Unlikely markets yield big returns

Who’d have thought the movie biz would get so hyped up about box office in Russia, China and Turkey?

B.O. this year is down in Western Europe, which accounts for 60% and 65% of the majors’ overseas income. Since it’s also down domestically, the studios are glomming onto any signs of hope — and they’re thrilled by the spectacular growth in less prominent areas.

In the past five years, Russian movie admissions have surged sevenfold, from 9.8 million in 2000 to 76 million last year. China saw a 30% jump from 2004, which itself marked a 60% climb from the previous year.

There is strong potential from an eclectic cross-section of emerging markets, including Brazil, India, Kuwait, Malaysia, Mexico, Poland, Taiwan, Turkey, the United Arab Emirates, Venezuela and Vietnam.

The bad news is that these gains won’t make up for this year’s domestic declines (6%, or about $500 million). But studios are hoping the growth may tide them over until key territories bounce back — assuming they bounce back.

While the growth is clearly good for local theater owners, it’s not entirely clear how much Hollywood can bank on these newfound riches. Despite the success in overseas territories of the latest “Harry Potter” and “Star Wars” pics, as well as titles like “Charlie and the Chocolate Factory,” “Mr. & Mrs. Smith” and “The Island,” local films are accounting for an increasing share of the pie.

For example, local films are 22% of the Russian market. In Turkey the share is 38% and in China, it’s an eye-popping 55%.

This year, two local pics in Russia have held the No. 1 spot for several consecutive weeks: Fyodor Bondarchuk’s “9-ya rota” (Company 9), a military pic set during the Soviet invasion of Afghanistan in the 1980s, and “Turetskii gambit” (Turkish Gambit), a period piece about the Russian-Turkish war.

With once-sturdy markets such as Australia, France, Germany, Italy and Spain seeing double-digit declines, any gains in moviegoing — even if driven partly by local product — are a source of optimism in Hollywood.

Studio execs are cheered by the potential to roll up “significant numbers in markets that don’t seem obvious,” in the words of Universal vice chair Marc Shmuger. “When you start adding up $3 million here, $1 million there in those markets, you are talking about significant money — even though it doesn’t make headlines.”

Shmuger isn’t troubled by the fact that Universal and Paramount decided to start splitting up their 24-year-old UIP joint distribution partnership amid a foreign slump.

“We’ve seen the international box office come back before,” he notes. “We’re not down from 2003; it’s just that 2004 was stellar.

“Our business requires product that can travel everywhere because the foreign markets are integral to our strategy,” Shmuger notes. “There’s no stronger statement of our commitment to it than setting up our own operation.”

Due to the combination of an improved economy and modernized theaters, Russia has gone from a peripheral market, with $25 million in box office just five years ago, to one of the top dozen markets, with as much as $350 million this year.

“The growth in Russia is head and shoulders over the rest of the world,” asserts BVI veepee David Kornblum. “Among foreign territories that are expanding, it’s the big kahuna right now.”

Veronika Kwan-Rubinek, Warner Bros.’ prexy of international distribution, adds, “Russia’s been so strong that people are now looking at the Ukraine as a highly attractive market, since it has 47 million people, especially if they can develop the area in and around Kiev.”

What went right in Russia?

Experts note that moviegoing was popular during the 1970s, buoyed by such local fare as “Pirates of the 20th Century” and “Moscow Does Not Believe in Tears.” However, the habit died in the wake of the collapse of the Soviet Union.

The exhibition biz in Russia began coming back in the late 1990s with the opening of upgraded facilities in the Moscow area, mostly in shopping centers. By 2000, there were 130 modern screens; that figure should hit 1,040 by the end of this year, according to Oleg Berezin of venue equipper Nevafilm.

And that total is far from the limit, though expansion in Moscow and St. Petersburg may be approaching saturation and 63% of new screens now are in other regions.

Moscow supplies 41% of the box office, with St. Petersburg chipping in 8%. A pair of local hits — 2004’s “Night Watch” and this year’s “9th Company” — also are helping to lure Russians into multiplexes.

Developers are bullish. Cinema Park has two plexes in Moscow, but by the end of 2006 expects to open another 10 locations — one each in Moscow and St. Petersburg and the other eight in such areas as the Urals and Siberia.

Russian box office by 2010 could reach $650 million, according to Alexander Golutva, deputy head of Russia’s Federal Agency for Culture & Cinema.

China also is booming, though not up to Russia’s pace. Despite its history of censorship and lack of primo multiplexes, China’s B.O. looks like it will spike 30% to $250 million this year.

There are still rigid strictures on the number of foreign films that can be shown in China (20 a year) and disadvantageous splits between what the Chinese importers get and what the majors get to repatriate. And there’s no clear sign this will change any time soon.

Of the other up-and-coming areas of the world, none is a powerhouse yet, but their current performances and ongoing potential are a ray of hope.

Here’s a lineup of locales that have gladdened the hearts of distribution execs:

  • Poland. Attendance has jumped from 20.9 million in 2000 to 33.4 million last year. BVI’s “Chicken Little” has turned in $1.8 million at 120 playdates in its first 10 days, the best launch ever for an animated film. That came a few months after “Madagascar” cleared $5.5 million — a number that would have been unthinkable a few years ago.

  • Venezuela. Attendance climbed from 13 million in 2000 to 20 million in 2004. “Venezuela has a lot of oil money and a growing culture of going to the movies,” Kornblum notes.

  • Mexico. Action pics such as “War of the Worlds” ($17 million) and family films like “Madagascar” ($18 million) have shown impressive traction amid growth in multiplexing. Distribs point to a huge population under 25 as part of the reason for their confidence that moviegoing can be boosted.

  • United Arab Emirates and Kuwait. Comedies perform well at new multiplexes that tap into a significant expatriate population and often see weekend grosses hit $40,000 per engagement. “The region is a gold mine in that you don’t have to spend much money on advertising and print costs,” says Fox Intl. exec Neil McCutcheon.

  • Vietnam. The country, with a population of 83 million, is viewed as being on the verge of development, since there are only 60 screens. That number should triple in the next four years, according to Kwan-Rubinek.

  • Malaysia. The country, where action is king, has seen significant growth as piracy flattens out amid an expansion of multiplexes.

  • Turkey. Traffic to American films is being helped by a strong market for local films, which now comprise an impressive 38% of the market. “Turkey has become one of our top 12 markets,” Kwan-Rubinek notes.

  • Brazil. With 170 million people, there are only 2,000 screens. Still, “Chicken Little” grossed $2 million in its first five days. “It’s a tremendously underscreened market with huge potential,” notes UIP president Andrew Cripps.

  • Taiwan. Fox’s Asia/Pacific VP Sunder Kimatrai cites a combo of a strong economy, renovation of existing theaters and a relatively stable political environment.

  • South Africa. “We are seeing some expansion in that market due to the growth of a black middle class,” notes Mark Zucker, senior exec VP of Sony Pictures Releasing Intl. “Economic improvements make them a lot more capable of supporting films.”

  • India. Kimatrai notes that multiplexes helped penetrate suburbs, where in the past Hollywood films played in only downtown cinemas. “There’s a greater awareness of Hollywood films thanks to news channels actually carrying footage of U.S. and U.K. premieres, local newspapers actually giving additional space to Hollywood news and, lastly, the Internet, which is now cheaper and more accessible to teens.”

  • Egypt. Kwan-Rubinek sees massive potential from a population of 70 million if current quotas — which limit distribs to five prints per film — can be eased. Current moviegoing per capita is a feeble 0.2 visits per year.

  • China. Despite a quota of 20 films per year and rampant piracy, American films have generated impressive grosses: “Star Wars: Episode III — Revenge of the Sith” topped $9 million. “Harry Potter and the Goblet of Fire” launched with $4.1 million in its opening weekend.

That’s not chump change. While these markets likely won’t make up for Hollywood’s major problems in the globe’s prime territories, such minor highlights may play as a happy diversion for Hollywood’s nervous bean counters as production execs invent plans to bring world auds back to their movies.

(Tom Birchenough in Moscow and Ian Mohr in New York contributed to this report.)

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