Donald Trump’s victory didn’t just depress people in Hollywood. It also threatens to depress Hollywood revenue this year from a crucial international market: Latin America.

With Trump declaring on the campaign trail that he would tear up the North American Free Trade Agreement, his Nov. 8 triumph wiped an immediate 18% off the value of the Mexican peso against the dollar. Although the peso has recovered slightly to a falloff of 11%, Hollywood studios’ revenue (measured in dollars) has taken a major hit in Mexico, their biggest market in Latin America, dragging down income from the region as a whole.

Ironically, the grim outlook comes as Mexico is experiencing what some have termed a new golden age of cinema. Galvanized by aggressive multiplex construction, Hollywood blockbusters, and a growing local film industry, the Mexican box office surged 16% last year and 10.5% this year through Nov. 3, according to Luis B. Vargas, comScore executive director for Latin America. In terms of pesos, 2016 is on track to be Mexico’s strongest year ever at the box office.

So if and when the peso rebounds, Mexico could return to being Latin America’s key movie growth territory for the major U.S. studios and big independents. Trouble is, the movie industry does not operate on “if and when.”
No matter the strength of their 2017 film releases, Hollywood studios anticipate that dollar earnings from Latin America will decrease next year given the peso’s plight. “Next year will be a bigger year for Latin America in local currency definitely, and in most markets in terms of admissions,” says Mauricio Duran, senior vice president for Latin America at Universal Pictures International. “[But we] are all in a situation where we need to bring estimates down.”

Just how far down is unclear. At the moment, the peso is valued at 20.3 to the dollar, but a mid-November report by Credit Suisse forecasts 23 pesos to the dollar three months from now, and 25 pesos a year from now.
There is huge uncertainty as to whether Trump will follow through on his pledge to slap tariffs on Mexican imports. Until he clarifies his intentions, leading independent distributors will probably ratchet down their bids on movie rights covering the whole of Latin America. They will also be more cautious when making a play for big independent films. That effect will likely be felt at the first big market of the year, in Berlin. Some independent distribution companies may even attempt to renegotiate previously signed contracts, one distributor says.

“‘Buy the rumor; sell the fact’ goes the saying in commodities trading,” says Ivan Boeing at Brazilian movie distributor Imagem, which buys for all Latin America. “Traders are quite uncertain as to which way Trump will go once in office. So, at present, everyone is betting on a stronger greenback against local currencies. Better safe — which means being cautious — than sorry.”

Nobody is writing off Mexico altogether. Its youthful population favors two key demographics, families and young adults, that Hollywood targets. Mexico remains the world’s fourth-biggest market in admissions, after the U.S., China and India. Crucially, while local films account for 85% of box office in India, and 62% in China, the figure for Mexico was just 6.5% last year. Hollywood took nearly all the rest.

But there are signs that Hollywood intends to get more involved in local production in Mexico, which would help counter a decline in revenue from its U.S.-produced slate. The strategy could also boost revenue in the U.S., where Mexican films are a growing segment of the foreign-language movie business.

Since 2013, three of the four biggest foreign-language hits in the U.S. came from Mexico or were Mexican/U.S. joint productions. The 2013 Mexican comedy “Instructions Not Included,” directed by and starring Eugenio Derbez, grossed almost as much in the U.S. ($44.5 million) as it did in Mexico ($46.1 million). The latest Mexican- U.S. release in the U.S., “No Manches Frida,” which hit theaters in September, grossed $11.5 million north of the border.

Clearly, the studios are taking notice. UPI has two projects in development with both markets in mind, Duran says. Meanwhile, Fox International Productions and SK Global’s Ivanhoe Pictures are backing “Almost Paradise,” the next movie from Mexican writer-director Gary “Gaz” Alazraki, co-creator of Netflix series “Club de Cuervos.” “Almost Paradise” will be distributed throughout the Americas by 20th Century Fox. And at last month’s Los Cabos Film Festival, there was talk that Sony would co-finance a host of Mexican movies.

Given the peso’s plunge, Hollywood will be looking more to the rest of Latin America. Brazilian box office is up 13.4% through Nov. 3, with admissions up 9.4%, in a year in which the Brazilian real appreciated for many months against the dollar. UPI is opening its first standalone distribution operation in Brazil in years. It is also producing or co-producing two to four films a year in the territory, according to Duran.

“With the new situation, Mexico and Brazil are going to be very similar in terms of box office in dollars,” he says.
Other Hollywood studios are investing in Brazilian movies from top local producers. Fox is co-producing “Incompatible,” a romantic revenge comedy from Gullane, Brazil’s biggest production company; Warner Bros. is co-producing “The King of the Morning,” the feature directorial debut of editor Daniel Rezende, also produced by Gullane.

“When Warner Bros., Fox, or Sony come in on a project, they are now making a big effort to finance much more of it, not limiting investment to the 3 million reais [$896,000] that qualifies for a tax break,” says Fabiano Gullane, who co-founded Gullane with his brother, Caio.

Elsewhere in Latin America, according to comScore, box office through Nov. 3 was up 7.6% in Colombia and a whopping 26.5% in Argentina, but the latter’s spectacular rise was due entirely to inflation — admissions have actually edged down.

But the long-term picture is different. While admissions from the biggest eight territories in Latin America rose 33.6% from 2011 to 2015, according to Julio Talavera at the European Audiovisual Observatory, long-term depreciation of the Mexican and Brazilian currencies meant that dollar-denominated box office grosses from Latin America were down 7.8% during the period. And that’s the rub: The larger economic and political picture remains the bane of Latin American film markets.