Russian Quotas: Hollywood Studios Would Be Hardest Hit

Russian president Vladimir Putin meets filmmakers

Russia's proposed quota on foreign films, introduced in the midst of the crisis in Ukraine, could hurt the studio's revenues in the region, worth some $860 million last year.

A proposed quota limiting foreign film imports to Russia would hit Hollywood hardest.

Russia's parliament, the Duma, will debate a proposed new law, that would force cinemas to screen more Russian films. The bill, proposed this week, would cap foreign releases in Russia at 50 percent of the total for the territory. Currently, the number is closer to 80 percent, with the bulk being U.S. studio titles.

STORY: Russia Mulls Tough Quota on Foreign Films Amid Ukraine Crisis

A study published last week by film industry analysts Nevafilm suggests Hollywood would be the biggest losers if the quota goes through.

Last year, nearly half of the foreign films released in Russia where from the U.S. (199 of 446 foreign titles) but those American titles accounted for $885 million, or nearly 70 percent, of last year's $1.3 billion box office in the territory. Just 74 Russian titles were released last year, accounting for around 20 percent of the total box office.

Studio titles raked in $863 million at the Russian box office last year, according to Nevafilm, with U.S. indie titles taking in $22 million.

But under a bill submitted Tuesday by Russian parliamentarian Robert Shlegel, Russian distributors would have to boost local content, ensuring at least half of all releases were Russian-made.

Shlegel claims the bill has nothing to do with the political war of words between Washington and the Kremlin which has erupted following  last week's controversial referendum in Crimea. The peninsula, which has been part of Ukraine for 60 years, voted in a referendum to split from Kiev and join Russia. The vote was widely condemned as illegal, not least because Russia troops were in effect occupying the Crimea at the time. President Barack Obama responded with a series of sanctions against high-ranking Russian officials and companies. Some have suggested the film quota is a direct tit-for-tat from Moscow.

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This is not the first time a quota for Russia films has been suggested. Quotas for foreign films have been on the agenda for the past two years as Russia's film and cultural policy has become steadily more nationalistic under Culture Minister Vladimir Medinsky, a loyalist of Russian President Vladimir Putin. But with nationalist fever rising here due to the Crimean crisis, the idea of a quota is more likely to make it onto the statue books.

It is not clear, however, how such a quota would be applied in practice. The Russian film industry would be hard-pressed to more than triple its current output to produce and release some 250 films a year. It is not certain whether majority co-productions would be classified as Russia for quota purposes, as they are in China.

Hollywood studios are also facing legal challenges to distributing films in the Crimea region.

Russia's de facto annexation of the region has left distributors and exhibitors there in legal limbo. Under Russia law, the Crimea is no longer part of Ukraine (on local TV weather reports, the peninsula is already being depicted as part of Russia). Vadim Smirnov, Moscow-based head of 20th Century Fox CIS, says that, legally, Crimea's new status makes it impossible to distribute films already licensed under existing Ukrainian contracts. Ukrainian distributors, largely based in Kiev, can no longer work in Crimea now that it is effectively Russian territory.

"[Crimea] is without legal status and Ukrainian distributors cannot work there now," one Ukrainian industry executive, who preferred to remain anonymous, told The Hollywood Reporter.

According to Nevafilm there are are 14 cinemas in Crimea,with a combined total of 33 screens. One independent distributor estimated the region's box office accounts for about 6 percent of Ukraine's total gross. Most of the theaters in Crimea are situated in the cities of Simferopol and Sevastopol, both of which have seen clashes between Pro-Kiev and pro-Moscow groups.

U.S companies dealing with Russia could also face problems back home if any of their partners in Russia or Crimea have connections to President Obama's growing black list of business people subject to sanctions.

Meanwhile, according to Alexander Luzhin, executive director of research company Movie Research, the introduction of quotas on foreign movies would not have a drastic effect. “Competition between local and foreign, primarily American, movies is not at a level of the number of screenings, but at a level of promotion and advertising,” he said.

Luzhin added that recent big Russian movies were released on a larger number of screens than Hollywood competitors anyway. For instance, local box office champion Viy reached a share of 40 percent of all screenings during its opening weekend, compared with 22 percent for The Wolf of Wall Street, released a week later.