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Hollywood Feels Pinch From the Foreign Currency Crisis

Vladimir Putin isn’t the only one sweating the ruble’s free-fall.

Hollywood studios are also being hit hard by Russia’s economic crisis, with films such as “The Hobbit: The Battle of the Five Armies” and “Big Hero 6” seeing their foreign grosses constrict as a result of the Motherland’s currency woes.

In the case of “The Hobbit,” attendance figures were higher than those for the previous film in the franchise, “The Desolation of Smaug,” even though revenues dipped.

With oil prices plummeting, Western sanctions hardening and the dollar strengthening, the ruble plummeted a staggering 38% last month. That makes it difficult for studios that need to convert ticket receipts collected in Russian currency back into dollars for accounting purposes. Major productions,  including “Interstellar” and “Exodus: Gods & Kings,” are seeing revenues dip by 10% or more as a result of the conversion rate.

“It’s always a concern when you see exchange rates fluctuate, but they always fluctuate back in the other direction at some point,” says Paul Hanneman, co-president of worldwide theatrical marketing and distribution at 20th Century Fox. “It’s a cyclical business in that way.”

Yet the movie biz has become increasingly global in recent years, and studios depend on foreign countries to push their big-budget films into the black. Russia, which saw box office revenue climb 13% to $1.3 billion in 2013, has too big a population of moviegoers to allow Hollywood to be sanguine about a devalued currency.

“It’s an important, rising market,” says Daniel Loria, managing editor and senior overseas analyst for BoxOffice.com. “There’s a lot of potential for films to succeed there. They respond to big sci-fi, special effects films. They respond to 3D.”

Ticket sales aren’t the only area where the business is being hammered. Russian distributors must pay for the rights to U.S. film in dollars, which is making them gunshy over pickups. At last fall’s American Film Market, for instance, some Russian buyers were asking if deals could be made in rubles — and finding few takers.

“A lot of the Russian distributors are feeling shell-shocked, and they’re trying to understand where it’s all headed,” says Bill Johnson, co-founder of sales agent Lotus Entertainment.

Nor is Russia’s the only currency that’s looking puny in relation to the dollar. The euro has hit its lowest levels in nine years amid concerns that the region is headed for another financial crisis. Though Hollywood has been focused ever more intently on China and its emergence as the world’s second largest film market in recent years, Russia and the five largest European territories contributed nearly $8 billion to the foreign box office last year, so the financial pressures they face are deeply felt on this side of the globe.

“Our economy is stronger than other economies, and that’s being reflected in the exchange rates,” says James Goss, an analyst with Barrington Research.

There are also some savings associated with the weaker currencies. Promotional materials have to be paid for in rubles and euros, making them cheaper for U.S. studios. Yet, unless these parts of the world get their mojo back soon, the expanding international box office will get a tummy tuck.

“We just keep plugging along and hope it turns around,” Hanneman says.

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