Russian consumer in starring role as film-going hits new heights

By bne IntelliNews December 13, 2010

Tim Gosling in Moscow -

Russia's film distribution market grew by up to 40% in 2010 to finally breach the $1bn revenue threshold, becoming the fifth biggest in the world, according to the website The news is yet another sign of the healthy growth in Russian consumer spending.

Analysts are still calculating the final figures for the year - the Russia and CIS box office year runs from December 1 to November 30 - but the website said at the end of November that it's expected to total around $1.05bn. Russian distributors dominate the Commonwealth of Independent States space, whilst Russian revenue accounts for around 97% of the total. The numbers do not include Ukraine, which is not a member of the CIS.

The data represent a strong recovery from last year, when receipts retreated to $736m from $831m in 2008. That said, the rouble's rapid fall that year played a significant role, and according to analysts at Nevafilm, local currency box office revenues still grew 13%.

The news offers another illustration of the strength of the Russian consumer, both through the crisis and as the recovery builds momentum. Whilst the global economic crisis softened consumer spending, the damage was far from critical. For the most part, it was the corporations that bore the brunt, whilst average Russians merely tightened their belts a little.

Since the start of 2010, they've been loosening them once more - a factor that investors are increasingly recognising. Russian consumer names such as supermarket chain X5 have remained confident, which finally closed a $1.7bn acquisition of the Kopeika grocery chain in December. The generous premium that PepsiCo paid for its $5.4bn acquisition of Wimm-Bill-Dann also in December, and the extremely strong IPO performance from in November, prove that foreign heads are also being turned at last.

Little wonder, say analysts, as these firms are being forced to hunt for growth abroad in the face of stagnation in their home markets. Goldman Sachs' Jim O'Neill in December called the consumer in the Bric nations, "the key investment of our lifetime."

On the back of that, the Russian consumer is spending more on entertainment. PricewaterhouseCoopers forecasts in its report, "Global Entertainment & Media Outlook 2010-2014", that the Russian entertainment and media (E&M) market will expand at a compound annual growth rate of 9.3%.

Paying for quality

Perhaps the key point in the box office numbers is that the Russian consumer appears increasingly willing to pay more for better quality facilities. By far the biggest factor in the film market's growth was higher ticket prices. Through the year, cinema audience numbers only actually increased by 14.9%.

This trend should help PwC's forecast that the Russian box office will continue to grow at a similar rate to the overall E&M rate, to the point where it will account for 63% of the total receipt growth in all CEE countries, and peak at $1.78bn by 2014.

The spanner in the works, however, is the devastating effects of the crisis on real estate development, which looks likely to slow growth.

Modern multiplexes are the biggest driver of the move to quality and consequent rise in ticket prices, with more than half of Russia's modern screens now housed in retail and entertainment developments. These modern screens have benefited as Hollywood blockbusters such as Avatar and Shrek Forever After demanded 3D presentation.

According to Nevafil, the share of multiplexes in the total number of modern screens in Russia was until recently increasing at a rate of at least 30% per year, but by mid-2010 this figure fell for the first time to 23.8%. However, the worst effects of the crisis on development aren't expected until the second half of 2011.

Looking at the longer term, that seems likely to prove little more than a temporary irritation, with developers already trying to get new projects off the ground to take advantage of the coming supply shortfall. Given the momentum in box office revenues, multiplexes appear bound to remain keen anchor tenants for malls.

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