While the rest of the economy sputters, Hollywood is enjoying a windfall from the sickly U.S. dollar. The weakened currency is translating into a robust international box office and big profits for the entertainment industry.
But it’s also complicating life for producers who make movies and TV shows overseas, as the fluctuating exchange rate makes planning difficult.
“There’s so much talk in every studio about producing outside the U.S.” because of currency shifts, said Harry Sloan, the former MGM chairman who is spending a lot of time looking at acquisitions overseas with his new media fund, Global Eagle.
Also read: Why America Doesn't Count at the Box Office Anymore
“You shoot when the elements come together and the financing comes together,” said Jeff Steele, a film finance expert and the head of Film Closings said. “But you need to have a hefty currency reserve carved out, because if rates go all over the place, you’re going to need it.”
In April, the U.S. dollar hit a three-year low. Its value plunged 11 percent against a basket of major currencies through May of this year.
Nowadays, it takes $1.42 to buy a single euro; a George Washington now gets you 77 yen, and it takes $1.08 to match an Australian dollar.
Meanwhile, America’s currency has fallen to a record low against the Swiss franc, where investors have fled in search of stability.
Yet the weak dollar is feeding international demand for Hollywood’s content. Television shows are relative bargains for foreign distributors, who are willing to pay top dollar — provided the currency is of the U.S. ilk.
Also read: The Importance of Always Hedging Your Currency
“That's good for the international buyer who's getting the project at a discount,” Bill Block, CEO of the international production company QED International, told TheWrap. “It's like getting a 20 percent gift."
But for producers of movies like “The Hobbit” in New Zealand, the weak dollar pushes the cost of production higher.
Warner Bros., like other studios, traditionally locks in the exchange rate when it greenlights a movie for overseas production.
But as “The Hobbit” faced endless delays stemming in part from co-backer MGM’s bankruptcy, the dollar weakened, which has driven up the cost of the mammoth shoot.
In the main, most agree that the weak dollar has helped Hollywood, giving an extra boost to tentpole films such as “Pirates of the Caribbean: On Stranger Tides” and “Harry Potter and the Deathly Hallows: Part 2.”
“If the rupee, the pound and the Australian dollar all get stronger, it doesn’t mean admissions are doing better,” Ashok Amritraj, chairman and CEO of Hyde Park Entertainment, told TheWrap. “It means that the box office is doing better as a function of where currency is at a particular time.”
Historically, currency's doldrums have goosed revenues for studios.
“A weak dollar has traditionally boosted earnings, especially since the performance of films is increasing overseas relative to domestic,” Harold Vogel, president of the investment firm Vogel Capital Management, told TheWrap.
Last year, box office revenue was flat in the U.S. and Canada at around $10.6 billion, while the global market reached a record $31.8 billion, driven by a record $21.2 billion overall international grosses, according to the Motion Picture Assn. of America.
The foreign box office accounted for a record-high 67 percent of all revenue. And in 2011, there's every indication that percentage will go up.
What ails the dollar is nonetheless a boon to film financiers who often borrow against their foreign pre-sales. Moreover, when the dollar is weak, foreign distributors are especially willing to buy U.S. products.
Amritraj says that the dollar’s squishiness has emboldened independent producers to demand a premium when shopping their films to foreign distributors — something he did recently with his upcoming “Ghost Rider: Spirit of Vengeance.”
“It makes it easier to ask for and get top dollar when the dollar is weaker,” Amritraj said.
That’s the good news, but it also means that film companies need to look harder for foreign settings for their films where the dollar still has some potency left. Canada, after all, became a haven for runaway productions precisely because studios could stretch their budgets.
Moreover, riding fluctuating currency rates brings its own headaches for producers involved in funding projects abroad.
Steele pointed out that the rate of exchange can change dramatically from the time financing on a movie closes to when a film wraps.
Steele remembers one project on which he was $400,000 in profit thanks to the exchange rate after he lined up his funding, but was nearly $500,000 in the red three weeks into shooting after the dollar surged unexpectedly.
“It usually takes six weeks to close financing. How many times does the world change in six weeks?” Steele said. “The only sure thing is to hedge as soon as you can.”
Rather than rely on sophisticated hedges, producers and studios are increasingly attracted to producing their films domestically and benefiting from the inflated ticket prices they’ll rack up in foreign markets — particularly with states such as Louisiana still doling out generous tax breaks to productions that shoot within their borders.
“It is subject to the creative needs of the film, but the United States — with its soft money and considering what the dollar buys in other parts of the world — has become a more attractive place,” Amritraj told TheWrap.
After all, America is one of the few places left where the dollar still means something.