Dollars to doughnuts, comeback hurts H'wood
Studios busy handing down exchange rates for b.o. revenueA funny thing happened on the way to the global economic meltdown: The weak U.S. dollar got stronger.
But as the greenback flexes its muscles for the first time in nearly a decade, the U.S. movie industry is bracing for slimmer revenue as foreign currencies shrink in dollar terms when repatriated to the U.S. Major studio number crunchers are busy handing down new exchange rates for use in converting boxoffice revenue.
Studio year-by-year overseas boxoffice comparisons will be adversely affected if the strength of the dollar persists through 2008.
In 2007, the dollar fell 6.8% against global currencies, according to Reuters, and if trends persist, any such currency "bonus" will be missing this year. Last year, the favorable currency exchange helped pave the way for a record $9.4 billion in overseas grosses for the major studios.
Since the end of June, the U.S. dollar has staged a dramatic comeback. Of the 183 world currencies tracked by Reuters, the greenback has gained against the currencies of 146 countries.
In the first six months of the year, the dollar had gained against the currencies of only 80 countries. In 67 world markets since then, the value of the dollar reversed itself and surged ahead of local currencies.
Regardless of the overseas popularity of a given studio title, a film is now earning less boxoffice in dollar terms than it did two months ago -- strictly because of the stronger dollar.
"It clearly will reduce revenue when foreign currencies are converted back to dollars," said Mark Zoradi, president of the Walt Disney Motion Pictures Group. "But there is a positive side in that our distribution costs will be less as well. Our revenue may come down, but the cost of doing business also comes down."
Zoradi also sees the strengthening as a sign that "the extremely weak dollar" is being brought back to "a sustainable level."
"The stronger dollar will impact international earnings -- we are in an industry that measures ourselves in dollars," Paramount Pictures International president Andrew Cripps said. "Conversely, marketing and print spends will also be impacted, so it will reduce spends. However, where revenue is higher than costs, we will see lower margins from the stronger dollar."
At the same time, some industry analysts fear the days of lucrative TV deals may be coming to an end because of the dollar's climb.
"That BSkyB deal that was $2 million not long ago is now only $1.6 million," a distribution consultant said. "My friends in international TV at the majors have been cruising the last five years watching their dollar revenues rise while their local currency deals stayed the same. They looked like heroes. I think that's over now."
The weak dollar of this year's first half provided a 7.4% average "dollar bonus" against the currencies of 15 key overseas markets, the backbone of the Hollywood majors' overseas releasing patterns. Studio films effectively received a welcome currency boost in these markets.
Since July, however, that situation has turned around.
Against 20 key foreign currencies -- including those of the U.K., Japan, European Union countries, Australia, New Zealand, Russia, South Korea, India, Brazil, Mexico, Sweden and Argentina -- the year-to-date value of the dollar has skyrocketed. Through Oct. 24, it was up an average of 20% against these currencies (the dollar was up 16% against these currencies as of Friday).
The biggest dollar gains were registered against the U.K. pound sterling (up 23%), the South Korea won (38%), the Indian rupee (25%), the euro (15%), the Australian dollar (32%), the Norwegian krone (24%), the Brazilian real (22%) and the Mexican peso (18%).
Only two key overseas territories, Japan and China, have currencies that have strengthened significantly against the dollar since Jan. 1. As of Friday, the dollar had slipped 12% against the yen and 6% against the Chinese yuan.
Is a strong dollar good or bad for the economy? There are contrasting viewpoints.
"Typically, the word strong is perceived as a positive reference, but when it comes to a country's economy, a strong currency may not be in their best interest," currency analyst Richard Lee said. "In fact, many countries like China and Japan make an active effort to weaken their currency because their countries are export-dependent." For the most part, a strong dollar makes it less expensive for Americans to travel overseas and to import foreign goods, but multinational companies like the Hollywood majors will be bringing home less cash and domestic manufacturers will have export problems because their products will cost more in foreign markets.