Hollywood's Top Three Challenges to Doing Business in Russia in 2018

Putin press conference Getty 2016 - H
Getty Images

New taxes, a hostile TV market and a local oligarch bent on confronting the studios are among the challenges awaiting the industry in the new year.

Many expected the election of Donald Trump as U.S. president in November 2016 to lead to improved ties between Russia and the United States. That didn't happen.

Relations between Washington and Moscow are now at a nadir, not helped by Trump's recent speech lumping in Russia with China as "rival powers" to the U.S. and the primary threats to America's economic dominance in the world.

For Hollywood, which has relied on Russia as a significant market for its films and TV series, 2018 is likely to bring more bad news and more challenges to doing business.

Kremlin watchers will be focused on March 18, the date of Russia's presidential election. While the result is not in doubt — Vladimir Putin is certain to secure another six-year term — it is anyone's guess how far President Putin will go in his "Russia First" policies of economic nationalism.

After the 2012 election, for example, Putin took a sharply anti-Western stance, imposing new restrictions on foreign companies working in Russia and cracking down on his country's mostly pro-Western liberal opposition. Most observers expect this trend to continue in 2018.

The question is: How far will Putin go? Here is THR's look at three key challenges for Hollywood in Russia that will be in focus next year.

New Taxes

Moscow's Russia First policy — which Russia's government calls "import substitution" — has looked to the tax code as a way to protect the local film industry at the expense of Hollywood and other foreign imports.

Russia backed down from a radical idea to hike the exhibition license fee for theatrical releases in the country — the fee, which is mandatory for a theatrical release in Russia, was set to jump from 3,500 rubles ($60) to 5 million rubles ($85,000) — but the ministry is still adamant about taxing foreign releases in one way or another.

Culture Minister Vladimir Medinsky, an ardent Russia First advocate keen to protect homegrown films against the Hollywood invasion, is expected to lose his position in the new cabinet, but his replacement will likely be drawn from the same conservative and anti-Western contingent.

A proposal, introduced mid-December, would implement a 3 percent tax hike on all foreign theatrical releases. Expect that to pass easily and go into law in early 2018.

But a new tax is not inevitable. Russian distributors and filmmakers effectively killed the proposal to hike the exhibition license fee by loudly protesting against it. Hollywood, which so far has been reluctant to oppose Putin's policy publicly, could protest a new tax in the hope of generating public support from an audience hungry for big studio releases.

The Movie Oligarch

The Kremlin is one problem for Hollywood. Russian business is another.

In late 2017, Russian tycoon Alexander Mamut, owner of Russian's two largest theater chains, Formula Kino and Cinema Park, triggered a standoff with Universal and Fox over online ticket sales.

In October, Mamut's local ticket platform, Rambler.Kassa, introduced a 10 percent commission on all cinema ticket sold online.

Angered by the new service charge, Universal pulled its Tom Cruise starrer American Made and Michael Fassbender thriller The Snowman from Mamut's chains. Fox, in a similar move, blocked online ticket sales on Rambler.Kassa for Murder on the Orient Express, though the studio still let Mamut's theaters screen the Kenneth Branagh murder mystery.

The standoff is still ongoing and will continue into 2018. But as both sides have more to lose than to gain from the battle, expect the new year to possibly bring compromise between the tycoon and the studios.

TV Window Closing

For years, Russian television was a dependable buyer of Hollywood films, supplying a steady source of income for the studios. But "import substitution" has hit the small screen as well, and Hollywood films and series are getting squeezed off Russian TV in favor of local fare.

In late 2017, TNT, Russia's No. 1 entertainment network, announced it would completely abandon Hollywood imports, switching over to Russian movies and series. While the move won't impact hugely popular foreign series like Game of Thrones, lesser Hollywood fare, such as The Foreigner or Runaways, recently aired by TNT, will be largely shut out.

Television networks tend to toe the Kremlin line, so don't expect a shift back to Hollywood-friendly programming in 2018. But there is hope for the studios online: Russia lags behind much of Western Europe when it comes to online streaming services, but it is a fast-growing industry and offers opportunities for majors with content to sell.

"Online video streaming services will grow significantly [in Russia]," Dmitry Kolesov, director of the TV and content department at J'son & Partners Consulting, told The Hollywood Reporter.

According to Kolesov, online video services will work actively on creating libraries that are different from their competitors'.

"It's no longer enough to just offer a large selection, it has to be unique, so the user understands what they pay for," he concluded. "[This] should lead to increased demand for Hollywood movies."