Why Studios Could Lose $3 Billion Despite Record Global Box Office

Strong dollar and unfavorable exchange rates could cost Hollywood a fortune in overseas grosses

Last Updated: September 23, 2015 @ 4:48 PM

Thanks to Universal Pictures’ record-shattering year and explosive growth in China, the worldwide box office is running nearly 6 percent ahead of last year and is on pace to exceed $38 billion for the first time, Rentrak said Wednesday.

That’s the good news.

The bad news is that unfavorable exchange rates because of the U.S. dollar’s strength could cost the studios as much as $3 billion by year’s end, according to interviews with executives from multiple studios about the matter.

That’s roughly 10 to 12 percent of the overseas box office haul for the year, which Rentrak projects to hit $26 billion.

The Euro has lost roughly 19 percent of its value against the dollar since last year, and Russia’s ruble is even worse, down 38 percent. Brazil (-24 percent), Australia (-15 percent) and Japan (-15 percent), Mexico (-14 percent) and the U.K. (-9 percent) have all seen significant drop-offs as well.

With its trio of blockbusters “Jurassic World” “Furious 7” and “Minions,” Universal has shattered records with more than $4 billion in international grosses.

But given the strong dollar and with exchange losses from its other films factored in, the studio has likely lost at least $400 million in revenues.

Universal executives have in the past made it clear that any frustration over the loss of revenue due to exchange valuations is easily offset by positives of its spectacular year.

Other studios, without the benefit of big hits, are definitely feeling the pain. Fox’s “Maze Runner: The Scorch Trials” opened strongly last weekend in Russia with nearly $4 million. But Fox insiders believe the gross would have been closer to $12 million were it not for the ruble’s recent collapse.

Warner Bros. executives have said the studio lost up to $90 million earlier this year due to exchange-rate issues with “The Hobbit: The Battle of the Five Armies,” and the toll on “Mad Max: Fury Road” has yet to be determined.

There is a silver lining on the dark cloud of weak foreign currencies: China, whose box office has grown an incredible 47 percent increase this year. Even with its ongoing economic problems, China’s yuan has not taken a significant drop against the dollar compared to other countries.

Disney ranks second in worldwide grosses in 2015 thanks in large part to “Avengers: Age of Ultron” and Pixar’s “Inside Out.” The studio has acknowledged that its Marvel superhero sequel’s grosses took a hit in the tens of millions of dollars due to the dollar’s strength, and the Disney braintrust has to be concerned as it looks ahead to the December release of “Star Wars: The Force Awakens,” expected to be a blockbusters overseas.

“The strength of the U.S. dollar versus a number of key foreign currencies is expected to adversely impact our operating income in 2016 by approximately $500 million,” Disney CFO Christine McCarthy said when the studio reported third quarter earnings last month that failed to meet analysts’ expectations.

Studio executives can take comfort that these currency fluctuations are usually cyclical. Only two years ago, Hollywood was benefiting from a weaker dollar.

More significantly, there’s virtually nothing they can do about. Trying to shift foreign release dates based on foreign currencies’ dips and gains would be, as one distribution chief put it, “like trying to catch a falling knife.”