Russia set for $1bn moment

Editor’s note: This includes brief highlights from the Russian analysis in Screen’s inaugural Local Markets Report.(For more info click here.)

Although the first movies appeared in Russia more than 100 years ago, the Russian film industry is still relatively young and undeveloped. But it continues to grow, despite some unfavourable conditions. The collapse of the USSR resulted in a sharp reduction of local film production and loss of cinemas, as well as a substantial drop in the skills level in the industry.

But a new era in Russian cinematography began in 1996 with the opening of the first modern cinema in Moscow. Over the past 14 years nearly 2,000 modern cinema screens have opened in the country, while the number of local movies has significantly increased.

In addition, the share of the Russian films is steadily increasing, along with their production and advertising budgets. The Russian box office has now reached $1bn (RUB 31.3bn). One of the reasons for this is the ever-growing number of 3D movies, which currently bring more than 60% of revenues to distributors. According to official figures, the share of Russian movies in total box office is estimated at 30%.

Unprofitability

Currently, the Russian film industry remains mostly unprofitable, with investors failing to get a return on their investment. Significant box-office takings, a critical mass of screens and the ability to sell rights are all needed to tip investments into profitability, and this is before the effect of the global recession hit.

Since 2000, nearly 100 movies have been produced in Russia each year, of which only 70 (on average) were released. Very few of them make enough to cover production costs, let alone any profit.

Market growth in the region is mainly associated with the success of Hollywood movies, which have traditionally brought more than 70% of all box office receipts. Nevertheless, the success of a few Russian movies has helped to attract private investments to local film production.

Dependence on state funding

So far, the production of most of the movies in Russia is heavily state dependent.

Of 341 films produced in the country (between early 2006 until mid 2009), 198 received state aid. The average state support for the production of a movie in Russia is estimated at $600,000 (RUB 19m), with an additional $161,434m (RUB 5m) invested in its further promotion. However, recently the state support system has undergone dramatic changes.

Until 2010, most of the state funds were distributed by the Ministry of Culture. But this year the Fund of the Social and Economic Support of the National Cinematography was established, and it is now responsible for the distribution of state funds among the leading local film studios.

The new funding scheme is expected to help produce high-quality domestic blockbusters that will raise the prestige of Russian cinema in the international film market, according to supporters of the project. But it has already drawn sharp criticism from some Russian analysts and film producers, who fear it will favour certain individual projects.

Market problems

The Russian film market is steadily developing but it still faces some major problems, such as the high threat of piracy, a lack of regulation and control, insufficient multiplex cinemas and the high cost of tickets.

Piracy is a major problem. According to the International Intellectual Property Alliance, at present Russia ranks second to China in terms of volumes of pirated market, with the annual loss to the US film studios estimated to be $2bn
(RUB 62.3bn).

In Moscow alone there are more than 4000 outlets selling pirated goods, and their average profits may reach $20m (RUB 622.6m) per week, according to the Russian Association of DVD publishers’ calculations,

Foreign players

Despite numerous problems, the Russian film market is considered attractive by the world’s largest movie producers, such as Paramount, Sony, 20th Century Fox, Universal Pictures and Walt Disney. All of them have already teamed up with local partners for distribution of their films and co-production of local films.

In 2008, Paramount Pictures International (PPI) signed a distribution and co-production agreement with Moscow-based Central Partnership, one of Russia’s largest film distribution and production companies.

Sony Pictures Entertainment also has a strong presence in Russia. In 2006, the US company and the Moscow-based Patton Media Group established a joint venture called Monumental Pictures, which produces and distributes Russian-language films in Russia and the CIS. Sony is involved in Monumental through the company’s motion picture production and distribution unit, Columbia Pictures.

Also in 2006, an official subsidiary of the Walt Disney Company, Disney Company CIS, was established. Its director general, Marina Zhigalov-Ozkan, says that after its first local production The Book of Masters, the company is poised to shoot two to three films in Russia per year going forward.

Future opportunities

The Russian film market has not yet reached maturity. There is still room for new cinema construction and also an opportunity to increase box office receipts by attracting bigger audiences, expanding the local cinemas network and by attracting older viewers.