The end of the Russian gold rush?

Little more than a year ago, Russia seemed like the new frontier for the global film industry; a rapidly growing market with an appetite for independent and studio fare alike.

“We cannot believe in a big city with a good theatre, we would really receive a box office of $200 after two weeks”

Nadezda Motina, CP Digital

“It felt like a new opportunity. Anything new feels exciting, with myriad opportunities,” says Andrew Herwitz, president of New York-based The Film Sales Company, of the opening up of the Russian market.
The box office was booming, new players were swarming into the industry.

Russian distributors were ready to pre-buy projects like never before in order to keep them out of rivals’ hands. They were prepared to lay down minimum guarantees (MG) of millions of dollars for high-profile indie titles such as Asterix At The Olympic Games, which went on to make more than $9m at the Russian box office last year.

But now it seems the great Russian gold rush is over, at least for indie fare without obvious theatrical potential. Thanks to the economic crisis, the ruble has fallen to its lowest level against the dollar in more than a decade. Piracy is still rampant and sabotaging legitimate DVD business, and Russian broadcasters are refusing to buy new films.

At the box office, the six months from December 1, 2008 to May 30, 2009, were down on the same period the previous year and predictions for the second half of the year do not anticipate the pattern to reverse.
At Cannes, many of the Russian distributors on the Croisette were less concerned with acquiring new product than with renegotiating deals they had struck at the top of the market.

One panel discussion saw some Russian buyers warning US sales agents that if they were not given room for manoeuvre, they would simply stop buying US titles.

“It is very difficult because we’re paying our MG in US dollars but in our country, we are dealing in rubles. We receive rubles from theatres and TV channels,” explains Nadezda Motina, head of acquisitions at Moscow-based CP Digital, a leading Russian DVD distributor which is becoming increasingly active in theatrical distribution.

“I don’t think international sales agents understand how hard and expensive it is to release films in the Russian market.” Among the titles CP Digital has picked up recently is the Robin Williams comedy World’s Greatest Dad from ContentFilm.

US sales agents seem willing to hold discussions with cash-strapped Russian buyers. Some have reduced prices and extended licence periods. But there are conditions.

“I’m open to negotiation but it has got to be fair negotiation for both parties,” says Richard Guardian of US-based Lightning Entertainment. “While the market was booming, did anybody come up and say, ‘Hey, this film I bought from you last year, the market has gone through the roof. Things are doing gangbusters.

I’d like to give you 50% more?’ “People are in this business because they’re gamblers. They know there is a huge element of risk. If there was no risk at all, everybody and his brother would be in the film business.” Dmitry Rudovsky, CEO of Moscow-based Art Pictures Studio, the production and distribution outfit behind blockbuster local films such as 9th Company and The Inhabited Island, points out the Russian market is far more complex than some Western analysts seem to accept.

“People are in this business because they’re gamblers. They know there is a huge element of risk”

Dmitry Rudovsky, Art Pictures Studio

“We’re all in different economic situations. Our company only began distributing pictures a year ago,” he says.
In February, CP Digital released The Duchess on 123 prints. “It was awful for us. In Moscow, we saw numbers of $10,000 per print but in all other cities, the box office was $200 per print,” says Motina. “That was unbelievable for us. We had spent big money on the release.

Unfortunately, because of the crisis, regional theatres didn’t want to support us. They didn’t want to show us real admissions. We cannot believe in a big city with a good theatre that we would really receive a box office of $200 after two weeks of screenings.” Motina points out that it can take a long time for Russian distributors to collect money from exhibitors.

“Rights owners see big box-office figures and expect to be paid royalties in a month but it will take us six months to collect this money from theatres.” Prior to the economic crisis, international sales agents were not under any pressure to cut their Russian buyers some slack. If one complained, there would always be another ready to do business. Now, Russian buyers are still active in the market but their priorities have changed. They are far more cautious.

For example, Rudovsky says that in Cannes, Art Pictures Studio was trying to find smaller films with crossover potential and deferring bigger acquisitions until a later date. “In Berlin and even the beginning of Cannes, many sales companies were ready to reduce the MG asking prices by 40% to 50%,” he notes.

Art Pictures Studio is looking to partner with the US majors on local-language productions. They include a forthcoming reimagining of Pushkin’s Onegin which will be produced by company co-founder Fyodor Bondarchuk and co-produced with Twentieth Century Fox which will handle the title internationally.

Armen Dishdishyan at Central Partnership, which has recently picked up Five Killers from Mandate and will release Universal’s Sacha Baron Cohen comedy Brüno, agrees it is prudent to deal with established companies. “There are strong sales companies you trust. When they say the movie will be done, it will be done.”

Another trend becoming evident among Russian distributors is the move away from pre-buying - or at least a demand for extra guarantees before stumping up MG in advance. Before the economic crisis, it was commonplace for Russian buyers to offer 20% of the MG up front and the remaining 80% when the film was ready. Now Russian buyers are more likely to only put the money on the table when the cameras start rolling.

“There are strong sales companies you trust. When they say the movie will be done, it will be done.”

Armen Dishdishyan, Central Partnership

International sales agents are keen to take a long-term view. “We have to be patient and flexible,” says one. “We feel a very big sympathy for them because it is important to keep your distributors.” At the same time, sales agents do not relish telling producers that Russian buyers are looking for hefty reductions on deals already signed (in Cannes, it was suggested some distributors were looking for reductions of up to 90% on deals struck before the financial crisis).

Indeed, the Russian market still offers huge potential to international sellers. As Rudovsky points out, Russian audiences are intensely curious about other cultures and want to see foreign movies. “Russian audiences are interested in how people abroad live.”

Andrew Herwitz suggests perseverance has its rewards. “So much of success in this business is a war of attrition,” he notes. “As long as you can ride out the storm and weather the bad times, there is great opportunity in the good times.”

But Russian buyers’ tastes have clearly changed. They are no longer willing to take risks on smaller films that do not have cast or big-name directors attached. They do not want to risk big p&a costs on even smaller theatrical titles. As Dishdishyan puts it: “When they don’t have the back end of the video and DVD market, it doesn’t make sense at all.”