Russia Might Make It Much Harder to Show Hollywood Films

Plans to inflate exhibition fees from less than $100 to more than $85,000 could be a game changer, distributors say.

Russia is threatening to make it more expensive and difficult for Hollywood to do business in that country, a significant market for Hollywood features. Plans by the Russian government to introduce steep new movie distribution fees for Hollywood and foreign films are causing consternation among distributors and diplomatic missions. And new rules that could affect how widely Hollywood features are exhibited are also causing concern.

A draft law outlining a scheme to sharply increase the cost of obtaining a distribution license from 3,500 rubles ($60) to 5 million rubles ($86,200) was published Aug. 29 by the Russian ministry of culture.

The law, which applies to all feature-length films scheduled for more than 100 screenings is designed to raise money to help support domestic productions. It will apply to all films, but distributors of domestic films produced in Russia will be eligible to apply for full rebates, effectively making it a measure aimed at foreign releases from abroad.

If implemented the law could cost distributors of independent movies as much as $27 million a year, according to some estimates. Hollywood movies, which dominate the Russian market, are better positioned to weather the fee hike, but the measure would still cost them just under 2 percent of overall revenue. Although no separate figures are kept for Hollywood box office alone, last year Hollywood and foreign films accounted for 82 percent of the Russian box office — around $596 million out of a total of $727 million.

"Certainly, if the ministry goes ahead with its plans, there will be no more independent distributors in the Russian market," Sergei Spiridonov, general director of Volga, which distributed (among others) Woody Allen's most recent movie, Cafe Society, told The Hollywood Reporter. "Some will shut down earlier, some may be able to stick around a bit longer, but the end will be imminent."

Last year, Cafe Society, which grossed $2.2 million, became Allen's biggest Russian box-office hit, but other indies collect much less. Pedro Almodovar's Julieta, for example, took in $307,000, while Paul Verhoeven's Elle, one of Russia's highest-grossing indie releases has grossed $280,000.

In the case of big-budget Hollywood movies, the proposed distribution fee could be viewed as the price of doing business. Disney's Pirates of the Caribbean: Dead Men Tell No Tales, grossed $36 million following its May 25 release in Russia, becoming the top-grossing film of the first half of the year.

But in the case of wide releases, Russia is proposing a further restriction that the Hollywood studios are watching warily. Although no date has been set for when it could go into effect, another new measure designed to protect locally produced movies from Hollywood competition would prevent an individual film from commanding more than 35 percent of the screenings on any given day. At its height, Pirates took 56 percent of all screenings.

To date, the Motion Picture Association of America, which represents the major studios, has not spoken out against either measure, leaving it to local distributors and exhibitors to lodge protests lest U.S. efforts only exacerbate the situation.

The EU, though, fears that it would no longer be feasible to distribute European movies, leading to a loss of cultural connections with Russia.

Critics say the new exhibition fee law, which is out for public and industry consultation until Oct. 27, threatens at worst to kill the market for art house and independent films and at best to restructure a system where distributors currently buy rights for the entire Commonwealth of Independent States (CIS) region, encompassing Russia, Kazakhstan, Belarus and other former Soviet territories.

"Such legislation would just kill distribution of almost all European and indie movies in Russia," Anastasia Sergeyeva, executive director of Russian distributor Volga, which handles Hollywood independent and foreign movies, tells THR. In the case of foreign independent films, their potential Russian box-office gross amounts are virtually on par with the new exhibition license fee. For example, France's La danseuse, which screened in Canne's Un Certain Regard sidebar in 2016, grossed just $102,200 — and half of that gross went to the theaters showing the film — so the exhibition fee would effectively cancel out any returns to its distributor.

Sergeyeva's fears are backed by figures obtained by the respected business daily Kommersant, which calculates that each major player in the Russian film distribution market will lose an average of 1.7 percent of gross revenue under the new law, but independents, which distribute three-quarters of the 300 or so films released in Russia each year, will lose much more. The newspaper estimates they will pay a total of around 1.6 billion rubles, more than $27 million, equal to 63 percent of their income.

Even the most sanguine distributors of foreign fare in Russia foresee a major upheaval in the way business is done if the exhibition fee goes forward.

Polina Schlicht, managing director of Moscow- and Berlin-based Monumental Pictures, told THR that the new law would put an end to CIS-wide deals.

Schlicht's company has exclusive rights to distribute Fox product in Ukraine and also handles Hollywood independent fare in Ukraine. Its recent releases include Atomic Blonde, A Dog's Purpose and Gold.

"If the law is passed, there will no longer be CIS deals at the film markets," she said. "This will enforce the tendency of the last few years of Russian distributors not being able to pay minimum guarantees anymore for the whole CIS."

She added: "Former Soviet countries like Ukraine will buy even more independently of Russia and producers, and sales agents will need to come up with new pricing in their Russia and CIS sales estimates."

Other distributors of Hollywood fare, such as Moscow's Central Partnership, which is an exclusive distributor of Paramount Pictures movies, are taking a more cautious approach. The company said it would issue an "official statement" after its legal team had completed a review of the draft law.

Hollywood majors with offices in Moscow are taking a similar line: when approached for comment by THR, Universal declined to comment, while Sony, Paramount, Warner and Disney did not respond. However, one source in the U.S. movie industry said that there were concerns about the planned exhibition license fee hike and industry executives were watching the situation closely.

European Union diplomatic missions in Moscow and the EU Delegation have also voiced concerns. A spokeswoman said that although the EU was not taking an official position at the moment, it was looking into whether it breached any international trade obligations Russia has undertaken. They were also "looking at what impact it may have on European film distributors."

A diplomatic source at one EU embassy told THR that there were "concerns over the possible impact" of the new law on "cultural relations with Russia."

The source added that given that few copies of European films are shown in Russia, the steep new distribution fee "could result in huge financial losses" possibly leading to the disappearance of European films from Russian cinemas altogether.