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Even Movies Can't Escape Global Financial Crisis

Film: Devalued currencies, slower growth force studios to reduce scale and number of pictures being made.

November 12, 1998|RICHARD NATALE | SPECIAL TO THE TIMES

The current economic turmoil in Asia and other areas of the world is having an effect on both the financing of new films and the revenue realized from the export of movies, say overseas sales agents and international distribution executives for the major U.S. studios.

So far the crunch is being felt more heavily by independent and lower-profile movies, they say. But even A-list vehicles are being hurt because of monetary fluctuations in such Asian markets as South Korea, Indonesia, Thailand and Malaysia.

While Europe still accounts for a hefty 60% of international receipts for U.S. motion pictures, Asia now accounts for about 30%, with the rest coming mostly from Latin America, according to Julian Levin, executive vice president of international distribution at 20th Century Fox.

But while Europe is a fairly mature market, Asia has been offering seemingly boundless growth possibilities, including giant emerging film markets such as Russia, China and India, and even the reopening Iran market.

The spiraling rise in admissions and revenue generated out of Asia in recent years has flattened, though major blockbusters such as "Titanic" and "Armageddon" are still selling well in all these markets, Levin says.

"Films are still a reasonably inexpensive means of entertainment," he says.

Yet small and medium-sized titles have definitely been hurt, he added. And in countries with devalued currencies, even stable admissions mean less revenue in dollars.

South Korea's economic turmoil has had one of the largest effects on Asian sales overall--from theatrical revenue to ancillary markets, particularly home video.

In recent years, the studios had been projecting continued double-digit growth out of Asia, in turn justifying rising production and marketing costs. Those projections have been adjusted downward, which has had an effect both on the budgets of future films and the number of movies being made.

"It is one factor among other factors affecting the current reduced level of output from the major studios," one executive says.

Another manifestation of the global economic uncertainty is the accelerated number of co-ventures and split-rights deals the major studios have undertaken during the last several years. This year, such films as "Saving Private Ryan," "Deep Impact" and "Small Soldiers" were co-financed by major studios. Walt Disney recently sold off foreign rights on the Spike Lee film "He Got Game" and is seeking offshore offers for "Beloved."

But the effects have been greatest in the financing of independent films through major Asian markets, which can be a make-or-break factor in whether a project happens. Rick Hess, a former sales agent and current president of Phoenix Pictures, observes that foreign pre-sale prices on some films have dropped drastically.

"People are still going to the movies. The impact is felt more on the overall financial health of raising [pre-sale] money for independent films," he says.

Even for action movies, this has resulted in some serious budget reassessment. "It's not that these movies won't continue to be made," Hess says, "as long as you're not depending on large sales from these territories."

Patrick Wachsberger of the international sales firm Summit Entertainment says that in the past, it wasn't uncommon for a major film to bring in as much as $3 million in pre-sales from South Korea. "Now it's more likely to be $300,000." Indonesia "is now totally gone" as a market, according to Wachsberger. Malaysia, the Philippines, Thailand, Singapore and Taiwan are also weaker.

The major studios' alliances within various Southeast Asian territories have also been eroded by the economic turmoil, says a studio distribution executive. "Everyone looks for strategic partners in video, distribution and exhibition in these countries to help get around governmental regulations and other roadblocks," the executive says. "Two years ago, they were coming out of the woodwork. Now there are fewer offers."

The downturn has been particularly pronounced in home video, the executive says, which indicates a decline in consumer discretionary spending.

In some cases, the effects are on future possibilities more than current revenue. The demise of Russia as a market, for example, has not had a big impact because it wasn't yet generating much revenue.

More important growth areas, says Wachsberger, include China, where the biggest uncertainty remains government regulation.

As the infrastructure of India improves, U.S. films are having better luck at competing with the country's giant native film industry, Wachsberger adds. And he's also looking to Iran--"It was the most important market in the Middle East in the days of the shah," he says--as another potentially strong market as the government there eases restrictions.

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