KinoKultura: Issue 78 (2022) |
Preamble
At the end of March 2022, ProfiCinema announced that due to the events in Ukraine, a further survey of experts and analysis of their assessments for calculating the ProfiCinema Index had become impossible. Over the past three months, the situation in the film industry has not improved. We still consider it impossible to survey experts. However, we have accumulated enough statistical data to analyze the situation in different industry sectors and build forecasts for the near future. We are starting to publish the analytical reports of the state of the film industry under the codename “Instead of the ProfiCinema Index.”
Before and after
Usually, in such articles it is customary to divide time periods into months and quarters, but the beginning of the military operation in Ukraine dictated a completely different logic of the time division: before and after.
Before
Recall that in January 2022, the ProfiCinema Index was slightly lower than expected. The results of the New Year’s box office did not quite live up to the expectations of experts.
The second half of the month was very weak, as in the past few years. The forecasts for February were not too optimistic, the repertoire was good, but another wave of the pandemic swept through almost all regions of Russia.
The box office in Russia fell week by week in January. On the 5th weekend of 2022, the TOP 10 films for the weekend dropped to a local minimum of the first two months and amounted to 290.3 million rubles. This is lower than the same indicators for the corresponding period in 2021 (559 million rubles) and 2020 (642 million rubles).
In early February, several Hollywood blockbusters were released. As a result, the box office receipts of the TOP 10 began to grow, and by the 7th weekend, the income of the TOP 10 soared to 754 million rubles, which became the highest value for the whole of 2022 after the end of the New Year’s battle.
Until the end of February, the box office curve slowly crept down, but experts did not lower their estimates, expecting an improvement in the market situation as major Hollywood blockbusters were released and further easing of anti-COVID restrictions took place.
After. The military operation in Ukraine dramatically changed everything. But in the different segments of the film industry, changes occurred at different speeds.
Film screening. After 24 February, an avalanche of statements by Hollywood majors about the suspension of business in Russia for an indefinite period began. Disney was the first to withdraw its releases. Sony Pictures did the same: on 1 March, the company stopped the distribution of its projects in our country, and on 11 March Sony Pictures announced the suspension of all activities in Russia; it postponed digital releases and froze deals for the distribution of content on television.
Almost simultaneously with Sony, WarnerMedia joined the boycott, refusing to release the most anticipated blockbuster, Batman. In a statement, company representatives also noted that they would “monitor the development of the situation” and hope “for a quick and peaceful resolution of this tragedy.” In mid-March, the media holding Paramount Global announced the suspension of activities in Russia.
In early March, the Cinema-owners Association predicted losses of up to 80% of the revenue. The reality turned out to be close to the forecasts. According to ProfiCinema, the drop in revenue for the period of April–June 2022 was 73% compared to the pre-pandemic 2019 and 62.5% compared to 2021.
It was only the beginning of the fall, as back in April–May, releases that came out in early spring continued as planned. Summer is a traditional dead season for Russian releases, and large domestic projects are usually not released in June–August. On the last weekend of June, the TOP 10 revenues reached their lowest level in half a year, amounting to 103.7 million rubles. The downward trend in fees is expected to continue in the coming months.
Back in mid-April, ProfiCinema portal experts predicted that, in the face of the falling fees, cinemas would experience box office gaps, which would lead to a non-payment crisis in the industry. Our predictions have been confirmed. In spring, domestic cinemas stopped paying the Russian offices of Universal, Disney, Warner Bros., Sony, and the companies representing their interests in Russia for those films that had already been released. Almost everyone had acquired debt, but the main portion of the debt belongs to the largest exhibitors, including the united cinema chain Cinema Park, Formula Kino, Kinomax and others.
In the worst position was Sony Pictures Productions and Releasing, which distributes Sony Pictures films and released the largest number of major films in late 2021 and early 2022, including Spider-Man: No Way Home and Uncharted. The Paramount studio turned out to be in a better position: their films are distributed in Russia by Central Partnership, and the cinema chains have no debts to it.
Cinema networks stopped paying not only for Hollywood films but also for projects jointly shot by Russian producers and American majors. According to Denis Zhalinsky, the general producer of the Yellow, Black & White studio, which filmed the Last Warrior franchise, the producers of the film did not receive more than 200 million rubles from the cinemas. As the financial cushion shrinks, the non-payment crisis may also affect other Russian distributors, and then, producers as well.
Another problem that cinemas will face in the medium term is the difficulties with the replacement and maintenance of the installed digital equipment and the purchase of consumables.
According to various estimates, up to 90% of the equipment used by the film industry is imported. Due to the lack of supplies from abroad, we can only hope for parallel imports. However, this problem will have to be solved by those lucky ones who survive after the crisis. Industry experts say that financial problems are already leading to the operation of cinemas in a part-time mode, and even to the closure of sites. By the beginning of autumn, according to our estimates, from 20 to 50% of the screens may remain.
The state support measures announced by local and regional authorities are clearly insufficient. The government refused to allocate 6.5 billion rubles to save the film screeners. The Ministry of Culture is ready to support cinemas if they begin to assist producers with marketing, help to correctly arrange releases and “work out what they have never done before,” according to Culture Minister Olga Lyubimova.
The problem is much deeper. Big Hollywood releases that can attract a large audience to the halls cannot be replaced by marketing solutions. Russian movies, of which more than 60 were released in the first half of the year, are not able to occupy the niche of Hollywood blockbusters. A dozen Hollywood movies that have not been released in Russia since the beginning of March had a box office potential of 0.5 to 1.5 billion rubles.
Cinemas are trying to keep the audience by lowering the average price of tickets. As a result, the fall in the number of viewers in April–June compared to the same period last year amounted to 57.5, but the decrease in the box office was 62.5%. But the elasticity of demand has its limits, and the potential for lowering the price of a ticket with official inflation in the Russian Federation of more than 15% has already been exhausted.
Domestic filmmakers are trying to bring back major Western releases, bypassing Western studios that have left the Russian market. Examples include the “movie club screening of Hollywood blockbusters” that is outside the legal field, and the “relatively honest” proposal for parallel distribution voiced by Mikhail Shvydkoy.
While everything is clear with the illegal film club showings, and the issue is awaiting the response of law enforcement agencies, the parallel distribution or compulsory licensing of content is a more complex topic. On the one hand, supporters of parallel distribution emphasize that such a mechanism, if legally formalized correctly, will not be piracy, since money is deducted for film screenings. On the other hand, the authors of the proposals forget to mention that, strictly speaking, displaying copyrighted content without the permission of the copyright holder violates the law.
Theoretically, the legal possibility of introducing compulsory licensing cannot be ruled out. However, this is difficult, expensive, and unlikely. In Russia, over the past twenty years, a lot has been done in the field of copyright protection. Chapter 70 of the Civil Code elaborates on this issue and does not allow for the possibility of compulsory licensing. Moreover, compulsory licensing, that is, the use of content without the consent of the author, is a direct breach of the law. Even if the State Duma decides to change the articles of the Civil Code, this is a lengthy process that lasts several months, if not years.
Suppose the Duma nevertheless decides to legalize compulsory licensing. Then for all foreign copyright holders (and not only from the unfriendly countries, but for everyone), every case of a “compulsory license” will be interpreted as an unlicensed use of their works by Russian companies, even though the latter acted within the framework of Russian law. Domestic distributors are aware of this. The introduction of such a practice can only make it difficult to buy content abroad, untie the hands of pirates, and open Pandora’s box, with unpredictable consequences, including for Russian authors.
Also, let us not forget about purely technical difficulties. The appeal of any modern Hollywood blockbuster lies in the combination of visual and audio effects. Where would a hypothetical distributor of such a product get the film’s source materials to carry out the necessary localization work?
Independent Distributors. The sudden and massive exit of Hollywood majors somewhat weakened the competition. In the face of a shortage of content, it has become easier to distribute even subpar quality releases. However, the increase in independent companies’ revenues over the past two months turned out to be relatively small (according to ProfiCinema, the market average increase is between 10% and 25%). Moreover, the box office of domestic films, in the absence of competition with Hollywood blockbusters, is also not growing significantly. Russian and independent foreign projects have their own audience, and its share—relative to the entire cinema audience—is quite stable and small.
The behavior of movie-goers in practice refutes the thesis about the dominance of Hollywood films in Russian cinemas. Moviegoers had a choice from many releases, different both by genre and by country, but the mass audience chose not to see them.
At first, independent distributors will benefit somewhat from the absence of Hollywood majors in the market, but as the financial situation of film distributors worsens, they will also face a reduction in income. Initially, they will face a non-payment crisis that will precede the bankruptcy or liquidation of cinemas. Then, as the number of venues shrinks, competition between independent distributors for the shrinking theatrical market will again intensify, which in turn will cause a reduction in the number of distributors.
Producers. They turned out to be the most protected part of the film industry. But it is obvious that the “niche clearing,” which the producers dreamed of for many years, did not work quite the way they would like. On the one hand, the lack of content has made it possible to de facto introduce a system of long releases, with the high-quality releases able to stay in theaters if the audience goes to see them. On the other hand, the box office of Russian films has clearly shown that an increase in screenings does not lead to a proportional increase in audience numbers and box office. For producers, the situation will have a delayed effect, but sooner or later they will also face a shortage of screening sites, which will significantly reduce the possibility of paying back big-budget projects.
Conclusions and forecasts for the second half of 2022. State support in a crisis is distributed unevenly, according to the same model as before. Film production companies receive most of the state support. As a result, if real and significant steps are not taken to support the cinema sector in the second half of the year, we will face a significant reduction in cinemas, which means a further reduction in fees, a decrease in the availability of film screenings in the regions, increased competition between distributors, and a decrease in the payback for domestic films. Consequently, there will be an increase in the dependence of producers on state funding. Most likely, a complete collapse of film screenings across the country will not happen. By analogy with the previous government moves, it can be assumed that several major cinema chains will be recognized as critical to the film industry. However, it is very likely that the Russian film industry will roll back ten to twenty years in terms of the number of screens, spectators, and fees.
Nina Romodanovskaya, Moscow
ProfiCinema © 2022
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