U.K. buyers at the American Film Market, which starts Nov. 2 in Santa Monica, may be in for a nasty shock. In the time since Cannes, the last major film market, the value of British sterling has plummeted 16%. The British pound is now worth $1.22, compared to $1.45 in May, and $1.54 a year ago. Some analysts say the pound could even fall to parity with the dollar in the coming months. The reason: the June 23 Brexit vote to leave the European Union.
Britain is the world’s third-largest box office territory, after the U.S. and China. Last year, U.K. box office receipts hit an all-time high of $1.9 billion, about 5% of the global total. But the plunging exchange rate has had a dramatic effect on U.K. distributors, many of whom find themselves potentially unable to recoup costs from previous deals and unable to afford new ones. They’ve paid minimum guarantees in advance in dollars or euros (nearly all transactions are in those currencies) based on revenue forecasts at pre-Brexit exchange rates, and are now releasing the films in Britain.
“What this means is all your numbers are 15%-20% down on where you’d forecast them to be, without any real hope of making them up,” says Mark Batey, chief executive of the U.K.’s Film Distributors’ Assn.
So what’s a distributor to do? “Suffer,” Batey says. “It’s the nature of the beast: You are committed way in advance of a release.”
With the pounds in their pocket worth a lot less than before — and likely even less in the near future — British buyers may not be enthusiastic customers at AFM.
“Everything is 15% more expensive, and that means we have to be even more discerning about what we are acquiring in U.S. dollar terms,” says Zygi Kamasa, CEO of Lionsgate U.K. and Europe. “What may happen is that there’ll be a lot of movies that won’t get sold in the U.K. because they’re too expensive — or the producers are going to have to lower their prices.”
British distributors that belong to multinational companies — such as Pathé, Lionsgate, Studiocanal, and Entertainment One — are less vulnerable to currency swings.
“We’re part of a big international group that is able to hedge money, so the currency fluctuations don’t have as dramatic an effect,” says Danny Perkins, CEO of Studio-canal U.K. “But if you’re a single-territory buyer, it’ll make a huge difference — 15%-20% could be the [profit] margin of a film.”
The U.K. distribution market is already facing challenges. The number of movie releases has tripled in the past decade, without a comparable increase in admissions. The decline of ancillary revenue sources and the explosion of alternative entertainment options like gaming have further eroded business. A falling pound could push struggling distributors under; others will be more risk-averse, preferring projects from established filmmakers with big-name stars, or genre films. The result could be fewer movies, and less variety.
“Cinema is going to be throttled if we’re not careful,” notes Angus Finney, Film London’s project manager for the Production Finance Market, and former managing director of Renaissance Films. “We’re dealing with a very disrupted market. If I were an independent investor and I wanted to put capital into the business, I would go nowhere near U.K. film distribution right now.”
Some distributors may attempt to renegotiate their minimum guarantees, or even walk away from their commitments, rather than release at a loss, leaving sales companies in the lurch. Kamasa says Lionsgate’s international sales arm looks carefully at buyers in troubled territories. “We want to sell to the strong businesses,” he says. “Otherwise, we’re not sure we are going to be paid. We’re not sure those companies are going to be in business.”
If there’s a silver lining to Britain’s currency woes, it’s that U.K.-produced films have become cheaper to finance and buy, so they may experience increased demand. Kamasa says Lionsgate is hoping to bring more production to the U.K. to take advantage of the lower costs. “We make expensive movies,” he notes. “A $50 million movie is now $7.5 million cheaper.”
Alex Hamilton, Entertainment One’s managing director for film in Europe, the Middle East, and Africa, agrees that British-made films will become more attractive, both at home and abroad. “There isn’t a company out there that doesn’t want to do local films, because you’re closer to the talent. It’s relationship-building, it’s more controllable,” he says. “And they’re better value than they might have been [a year ago]. So you could argue that a lot of things are in favor of British films being distributed in their home market right now.”
But that’s scant comfort to those gathering at AFM. “It’s quite tough,” says Batey of the U.K. distributors’ association. “But … there’s not a lot you can do about it.”