×
You will be redirected back to your article in seconds

Brexit Currency Woes Take a Toll as Industry Heads Into AFM

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.”

More Biz

  • Ridiculous Six

    Netflix Benefits From Changes in New Mexico's Production Incentives

    When New Mexico’s new governor, Democrat Michelle Lujan Grisham, signed SB2 in late March, the headline was that it more than doubled the annual cap on the state’s 25%- to 30%-per-project refundable film and TV tax credit, from $50 million to $110 million.  Arguably more noteworthy, however, was the new law’s provision that the cap [...]

  • Gabrielle Union Marketing Summit

    Listen: How Gabrielle Union Bet on Herself and Changed Her Brand

    Actress Gabrielle Union said she was nearly 17 years past the expiration date of her mass appeal when she got the brand partnership of her dreams. “They tell you that after 26, ‘Honey, hang it up,'” Union said on the latest episode of the Variety podcast “Strictly Business.” The episode was recorded during a keynote [...]

  • Spotify logo is presented on a

    Spotify Sued by India’s Oldest Label, Will Remove Catalog From Platform

    Just weeks after Spotify launched in India without securing rights from Warner/Chappell Music Publishing, it is being sued by the country’s oldest record label, Saregama, and will remove that company’s 120,000-song catalog from its platform within 10 days, according to reports in Inc42 and Music Business Worldwide. The streaming giant had approached the label for [...]

  • DJ Mormile and Jeff Burroughs Def

    Def Jam Appoints DJ Mormile, Jeff Burroughs to Senior Posts

    Def Jam Recordings has appointed industry veterans DJ Mormile and Jeff Burroughs (pictured above, right and left, respectively) to senior executive roles in its Los Angeles and New York offices, respectively. The announcement was made today by label Chairman & CEO Paul Rosenberg. Mormile — the L.A.-based manager who counts producer Mike Will Made It and [...]

  • Mustard Signs With Sony/ATV Music Publishing

    Mustard Signs With Sony/ATV Music Publishing (EXCLUSIVE)

    Sony/ATV Music Publishing has signed Grammy-winning songwriter, artist and producer Mustard (formerly known as DJ Mustard) to a worldwide deal. The Los Angeles-based hitmaker has worked with artists including YG, Rihanna, 2 Chainz, Drake, Migos, Chris Brown, Nipsey Hussle, Big Sean and many others, and won Best R&B Song at this year’s Grammy Awards for [...]

  • NFL-Sunday-Ticket-DIRECTV

    AT&T CEO Expects DirecTV to Keep NFL Sunday Ticket Exclusively

    AT&T believes it will hang on to DirecTV’s exclusive rights for the NFL Sunday Ticket, even as the league has said it’s considering ending the satellite operator’s exclusivity to extend the out-of-home games package to streaming platforms. “The exclusivity [of Sunday Ticket] should remain as we go forward on DirecTV,” AT&T CEO and chairman Randall [...]

  • Pandora Acquisition Bites Into SiriusXM’s First-Quarter

    Pandora Acquisition Bites Into SiriusXM’s First-Quarter Profits

    SiriusXM today announced first quarter 2019 operating and financial results — the first since the company completed its acquisition of Pandora Media on Feb. 1 — and its quarterly profit was down 44% from the previous year. It attributed that drop to approximately $76 million of acquisition and other costs related to the Pandora deal, a $31 million one-time benefit [...]

More From Our Brands

Access exclusive content