Ruble rubble spells trouble for Hollywood

Showbiz readying for repercussions of Russian collapse

“Nyet, comrade.”

That’s what Russian distribs are preparing to say to any U.S. suppliers demanding payment.

As the former superpower wallows in economic turmoil, Hollywood companies are ready to write off yet another foreign market.

Last week the Russian central bank stopped trading in the ruble and slapped a 90-day moratorium on payments to foreign creditors. Russian stocks tumbled more than 15%, leaving them down 80% this year.

To make matters worse, there were rumors that president Boris Yeltsin would step down and that the country would return to heavy-handed Soviet-style economic policies.

Although Russia is not a high-value territory for the film biz, it has shown tremendous growth in the past five years. A big U.S. film can now sell for as much as $400,000, sales agents said.

Moreover, most companies still are reeling from the economic downturn in Asia.

“It’s bad news everywhere right now,” commented Pascal Borno, president of Kushner-Locke Intl. “And there’s nowhere to go to make up for it.”

“There always used to be a new (market) to offset a dead one,” said the head of a studio-based sales entity. “Now they’re all disappearing and nothing is replacing them.”

Others fear that the Russian problems will spill over into the more stable, and lucrative, Eastern European markets.

A number of buyers work as middlemen, acquiring Russian, CIS or Eastern European rights to films and then reselling them to local distribs. Some of these reps will have seen a sharp drop in the values of films that they paid for less than a month ago.

And, as Russia is principally a video market, once again it’s the smaller, B-movie companies that will be hardest hit. Several sales agencies reported that Russian buyers already had called to renegotiate terms.

“For the most part, on the single picture side, there is an impact,” said Bennett Pozil, VP, group head of Entertainment Finance at Natexis Banque BFCE. “But I never relied on Russia as a territory that would qualify for gap coverage.”

By and large, most of the bigger sales companies, and certainly the banks, heavily discount Russia and thus never depend on a sale to the country.

“It’s not as devastating as Korea was last year,” added Pozil. “People relied on Korea for presales to get gap financing.”

Yet, while agreeing that Russia alone wouldn’t put anyone out of business, some sales agents said that its travails were symptomatic of a wider international problem.

Strong dollar

“Many other territories, such as Australia and South Africa, are asking for discounts right now because the U.S. dollar is so strong,” said Initial Entertainment Group’s Graham King. “Even when (these economies) recover, their currencies don’t gain strength as quickly as they lost it.”

With Asia still in the doldrums, and Latin America not yet back on its feet, the crisis throws even more sales pressure on Western Europe.

Local entertainment players in Moscow weren’t panicking, but quietly putting expansion plans on hold.

So far, execs said that they were most worried about how deeply the ruble rout will cut into people’s pocketbooks. A lengthy currency crunch would mean fewer tickets sold at the box office, fewer video rentals and fewer trips to the theaters.

Lower ad revenue

Additionally, TV execs are beginning to worry about lower ad revs for stations — and film producers about a halt to production.

At Russia’s top studio, Mosfilm, the financial fiasco has taken its toll.

“The studio is still working, but we’re putting some projects on ice, and stopping development on others. It’s just like it was five years ago when we experienced substantial losses,” Mosfilm director Karen Shakhnazarov told Daily Variety.

Armen Medvedev, the head of funding agency Goskino, has said that only 17% of planned state support for this year had been doled out. He is so frustrated that he has threatened to resign within 100 days if the situation didn’t change for the better.

The exhibition biz is putting on a brave face but, behind the scenes, is scaling back its ambitions.

Paul Heth, senior VP of moviehouse Kodak Kinomir, predicted that his company will be able to hold its head above water, but that speed and scale of future activity will be rethought.

Heth’s company, Golden Ring Entertainment, built Kodak Kinomir in partnership with Eastman Kodak, and has been developing plans to expand screens across Russia.

(Dan Cox in Los Angeles contributed to this report.)

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