Shift in Investment Patterns in Film Finance

According to the China Film Investment and Financing Development Report (2025), released at the 16th Beijing International Film Festival in April 2026, China’s film investment and financing landscape in 2025 demonstrated four key characteristics:

• box office performance stabilised at a modest baseline while production capacity underwent structural adjustment;
• capital markets experienced narrow fluctuations with the film and entertainment sector tracking broad market trends;
• private equity investment remained subdued overall, though AI-driven content and short drama attracted strong interest; and
• bank-enterprise co-operation deepened, reflecting closer integration between financial and industrial capital.

Investors are placing increased emphasis on the commercial viability of projects, with greater focus on market positioning, target audience, and return potential. As a result, producers are under growing pressure to present financing proposals that demonstrate not only creative value but also clear strategic planning and long-term sustainability – particularly as the market has shown that neither brand recognition nor heavy investment guarantees box office returns, as evidenced by several high-investment titles underperforming in the past 12 months.

Short-Form Content Centralisation and Ecosystem Growth

The PRC’s short drama sector has continued its shift toward rights-driven and platform-integrated deal flow. ByteDance’s vertically integrated ecosystem – spanning Fanqie (online literature/IP sourcing), AI production tools, Douyin and Hongguo (distribution), and in-feed advertising monetisation – has become the most visible example of platform-led content consolidation. Hongguo Short Drama surpassed Bilibili in monthly active users by October 2025 to rank fourth among all video apps in China, underscoring the rapid institutionalisation of the format.

AI-Driven Productivity Gains and the Regulatory Response

Artificial intelligence has materially reshaped production economics across the entertainment value chain, most notably in short drama and interactive film-game production, where AI tools have significantly compressed typical production costs and timelines and lowered barriers to entry for smaller studios and independent creators. This productivity shift has simultaneously generated a wave of legal exposure around copyright ownership, portrait and voice rights, and content authenticity that regulators have moved swiftly to address. As AI moves from experimental tool to mainstream production infrastructure, compliance diligence – covering training data provenance, content labelling, and likeness rights clearance – is fast becoming a standard component of entertainment deal-making.

Live-Streaming Platforms

The interactive live-streaming sector in the PRC is expected to continue showing robust growth, with platforms diversifying their revenue models beyond traditional subscriptions towards advertising, e-commerce integration, and content licensing. Major M&A transactions support this upward trend, most notably Tencent Music Entertainment’s acquisition of Ximalaya – a leading online audio platform – for approximately CNY18.6 billion in cash and stock in June 2025, with the deal completing in May 2026. This transaction reflects continued interest among established platform operators in expanding audio content offerings and consolidating content resources.

Live Performances (Concerts and Festivals)

The PRC’s live entertainment sector delivered another strong year of growth in 2025. Large-scale concerts (events of over 5,000 attendees) generated ticket revenue of approximately CNY295.58 billion, a year-on-year increase of 13.7%, with attendance reaching nearly 38 million people, up 30.8% year on year. More than 60% of concert-goers travelled across cities to attend events, generating ancillary spending of over CNY220 billion on transportation, accommodation, dining and retail, reflecting a well-established “music plus tourism” multiplier effect estimated at approximately 1:6.85 for adjacent consumption. In February 2026, the Ministry of Culture and Tourism and the National Fire and Rescue Administration jointly issued a notice supporting new performance venue formats – including live houses and immersive performance spaces – and removing restrictions on the number of performances at duly licensed venues.

Micro-Dramas and Short-Form Serialised Video

The PRC’s short drama market exceeded CNY100 billion (approximately USD14.7 billion) in market size in 2025, nearly doubling from its 2024 level, with approximately 700 million domestic users. Revenue from short dramas has, by some estimates, overtaken China’s cinema ticket sales in absolute terms – a milestone illustrating how the format has fundamentally reshaped the domestic entertainment landscape in a short period. The global expansion of Chinese short drama applications has been equally striking, with overseas revenue reaching USD3.24 billion in 2025, a year-on-year increase of approximately 195%, and approximately USD1 billion in Q1 2026 alone, with more than 800 applications available across over 200 countries and regions.

Online Gaming and Esports

The PRC’s video game market achieved record performance in 2025, with total domestic sales revenue reaching CNY350.79 billion (approximately USD48.8 billion), and the registered user base growing to 683 million – figures that have led the industry to be widely regarded as the world’s largest gaming market by revenue. Game publication permits by the National Press and Publication Administration reached 1,771 in 2025, reflecting a sustained regulatory normalisation following the tightening of 2021. The esports segment continued its steady expansion, generating CNY29.33 billion in 2025, a year-on-year increase of 6.4%, with livestreamed content accounting for approximately 80% of total esports revenue.

Interactive Drama and the “Game + Film” Convergence

A distinctive format known as live-action drama productions, in which players make branching narrative choices, has emerged as a commercially active segment at the intersection of gaming and audiovisual content. Shengshi Tianxia, produced by New One Studio with Tencent distribution support, sold over five million copies as of mid-2026. The format has attracted growing capital and studio interest, though the sector remains highly polarised: industry estimates suggest approximately 90% of interactive film-game titles operate at a loss, underscoring “hits-driven” economics similar to traditional content industries. The format currently sits between gaming and drama regulation without a settled legal classification – an ambiguity that is becoming commercially material as investment scales up and platform distribution widens.

IP Consolidation

Content platforms have continued to pursue upstream acquisitions of production companies and IP libraries to secure supply and increase control over monetisation. Illustrative examples in the Chinese market include Tencent Music Entertainment’s acquisition of Ximalaya and Baidu’s acquisition of YY Live, both of which reflect continued interest in combining platform distribution, audience reach and content resources. In addition, China Literature increased its stake in YHKT Entertainment to a controlling position in 2026, illustrating the strategic value of integrating original IP reserves with downstream animation and screen adaptation capabilities. Similar logic is also evident in the growing participation of listed media companies in interactive audiovisual projects.

Strategic Financing of Virtual IP and AI-Driven Content

The rapid growth of AI-generated short dramas – estimated at approximately CNY16.8 billion in 2025, with more than 10,000 such productions released monthly at the start of 2026 – has attracted significant investment interest in AI production tooling, virtual IP, and AI-assisted content studios. Production costs have declined sharply as AI video generation tools have matured, lowering barriers to entry and enabling a new wave of smaller studio entrants.

Platform-Creator Strategic Alliances

Rather than outright acquisitions, platforms like Douyin, Kuaishou, and Bilibili are entering into multi-project strategic co-operation agreements with high-performing creators and mini studios. These often include minimum guarantee structures, priority option rights, or tiered incentive payments based on metrics such as episode completion rate or audience engagement.

Emerging Back-End Participation

Back-end participation in the PRC film and television market remains primarily contract-based. Recent platform rules show a more sophisticated approach to performance-linked participation. Platforms are adding post-release incentives, step-up rewards for better-performing titles, and longer sharing periods for projects that continue to attract audiences after release. For example, Tencent Video’s 2026 rules for horizontal series introduce additional incentives for pure revenue-sharing projects and extend the sharing period for higher-performing titles.

In the short-drama sector, there are also early signs of more creator-facing back-end arrangements. While revenue-sharing is still usually structured at the platform or production-company level, some platforms have started to promote greater transparency for core contributors, such as writers, directors and actors, and to experiment with mechanisms that allow certain contributors, especially writers and actors, to participate more directly in a project’s continuing commercial performance.

Inconsistent Economic Terms Across Transaction Documents

In recent experience, several recurring issues have led to disputes over back-end participation in film and television deals in the PRC.

Validity and applicability of agreements

Disputes frequently arise when different agreements or transaction documents contain inconsistent economic terms, particularly where parties proceed with performance before the full contractual framework is clearly documented. For example, in a 2025 short-drama investment dispute, the investor-facing agreement listed a project budget of CNY1.6 million, with the investor’s CNY80,000 contribution representing a 5% stake – but proceedings revealed the recruiter’s actual agreement with the main producer reflected a budget of only around CNY600,000, significantly diluting the investor’s real economic participation. Mismatches like this frequently drive disputes over the applicable revenue base, participation percentage, and disclosure obligations.

Unclear deduction standards

Disputes often arise over whether marketing costs, distribution fees, platform service fees, taxes, channel costs, operating costs, financing costs or post-production expenses may be deducted before calculating the participant’s share. Film investment disputes in the PRC have also shown that the courts may need to distinguish carefully between “revenue”, “income”, “recoupment” and “profit” where contract language is not precise.

The financing of innovation in the PRC market over the past year has been driven less by traditional theatrical films and more by the explosive growth of micro-dramas (微短剧) and vertical-format content, which has fundamentally reshaped how digital-first productions are funded. Traditional film financing (government-backed funds, thematic funds) continues alongside this shift.

Platform-Financed, Revenue-Share Models for Micro-Dramas

Under the now-trending “free-to-view plus advertising” (in-app advertising or IAA) model, platforms cover marketing and distribution spend themselves and pay producers a guaranteed base fee plus a share of subsequent ad revenue, rather than requiring producers to recoup costs from IAP (in-app purchase) revenue. Returns are now tied to completion rate and watch time rather than upfront conversions. For instance, Hongguo Short Drama introduced a formal “investing producer” status letting outside capital participate directly in IP selection and development, backed by a pledged CNY500 million fund and a move towards transparent, formula-based splits.

Tiered/Regional Release as a Risk-Mitigation Tool

Tiered or regional theatrical release (分线发行) has gained traction for niche or dialect-specific films as a way to de-risk distribution spend – releasing first, or primarily, into a matched regional market rather than committing to a full national roll-out. Examples include the Shanghainese-dialect film 《菜肉馄饨》 (released mainly across the Yangtze Delta) and the Chaoshan-dialect comedy 《夏雨来》 (targeted at the Chaoshan market), both of which achieved strong regional box office on comparatively narrow prints-and-advertising budgets.

In international co-productions, several recurring considerations have proven critical to ensuring smooth cross-border collaboration.

Understanding Legal Frameworks

It is essential to conduct early-stage mapping of regulatory requirements in each relevant jurisdiction. This includes, among others, identifying necessary permits and approvals, assessing tax and withholding implications, and ensuring compliance with local content regulations. Particular attention should be paid to the regulatory regime governing Sino-foreign co-productions in the PRC, including project registration with the National Radio and Television Administration (NRTA), content review requirements, and compliance with quotas on foreign talent.

Clarifying Terminology

Key contractual terms, such as “producer”, “net profits”, or “recoupment”, may vary significantly in meaning across jurisdictions. Clarifying these terms at the outset is important to avoid future misunderstandings or conflicting interpretations.

Managing Language Risk

Translation issues can lead to significant ambiguity, particularly in legal drafting. Bilingual counsel should be engaged, and dual-language contracts should be carefully reviewed to ensure that legal concepts are accurately and consistently conveyed.

Establishing a Clear Deal Roadmap

Sino-foreign co-production projects would greatly benefit from a well-structured roadmap that defines key milestones, decision-making responsibilities, rights allocation, and dispute resolution mechanisms.

Allowing for Timing Contingencies

Sino-foreign co-production projects frequently require longer lead times due to local regulatory procedures, cultural differences in negotiation styles, and extended internal review processes. Timelines should be structured with adequate buffers to account for these variables.

Broadened Force Majeure Definitions

While force majeure clauses have long been standard, their scope is now being materially expanded in major productions to incorporate lessons from COVID-19. In recent international co-productions, force majeure definitions often extend beyond general references to “epidemics” or “government actions” to expressly include communicable diseases, both actual and perceived, along with quarantines, travel restrictions, and public health declarations. Depending on the negotiation outcome, clauses may further specify the operational thresholds required to trigger force majeure, such as isolation of key personnel, site closures, or disruption to delivery or post-production schedules.

Advancing Insurance and Completion Guarantees

Production insurance and completion bonds remain far less standardised in the PRC than in Hollywood, but the past year has seen incremental institutional support: in March 2025, the National Copyright Administration and other authorities launched an IP-finance pilot across eight provinces and cities (including Beijing, Shanghai, Jiangsu, Zhejiang, and Guangdong), encouraging exploration of copyright-pledge financing, copyright insurance, and copyright securitisation – tools that, alongside production insurance, are increasingly used to share price risk on larger productions rather than leaving this entirely with financiers.

Technology as a Structural Risk-Mitigation Tool

A more durable post-pandemic shift has been the move towards virtual production as a means of reducing – rather than merely reallocating – location, weather, and logistics risk. Major players such as Damai Entertainment have built multiple virtual production studios (in Hengdian, Zhouzhuang, and Beijing), and industry-wide adoption of virtual production workflows has risen sharply since 2023. For large-scale productions, this is increasingly shaping risk-allocation negotiations themselves: parties now also negotiate which portions of a shoot will rely on virtual/LED-volume stages (with correspondingly lower force majeure exposure) versus on-location work (where traditional risk-sharing and insurance provisions remain essential).

While the 2023 SAG-AFTRA and WGA strikes – involving US labour unions representing performers and writers – have prompted major contractual shifts in Hollywood, particularly around the use of AI and protections for creative labour, these developments have not yet had a direct impact on the PRC market. This is largely due to the absence of an equivalent unionised system for writers, actors and directors, and the subsequent lack of collective bargaining mechanisms through which such contractual changes are typically negotiated.

However, the underlying issue – unauthorised use of a performer’s likeness, voice and performance data in AI-generated content – has become acute in the PRC over the past year, and has produced real contractual and regulatory change through mechanisms other than collective bargaining.

AI Likeness Licensing Moves From Pilot to Practice

AI-driven micro-dramas and “AI custom dramas” have changed digital-likeness licensing from an experimental practice to a more structured, if still early-stage, deal template among leading platforms and agencies. In April 2026, major streaming platform iQIYI announced that its self-developed AI agent platform had signed likeness, voice, and performance-data licensing agreements with over 100 artists for use in AI-generated content, on a project- and role-specific basis. Separately, talent agency Yuxiao Media – with no union behind it – has been recruiting performers specifically for AI-generated “digital doubles”, under agreements that define the scope of facial features, performance style, and voice usage, and that adopt a “base fee plus revenue-share” compensation structure tied to viewership and ad revenue – a structure that mirrors, in commercial substance, some of the residual-style protections SAG-AFTRA secured for AI use in its 2023 agreement.

While recent strikes in Hollywood have led to significant contractual and structural changes in the relationship between talent and studios, such labour actions are unlikely to serve as a model for the PRC entertainment industry. The PRC does not have an established system of collective bargaining for actors, writers, or directors, and industrial strike is not supported under existing regulatory frameworks.

Nevertheless, courts, industry self-regulation, and bilateral licensing practice are each filling part of the gap left by the absence of collective bargaining. On the judicial side, the Beijing Internet Court’s “recognisability” standard for AI-synthesised likeness sets a protection floor that talent can invoke regardless of individual bargaining power. Industry bodies are supplying an informal substitute for a union baseline – statements from groups like the Actors Committee of the China Radio and Television Association give agents a sector-wide reference point to negotiate against, even without a formal collective agreement behind it. And at the deal level, bilateral licensing practice – such as iQIYI’s project-scoped AI likeness agreements – shows platforms independently converging on structured, revenue-linked compensation terms, driven as much by a need to manage their own legal exposure as by pressure from talent.

As mentioned in 3.2 Union Strikes, in the PRC market, traditional guilds or unions for content creators, such as those found in the US do not exist in a comparable form. As such, non-traditional creators, including vloggers, livestreamers, podcasters and short video producers, generally do not encounter guild- or union-related issues in the conventional sense.

Platform and MCN Governance

The more relevant issues arise from platform rules and multi-channel network (MCN) relationships. In 2026, China issued new rules on internet content multi-channel distribution services, requiring MCN-type service providers to comply with registration, licensing, platform admission, identity verification, content security and livestream marketing obligations. Platforms are also required to sign admission agreements with such service providers and disclose the MCN relationship on relevant account pages.

New Employment and Labour Protection

A more labour-related issue is the protection of workers in new forms of employment. Recent policy documents expressly refer to platform-based workers such as online marketers and livestreamers, and call for better written agreements, timely payment, reasonable pay levels, algorithmic transparency and dispute-resolution channels. This may increase scrutiny of platform and MCN arrangements, but it still does not create a guild-style collective bargaining regime for creators.

Content, Advertising and Tax Compliance

Creators also face content and commercial compliance obligations. Network anchors must comply with real-name registration, content standards, IP rights and tax obligations, and anchors covering professional topics such as medical, financial, legal or educational content are expected to hold and file relevant professional qualifications. For livestream e-commerce, the 2026 Livestream E-Commerce Supervision Measures further define the responsibilities of platforms, livestream room operators, livestream marketers and service agencies.

Tax incentives in the PRC have impacted productions through multi-dimensional tax policies, contributing to domestic industry growth and international cultural exports. The legal framework should now be read together with the PRC VAT Law, which came into effect on 1 January 2026, and the relevant transition rules preserving existing preferential treatments, such as the following.

VAT Exemptions for Qualified Film Industry Activities (Valid Until 31 December 2027)

The PRC has implemented full VAT exemptions for qualified film enterprises on income from film copy sales (digital/physical), film copyright transfers or licences, film distribution revenue and rural distribution. For urban theatrical distribution, a simplified VAT calculation method (3% rate) is available instead of the standard 6–13% rate.

Zero-Rated VAT for Global Cultural Exports

Domestic entities providing broadcast, TV, and film production and distribution services that are consumed entirely overseas qualify for a 0% VAT rate.

Corporate Income Tax (“CIT”) Incentives

To incentivise market-oriented reforms, public cultural institutions (eg, state-owned studios) that transitioned to corporate structures by 31 December 2022 enjoy full CIT exemptions until 2027. Companies qualified as hi-tech companies (eg, AI-driven visual effects studios) also receive a reduced CIT rate of 15% and weighted deductions for innovation costs. Small and micro enterprises also benefit from CIT reductions and exemptions on minor taxes.

In recent years, jurisdictions across the PRC have adopted a more regulated approach to tax incentives for productions, striking a balance between regional economic goals and the central government’s emphasis on policy uniformity and fair competition. While overtly aggressive tax schemes like the “Five-Year Exemptions plus Five-Year 50% Reductions” in Huoerguosi (a border town in Xinjiang, which briefly became a popular registration hub for entertainment companies due to its preferential tax policies) back in the 2010s are no longer prevalent, and localised incentives exist in subtler forms, creating both opportunities and legal complexities for producers.

The PRC has strengthened oversight of regional tax policies targeting entertainment enterprises. A notable example is the Hainan Free Trade Port which, while offering an attention-grabbing “dual 15% cap” on corporate and individual income taxes, enforces substantive operational requirements, including a physical office presence, local workforce employment, and substantial business activities, to deter shell company formations. Nevertheless, local governments continue to leverage tax incentives to attract cultural enterprises, increasingly channelling these measures through specialised cultural industry parks and film hubs. This strategic shift involves embedding preferential policies within park-specific operational frameworks, rather than relying on public tax codes. These initiatives incorporate multi-dimensional fiscal mechanisms and are negotiated on a case-by-case basis, which may include:

• targeted incentives administered within the park;
• conditional rebates of locally retained tax revenues;
• strategic refunds of incremental VAT credits to offset upfront infrastructure costs;
• VAT credit/refunds to studios investing in technology upgrades; and
• rent reductions and utility bill rebates.

To benefit from these incentives, producers must navigate key risks, including compliance ambiguity and policy instability. Producers should prioritise verifying the legal validity and enforcement track records of incentives, and integrate milestone-tied safeguards into contracts.

International film projects typically adopt a holistic approach to leveraging tax incentives by favouring policies across multiple jurisdictions.

For foreign productions filming in the PRC, structuring projects as official co-productions remains a key strategy to bypass import quota restrictions and qualify as “domestic films” for theatrical release, thereby accessing the preferential tax incentives outlined in 4.1 Tax Incentives.

Regarding emerging challenges in international relations, potential trade barriers such as the proposed tariffs on foreign-produced films by certain countries are actively monitored. While current market dynamics prioritise incentive-driven location decisions, geopolitical tensions could necessitate contingency planning for scenarios involving retaliatory tariffs or content distribution restrictions.

The PRC’s government-supported funding system for entertainment projects demonstrates broad coverage and diversified implementation models. Key programmes span film production, performing arts, TV and digital content creation, with both national and local governments offering fiscal incentives to boost cultural innovation.

National Funding

At the national level, the PRC has long maintained a National Film Industry Development Special Fund, which imposes a levy on film box office revenue. The collected funds are allocated between national and local governments at a 4:6 ratio, with priority given to supporting cinema construction and equipment upgrades, minority-language film dubbing and accessibility initiatives, key film studio bases and production hubs, funding and rewarding the production and distribution of outstanding domestic films and artistically experimental or culturally distinctive films.

In 2026, the National Film Administration and the Ministry of Finance additionally launched a trial mechanism for using central-level film special funds to promote film consumption, and the broader “2026 Film Economy Promotion Year” initiative has been tied to subsidies, ticketing promotions and “film+” consumption scenarios.

Local Funding

At the local level, Beijing exemplifies targeted funding through programmes such as the Beijing Cultural Arts Fund, the Performing Arts Platform Subsidy Programme, and the Broadcasting and Online Audiovisual Development Fund – all dedicated to distinct entertainment sectors. Separately, Sichuan Province operates an annual CNY300 million provincial fund to support major cultural projects spanning film, television, stage productions, and literary works, with priority given to high-quality and heritage-focused initiatives. Support at the municipal level is also common. For example, Haikou City in Hainan Province implements a tiered incentive system that offers cash rewards for qualifying film and TV productions, stage performances, diverse arts venues, international sports events, and music festivals.

The Copyright Law of the PRC explicitly limits authorship to natural persons and legal entities or unincorporated organisations (only inapplicable here in limited scenarios), thereby excluding AI systems from qualifying as “authors”. Multiple judicial cases establish human authorship for AI-generated pictures under certain criteria, specifically when they demonstrate human intellectual contribution and originality.

A representative 2023 Beijing Internet Court ruling notably affirmed that the deliberate design of visual elements, the strategic selection and sequencing of text prompts, the calibration of technical parameters and the curatorial judgement exercised in selecting final outputs from multiple AI-generated alternatives all demonstrate the plaintiff’s intellectual contribution.

For originality assessment, a 2024 case demonstrates that the court will examine the uniqueness of expression and the demonstrable connection between human creative decisions and the final output, providing evidence that shows the creator’s ability to exercise control over and reasonably predict the creative outcomes. The court holds that when users engage in refinement of keywords, deliberate parameter adjustments, and selective approval of outputs, such activities render the AI-generated content (AIGC) “foreseeable and under the user’s control”.

Challenges in enforcing copyright for AI-generated content in the absence of human authorship may include:

• AIGC may fail to qualify as “work” for copyright protection under current PRC laws;
• if AIGC is not protected by copyright, third parties could freely reproduce or commercialise it without legal consequences; and
• if AIGC is protected, companies may claim copyright over mass-generated content, stifling competition.

Copyrightability of AI-Generated Pictures

Courts have recognised human authorship and copyright protection for AI-generated pictures when they demonstrate human intellectual contribution and originality. 

A court also holds that in the absence of original records to substantiate the plaintiff’s creative process, the choices and modifications of prompts lack evidentiary support, making it difficult to demonstrate the intellectual effort invested. Moreover, the plaintiff was not able to reproduce the same generation process as the disputed image. Therefore, the court finds it difficult to conclude that the plaintiff made personalised selections and modifications reflecting originality in the process of generating the disputed image. 

Infringement Claims Over Training Data

In a notable Hangzhou case involving the copyrighted character “Ultraman”, the plaintiff demanded the deletion of all related training data from the defendant’s AI model. The court ruled that where there is no evidence proving that the AI’s use of the training data:

• is aimed at exploiting the original expression of the copyrighted work;
• impairs the normal exploitation of the copyrighted work; or
• unreasonably harms the rights holder’s legitimate interests,

such use may be deemed fair use. On this basis, the court rejected the plaintiff’s broad deletion request of all Ultraman-related materials and data from the defendant’s training data.

This ruling has sparked intense debate in both academic and industry circles, as the PRC’s “fair use” doctrine, structured as a restrictive list under the Copyright Law, does not explicitly recognise AI model training as a permitted scenario.

That said, the risk of infringement increases significantly when unauthorised, protected materials are used to train and publish character-specific models – especially if those models reproduce protected expression and facilitate the generation of substantially similar outputs. A subsequent Shanghai case involving a “Medusa” character illustrates this stance regarding the training of specific Low-Rank Adaptation (LoRA) models. This dispute centred on the use of protected images from an animated series to train LoRA models capable of replicating the character. Because these models were subsequently published and used to distribute substantially similar AI-generated images, the court ruled that the conduct violated the rights holder’s reproduction right and right of dissemination via information networks.

Infringement by AI-Generated Content

In another Ultraman-related dispute, the court ruled that an AI service provider had infringed the plaintiff’s reproduction and adaptation rights by generating images that were substantially similar to the copyrighted character.

Digital Likeness Violations

Courts have consistently ruled that unauthorised use of a person’s voice, name, portrait, or likeness to create AI-generated content (eg, synthetic voices or chatbots) infringes upon their legitimate rights.

Two recent cases – one involving an AI face-swapped character resembling a well-known Chinese actor, and another concerning the AI processing of a voice actor’s voice – further illustrate this principle. In the former case, the court held that an AI-generated or modified image can infringe upon portrait rights if the relevant audience can identify the synthetic image as a specific person, even if the likeness is not perfectly identical. The court emphasised that creators must proactively avoid generating or using content that foreseeably risks such infringement. If a producer knew or should have known that AI-generated content would likely be identified with a specific individual, publishing it establishes liability. Crucially, the court noted that technological neutrality does not inherently exempt content producers from responsibility.

In the latter case, the court ruled that a natural person’s voice rights extend to an AI-processed voice if listeners can identify the individual based on distinct vocal features like timbre, intonation, and speaking style. Consequently, the court found infringement because the AI voice product was developed without the voice actor’s explicit authorisation.

Important Note on Legal Precedent in the PRC

Unlike common law jurisdictions, the PRC follows a civil law system, where court rulings do not establish binding precedents. Judges retain discretion to conduct case-by-case analyses, meaning outcomes may vary even in similar disputes.

The PRC’s media industry is undergoing a paradigm shift as major content holders strategically leverage and monetise their archives for AI advancements. In the visual content and film and television sectors, copyright-cleared image, video and other media assets are increasingly packaged into structured training datasets or data services for AI developers. Concurrently, AI platforms are proactively undertaking rigorous rights-clearance reviews and exploring portfolio-level licensing arrangements with studios and content platforms, including bespoke agreements for curated audiovisual clips.

Three parallel, and sometimes overlapping, market trends can be observed:

• First, large internet conglomerates possessing both vast content repositories and proprietary AI models are systematically channelling their content assets into their own AI ecosystems, aiming to capture the full economic value strictly within their own walled gardens.
• Second, state-owned enterprises (SOEs) and traditional media groups are revitalising their historically accumulated audiovisual archives and classic IP. They are doing so either by developing their own vertical AI capabilities or by partnering with top-tier AI technology providers to forge synergistic alliances – arrangements that function more as deep strategic collaborations than discrete licensing transactions.
• Third, dedicated data exchanges have been established in major cities, serving as formalised marketplaces where data elements and training datasets across various industries can be listed and traded on a standardised basis, offering an alternative to bilateral, bespoke licensing negotiations.

Ultimately, these patterns indicate a dynamic market that is still actively experimenting with diverse routes for AI-driven content monetisation, rather than converging on a single established licensing model. On the litigation side, iQIYI aggressively litigated against unauthorised use of its footage by an AI firm for alleged model training in 2024, with the case still pending a court ruling. The legal framework remains fiercely debated, as scholars and tech leaders grapple with whether the PRC’s restrictive fair use provisions and even the mandatory licensing mechanism should be reinterpreted or legislatively amended to address the unique demands of AI training.

In the PRC market, the concept of residuals, particularly as defined through collective bargaining agreements, is not commonly applied. This is largely due to the absence of formal guilds or unions that represent creative professionals, such as writers, directors or actors.

A notable development in the streaming market is the continued expansion and standardisation of platform-level revenue-sharing models – minimum guarantee plus revenue share, performance-based incentives, and formulas tied to platform income, membership or ad revenue, or effective viewing metrics – now applied across online films, mid-length series, short-form drama and other streaming-first content. These arrangements, however, should not be equated with guild or union residuals: they operate at the platform-to-producer level and do not create automatic downstream entitlements for individual writers, directors or performers. Any back-end participation for individual talent still needs to be expressly negotiated in the relevant talent, writer, director, or production services agreement.

Digital-first formats in the PRC market include web series and online films, short-form videos and dramas, and livestreaming. Micro-dramas have become particularly significant: in 2025, approximately 33,000 micro-dramas were released in China, with nearly 700 million domestic users, and the market size exceeded CNY100 billion, doubling from 2024.

Their revenue-sharing models involve several unique challenges.

Rapidly Changing Platform Rules

A key challenge is the speed at which platform rules evolve. Major platforms are refining revenue-sharing models based on platform income, paid viewing, advertising, membership revenue, effective viewing metrics, user conversion and other performance indicators. For example, iQIYI’s 2026 pay-per-click (PPC) revenue-sharing rules cover multiple content categories and use “platform income x sharing percentage” as the core calculation method. As a result, contractual terms may gradually become outdated, and parties need to address how future changes to platform policies, algorithms or settlement rules will affect existing projects.

Data Access and Verification

Revenue-sharing calculations are usually based on platform-controlled data, such as views, watch time, user conversion, advertising income or proprietary performance indices. Reports have noted that platform-side data and monetisation algorithms are treated as proprietary and commercially sensitive, which may limit content partners’ ability to verify revenue figures independently. While audit and reporting rights can be negotiated, their scope and enforceability often depend on the relative bargaining position of the parties and the commercial framework of the collaboration.

Risk Allocation

Performance-linked models may give producers and rights holders the opportunity to benefit from a project’s strong market performance, but they also require them to take on more commercial risk. In practice, negotiations often focus on whether a minimum guarantee will be available, how production and marketing costs will be recouped, whether the platform will commit to meaningful promotion, how long the revenue-sharing period will last, and how underperformance caused by delayed release, limited platform exposure or changes in recommendation strategy should be treated.

Regulatory Compliance

The PRC’s strict and fast-evolving content and platform regulations heavily influence revenue-sharing deals. Micro-dramas are moving towards more structured regulatory oversight: in June 2026, the National Radio and Television Administration released draft measures proposing filing, publication, content review and distribution permit requirements for micro-dramas. Platforms are therefore increasingly mindful of the need to address the financial consequences of take-down, suspension, re-editing, delayed launch, or failure to obtain required filings or approvals.

In-season stacking is generally not treated as an implied right in the PRC market. If the relevant licence does not expressly cover online streaming, catch-up viewing, episode-by-episode availability or stacking on an affiliated streamer, a broadcaster or platform should not assume that such rights are included.

The PRC position has become somewhat more flexible. In 2025, the NRTA introduced measures to improve content supply, including more flexible scheduling for seasonal dramas and pilot mechanisms for “review while broadcasting” and “revision while broadcasting” for certain types of series. However, this regulatory flexibility does not in itself create streaming rights or override contractual limitations.

In practice, parties should address stacking expressly in the licence, including the licensed platform, release window, episode availability period, whether earlier episodes may remain available after later episodes are released, and whether the rights extend to affiliated streamers. If the licence is silent on this, the safer approach is to obtain a supplemental licence before making the series available on a related streamer.

For reasons introduced above, labour unions and guilds do not materially impact the cost of distribution for streamers in the PRC market. Distribution costs are instead shaped by market-driven factors such as licensing models (eg, buyout versus revenue sharing), content exclusivity, talent pricing, and regulatory compliance. While some platforms adopt internal guidelines for talent compensation, there is no union-imposed cost structure affecting digital exploitation. As a result, the cost of distribution remains primarily influenced by platform strategy and content demand rather than labour representation.

Certain legal issues commonly encountered in M&A transactions involving entertainment companies in the PRC, particularly in the sale of film and TV content libraries, have been outlined below.

Foreign Investment Restrictions and Negative List Compliance

The PRC regulates foreign investment through the Special Administrative Measures for Foreign Investment Access (the “Negative List”), which restricts or prohibits foreign ownership in sectors such as film and television production and distribution, streaming platforms, and artistic performing groups. As a result, foreign investors often adopt variable interest entity (VIE) structures to indirectly control domestic entities. However, VIE arrangements face legal uncertainties, including potential invalidation by Chinese courts due to regulatory ambiguity.

Chain of Title Verification

Film/TV library transactions require extensive chain-of-title due diligence to confirm ownership and the status of underlying rights (eg, scripts, music scores). Existing third-party licensing arrangements may reduce content exclusivity, thereby lowering valuation.

Content Censorship

All acquired content libraries must comply with PRC censorship laws and regulations. Content previously distributed overseas often requires post-acquisition edits to remove sensitive materials or unapproved depictions before domestic distribution. Failure to pass regulatory reviews may result in the distribution being halted in the PRC.

The combination of cable companies (distribution networks), studios (content producers), and streaming platforms will likely raise antitrust concerns under the PRC regulatory regime. Key issues include the following.

Competition Concerns in Vertical Mergers

Such combinations risk creating unilateral effects through combined control over both upstream content creation and downstream distribution channels. Regulatory authorities may examine whether this could eliminate or restrict competition.

Mandatory Filing Thresholds

An acquisition of control or joint control requires mandatory antitrust filing with the State Administration for Market Regulation (SAMR) if the relevant parties meet the following thresholds for the last fiscal year:

• at least two parties’ PRC turnover each exceeds CNY800 million; and
• the parties’ combined turnover exceeds CNY12 billion globally, or exceeds CNY4 billion within the PRC.

In M&A transactions involving talent, representations and warranties are customised to address potential liabilities.

Off-Screen Conduct

Investors increasingly demand comprehensive off-screen conduct clauses (or so-called “moral provisions”) that extend beyond legal compliance. These provisions typically prohibit not only criminal offences but also public behaviour contradicting socialist core values (eg, discriminatory statements, marital infidelity, or politically sensitive remarks) and other events that may adversely affect the talent’s reputation.

Intellectual Property Safeguards

Investors typically require representations and warranties in transaction documents to confirm that:

• all IP originally developed by talents has been duly vested in the target company;
• such IP is freely transferable and licensable; and
• no disputes exist between the talents and the company regarding IP ownership and usage.

Enforceability of Restrictive Arrangements

In M&A transactions involving talent, representations and warranties often include verification that non-compete and confidentiality provisions comply with applicable local laws, ensuring they are legally binding and enforceable.

When advising on entertainment M&A transactions involving talent and IP rights in the PRC, the following aspects require particular attention.

Talent Contract Due Diligence

Exclusivity clauses, non-compete obligations, and profit-sharing arrangements all need to be verified and assessed in terms of their compliance with PRC laws (such as the PRC Labour Law and the PRC Civil Code). M&A deals may trigger a need to renegotiate contracts or obtain waivers from key talent because many talent contracts in the PRC prohibit unilateral assignment to third parties without consent. Termination rights also need to be assessed and evaluated in terms of whether mergers or changes in control entitle talent to terminate contracts prematurely.

Legacy IP Clearance

Legacy intellectual property in the PRC’s entertainment sector frequently entails intricate ownership histories. To mitigate risks, it is critical to:

• conduct comprehensive chain-of-title verification and resolve ambiguities in ownership or usage rights;
• assess the adequacy of moral rights waivers under PRC law;
• audit existing licensing agreements to identify exclusivity terms, sublicensing restrictions, or third-party rights that could impede post-transaction exploitation; and
• investigate historical IP disputes, pending litigation, or unresolved piracy claims, which may trigger liabilities or expose gaps in IP enforcement.

Audit and transparency provisions are critically negotiated in entertainment contracts, particularly where revenue-sharing is involved, such as AVOD (advertising-based video on demand) licensing, film co-productions, music royalties, or franchising. Such audit and transparency provisions typically cover aspects such as the right to audit, audit frequency, scope of accessible records, cost allocation, definition of the revenue pool, regular reporting, and establishment of an escrow account.

Under the Labour Contract Law of the PRC, post-termination non-compete clauses are enforceable only for senior management, advanced technical personnel, and employees with access to confidential information. Such restrictions cannot exceed a maximum duration of two years, and employers must provide financial compensation to the restricted personnel throughout the non-compete period.

In the entertainment sector, particularly in the influencer and livestreaming industries, MCN agencies commonly impose non-compete obligations on their streaming hosts after the termination of their agreements. This practice persists even when the legal relationship between parties usually constitutes a service or agency arrangement rather than employment. Most Chinese courts have demonstrated a general willingness to uphold the reasonableness of such restrictions in this highly competitive, capital-intensive sector of talent development, not necessarily mandating the existence of an employment relationship as a prerequisite for enforcement.

The enforceability of non-compete obligations in the PRC’s livestreaming industry demonstrates significant regional variation in judicial interpretation. Judicial cases reveal inconsistent rulings even among major digital entertainment hubs such as Beijing, Hangzhou and Guangzhou. Based on a review of public resources, it appears that courts are more likely to conduct a comprehensive review of relevant factors, such as:

• whether the personnel fall under legally recognised categories of non-compete obligors;
• whether the company offers fair financial compensation during the non-compete period;
• whether the non-compete period exceeds the two-year limit; and
• whether the clause is an unfair standard term that disproportionately restricts the individual’s rights while favouring the company.

Notably, Chinese courts are reluctant to order specific performance (eg, compelling an individual to leave a competitor) and instead prefer to award monetary damages for breaches.

As cutting-edge technologies like AI, virtual reality (VR) and augmented reality (AR) are revolutionising the entertainment industry, contracts are evolving to keep pace. Key changes include the following.

AIGC Ownership and Commercialisation Exploration

In rapidly evolving AI platform-user agreements, platforms are actively exploring AIGC ownership attribution – whether rights should vest with users, the platform itself, or through shared ownership models.

Although platforms generally permit users to retain ownership of AIGC, major players are increasingly exploring the broader commercialisation of AIGC across entertainment sectors, including advertising, short-form video, gaming and merchandising. The viability of these commercial efforts, however, hinges on securing robust third-party clearances regarding copyrights, rights of publicity, and other proprietary interests – particularly where user inputs or AI outputs incorporate or mimic protected audiovisual works, character IP, voices or likenesses.

Consequently, platforms are actively entering into nuanced negotiations with underlying rights holders to establish tailored co-operation models based on specific user-generated content (UGC) scenarios.

Licensing for New Media

Licensing agreements are increasingly specifying whether AI, VR or AR adaptations (eg, turning a film into an AI-driven game or VR experience) are permitted or prohibited, and defining the scope of “emerging media” as exploitation channels with intentional breadth or limitation, depending on the rights holder’s strategic objectives.

AI Model Training

Talent and copyright holders tend to demand clauses prohibiting unauthorised use of their likeness, voice or copyrighted material for AI training.

AI Disclosure and Control

In light of AI’s expanding role in entertainment content creation (eg, AI-powered editing, voice synthesis, and script generation), creative services contracts may prohibit the use of AI tools, mandate transparency, or require documentation of workflow integration if AI tools are permitted, while maintaining quality control protocols.

In addition to such contractual controls, statutory labelling requirements apply to AI-generated and synthetic content under the Measures for Labeling AI-Generated and Synthetic Content. Where applicable, AI-generated and synthetic content must carry explicit and/or implicit labels in accordance with the prescribed technical requirements.

Privacy and Data Compliance

Given these technologies’ inherent data collection capabilities, particularly regarding personal information and biometric data, privacy provisions now command greater contractual attention than ever.

Anthropomorphic AI Interactive Services

Scheduled to take effect on 15 July 2026, the newly promulgated Interim Measures for the Administration of Anthropomorphic AI Interactive Services (the “Measures”) establish a dedicated regulatory framework for AI-driven anthropomorphic interactive services. The Measures specifically target applications that utilise AI to simulate human personality traits, cognitive patterns, and communication styles to provide sustained emotional engagement via text, image, audio, or video formats.

Under the new regime, service providers are subject to heightened compliance obligations spanning training data governance, algorithmic ethics reviews, and personal information protection. A cornerstone of the Measures is the enhanced protection of vulnerable demographics, particularly minors and the elderly. Notably, providers are strictly prohibited from offering virtual intimate-relationship services (eg, virtual partners or family members) to minors. Furthermore, providing any other anthropomorphic AI services to children under the age of 14 is contingent upon the explicit consent of their parents or legal guardians.

To mitigate psychological and social risks, the Measures explicitly forbid algorithmic practices that excessively cater to users in a manner that induces emotional dependency, alienates users from real-world interpersonal relationships, or cognitively manipulates them into making decisions detrimental to their lawful rights and interests.

This regulatory milestone will significantly impact the compliance strategies of developers offering AI companions, virtual digital humans, role-playing applications, and interactive storytelling platforms.

PRC laws prohibit foreign entities from establishing or holding equity in entertainment production companies that engage in content production (eg, film, TV programmes, web series, or games) in the PRC. The primary legal avenue for foreign involvement remains the project-based co-production mechanism, which requires a partnership with qualified PRC entities. Many foreign investors consider adopting the VIE structure to exercise control over and receive the economic benefits generated from the domestic operating entity in the PRC.

However, Hong Kong and Macao “service suppliers”, qualified under their respective Closer Economic Partnership Arrangement (CEPA) with the PRC government, are allowed to establish film production companies in the PRC, and invest in co-productions or domestic film productions as local investors. Foreign investors can therefore leverage Hong Kong or Macao subsidiaries that meet CEPA requirements to enter the PRC’s film production sector.

The entertainment labour market in the PRC operates without Western-style collective bargaining systems. Employment relationships are generally governed by the PRC’s labour laws. 

The limited liability company (LLC) structure provides foundational legal protection, limiting shareholder liability to the company’s registered capital. Companies typically supplement this protection through comprehensive insurance coverage. Notably, Errors & Omissions (E&O) insurance is gaining traction for project-specific risk mitigation, particularly in co-productions, to address potential copyright infringement claims and other IP-related liabilities.

In the streaming landscape in the PRC, platforms are increasingly blending FAST (free ad-supported streaming TV), AVOD and SVOD (subscription video on demand) models to deliver diverse content offerings. However, the FAST model is notably represented by state-owned broadcasters’ FAST channels, which primarily distribute programming originally aired on traditional TV. The discussion below highlights the distinctions between state-owned FAST channels.

Regulatory Perspective

State-owned FAST platforms tend to adhere to content censorship standards that mirror those of state-run broadcasters, typically requiring licensors to secure traditional broadcast licences such as the Domestic TV Drama Distribution Permit or Film Public Exhibition Permit. AVOD and SVOD platforms operate under the Online Audiovisual Content Distribution Permit framework, provided that foreign content imported and distributed through these platforms still obtains the more stringent broadcasting licences, ie, the TV Drama Distribution Permit or Film Public Exhibition Permit, a requirement that reflects the PRC’s most rigorous censorship standards.

Content Strategy

FAST channels are optimised for serious, state-aligned, evergreen programming with high rerun potential (eg, domestic historical dramas). AVOD services excel with niche categories like anime, documentaries and micro-web series that leverage targeted advertising monetisation. SVOD services are the primary avenue for premium content, such as internationally popular films and high-budget series, typically under exclusive licensing arrangements.

Revenue Potential

AVOD and SVOD platforms offer more lucrative options, including advertising revenue splits, subscription revenue sharing, as applicable, or even minimum guarantee and performance bonuses, albeit FAST platforms generally offer licensors more modest returns, typically structured as a fixed fee or alternatively a fixed percentage of advertising revenue.

Leading Chinese streaming platforms are experimenting with interactive formats, although compensation models for talent remain in development. Currently, actors in the PRC primarily receive a fixed fee for a specified period of shooting days, with negotiated overtime fees, while royalties are uncommon, except for top-tier performers.

In parallel, interactive media exploitation in the PRC is broadening beyond traditional streaming-led format experiments into multi-format development, including interactive film-game products, interactive micro-dramas and AI-assisted interactive storytelling. Although these developments have not yet resulted in standardised talent compensation or participation models, they may provide new reference points for allocating value among actors, creators, platforms and IP rights holders, particularly where user choices, engagement data and the scope of AI-enabled reuse become more central to the exploitation of interactive content.

Therefore, there may be room to explore performance-based incentives or usage-based bonuses. For example, bonuses tied to an actor achieving exceptional user engagement, such as, if a particular channel were to be selected by over a certain percentage of viewers, as verified by platform analytics, or compensation tied to the extent to which an actor’s performance is reused across AI-generated channels. These concepts require careful negotiation and adaptation to the PRC’s unique production ecosystem.