting a new wave of co-productions that will contribute to the growth of the web series market in China.