September 25, 2023



Korean Box Office Manipulation: Distributors Admit Systemic Fraud Was Commonplace

Korean Box Office Manipulation: Distributors Admit Systemic Fraud Was Commonplace

Last week, serious allegations emerged about extensive box office fraud in the Korean film industry over the past 5 years. Seoul police referred 93 movie industry executives to prosecutors for allegedly colluding to inflate ticket sales numbers for hundreds of films. The accused include executives from Korea’s 3 biggest theatre chains (CGV, Lotte, Megabox) and major distributors like Showbox. They are accused of providing false data to the government’s Korean Film Council, which collects and reports box office figures. This massive alleged fraud raises concerns about the reliability of Korean box office data and could have major implications for the domestic film business if proven true.

However, some in the Korean film industry say these practices were an open secret for years and may not have been as unethical as they appear. Much of the resentment is being directed at the major multiplex chains, which are owned by Korea’s biggest conglomerates and hold immense market power. Insiders say the conglomerates dictated the questionable practices now under scrutiny.

Police allege up to 2.67 million fraudulent admissions over 5 years, including for major hits like Emergency Declaration and Hot Blooded. One tactic was “ghost screenings” – distributors buying tickets in bulk for near-empty theatres to boost rankings.

While concerning if true, there are nuances to these allegations. The police findings have sparked an important debate about transparency and ethics in the Korean film business, especially the outsized influence of the multiplex chains. More investigation is needed to understand the full context behind these complex practices.

Police have recommended improving the box office reporting system, as currently, theatres alone report the data and distributors/producers who allegedly collude face no penalties. Insiders say these practices were common knowledge – distributors and producers would reserve ticket blocks for marketing events, with the multiplexes demanding such arrangements to grant screen access. The promotional tickets were counted as regular sales, though actual attendance was lower.

Part of the issue is Korea uses admissions, not revenue, to measure box office. So bulk-buying for marketing creates discrepancies when admissions are compared to revenue.

The allegations shine a light on questionable industry practices that were an “open secret.” While concerning if true, the context is complex – theatre chains’ power, admissions vs revenue metrics, and marketing arrangements. More transparency and oversight of box office data reporting may be warranted. But there are likely nuances to these practices versus outright fraud.

The police investigation included the documentary The Red Herring, which was crowdfunded by supporters of a disgraced politician. While some screenings were reported as sold-out, the actual turnout was much lower. However, producers gave tickets in advance to individual crowdfunding investors, not all of whom attended. This illustrates the complexity – bulk ticket buys for marketing purposes don’t necessarily indicate fraud.

Some industry voices say despite the controversy, the case could increase transparency around film distribution and marketing practices, which has been lacking. The use of marketing budgets in particular has been an ongoing issue.

While the allegations are concerning, the reality is likely more nuanced than outright fraud. Marketing arrangements, crowdfunding models, and bulk ticket buys paint a complex picture. Increased oversight could be beneficial to clarify appropriate practices versus misconduct. More context is still needed around the accused behaviours.

Directors’ compensation depends on ticket sales profits after production and marketing costs. But there is often a lack of transparency around marketing spend.

While not a direct target, some blame the Korean Film Council’s weak oversight of exhibitors. Recently the Culture Ministry criticized the Council’s budget management and lack of transparency in funding decisions.

This highlights underlying issues – unclear marketing budgets and questionable oversight – that may have contributed to questionable practices. The allegations, though concerning if true, seem to be symptoms of broader systemic problems around data transparency and accountability. Increased oversight and reforms could help clarify appropriate versus unacceptable practices. More context is still required around the accused behaviours rather than jumping to conclusions.

The controversy has damaged public trust in the box office reporting system and industry. The Culture Minister said restoring trust requires shifting box office metrics from admissions to revenue and revising laws to penalize data manipulation. The Korean Film Council agrees.

This comes as the theatrical film sector struggles to recover from the pandemic – first half of 2023 admissions were only 57.8% of the 2017-2019 average.

While concerning, the context is important – an industry still rebuilding post-pandemic, and systemic data issues. Increased oversight, transparency reforms, and clarifying laws/penalties make sense. But conclusions shouldn’t be jumped to. More investigation is required to understand if unacceptable practices occurred versus normal marketing arrangements. Restoring public trust will require nuance and caution

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Jhon Steve