Russia's confident consumers push box office take over $1bn

By bne IntelliNews February 3, 2011

Tim Gosling in Moscow -

Russia's box office take passed the $1bn mark in 2010 as the Russian movie market became the second largest in Europe.

Impoverished for most of the last two decades, the power of Russia's 142m-strong consumer market is starting to exercise its magnetic appeal on companies across the world. Thanks to oil revenues, Russia has grown to become a middle-income country and its population increasingly enjoy the little luxuries of life, such as going to the movies.

By November, the value of Russia's movie distribution market had reached $1bn, up 40% higher from the whole of 2009, meaning the final figure for 2010 should be even higher, Russian Film Business Today reported. Companies have been racing to build modern cinemas across the country (usually as part of new shopping centres going up in every city) and last year's box office take already makes Russia the fifth biggest movie market in the world and the second largest in Europe behind. The result represents a strong recovery from 2009, when receipts retreated to $736m from $831m in 2008, partly due to a 30% devaluation of the ruble in the midst of the global economic crisis.

The importance of the Russian movie market was highlighted by the surprise success of two American films at the end of last year. "The Tourist" and "Gulliver's Travels" attracted bigger audiences in Russia than in any other market in the world bar the US. "The Tourist", an action drama starring Johnny Depp and Angelina Jolie, enjoyed strong openings in Russia, taking $10.3m on its first weekend in December. And "Gulliver's Travels," the 3D comedy starring Jack Black, took in $9.5m on its first weekend in Russia - the film's best performance anywhere in the world.

Both films were major disappointments in their home market and "The Tourist' was a particular disappointment in the more established Western European markets, despite its big name stars and European setting. Russian ticket sales outpaced those of Germany, France and the UK. Italy, where most of the action is set, was the only market where "The Tourist" did better than in Russia in the first four weeks.

And the prospects for the Russian movie market are extremely good. Foreign investors have yet to arrive in this market, which is dominated by Russian distributors, accounting for around 97% of the total revenue the sector generates, according to the trade publication Kinobusiness.

Hollywood has woken up to the profits that can be made in Russia, but so have Russian producers and imported films are already facing stiff competition from a home-grown offering of movies. In the 2010 box office year (which runs to November), a total of 338 films were released in the Commonwealth of Independent States (CIS), with distributors of Hollywood films grossing a quarter of the total take, or $250m. The rest of the box office receipts went to Russian distributors. However, the most successful film in 2010 was the US-made "Avatar", which grossed $100m for 20th Century Fox CIS, twice as much as the second best performing film "Shrek Forever After", also foreign-made, according to Russian Film Business Today.

Paying for quality

Consultant PricewaterhouseCoopers says that one of the strengths of the Russian cinema market is that the consumer is prepared to pay more for quality. Box office revenues were up by 40% in 2010, but the audience size only increased by 14.9% over the same period, according to PWC. The Russian entertainment and media market will continue to expand at a compound annual growth rate of 9.3% going forward, the consultant estimates, to account for nearly two-thirds of all receipts in the CIS by 2014.

As 2011 opens, "Yolki" is proving to be the current box office favourite with movie-goers. Director Timur Bekmambetov is one of the new breed of Russian directors reintegrating Russian cinema into the global industry, having already released a dubbed version of his hugely popular Russian-language vampire flic "Nightwatch" on international markets. He also directed the Hollywood blockbuster "Wanted", starring Angelina Jolie, released in 2008.

The strong Russian performance is doubly surprising, as although Russia has become a hot market for Hollywood blockbusters, the infrastructure remains underdeveloped when compared with mature markets.

In all, there are less than 11,000 modern screens in all of Russia, of which about two-thirds are modern. There should be, given the size of the population, four times that number, reckons Simon Dunlop, CEO of Kinoplex, which operates dozens of movie theatres in Russia's far-flung regions. These modern screens have benefited as Hollywood blockbusters such as "Avatar" and "Shrek Forever After" need modern and expensive 3D projectors, which only appeared last year. "One mid-sized cinema operator in America has more screens than all the screens currently operating in Russia," says Dunlop, who adds that the relatively low penetration of screens is more than offset by the sheer number of movie-goers.

According to analysts at industry research firm Nevafilm, the number of multiplexes out of the total number of modern screens had been increasing by 30% a year. But the crisis took the wind out of the sector's expansion and the rate of growth fell for the first time in 2010. The worst effects of the crisis on development aren't expected until the second half of 2011.

Still, the crisis is seen as a temporary setback for the development of the cinema business. Developers are already trying to get new projects up and running as Russian average incomes continued to rise by 4% throughout the crisis. Given the momentum in box office revenues, multiplexes remains a popular anchor tenant in most new shopping centres.

Russia's confident consumers push box office take over $1bn

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