The weak dollar is good news for international film sales, with sellers expecting that beneficial currency exchange rates will muscle up the biz in the months ahead.
“Everybody is hopeful that film buyers will feel freer about spending,” says Doug Hansen, chief operating officer of Endgame Entertainment, a Los Angeles-based private-equity funder providing later-stage financing to movies.
Here’s the equation being evaluated at the American Film Market: Most film sales contracts are denominated in U.S. dollars, even for non-U.S. film sellers. As the dollar declines in value, buyers in strong-currency territories need fewer of their own euros, yen or pounds to convert into the dollars that pay their film acquisition contracts.
Film buyers still pay their local consumer marketing expenses in local currencies.
In some cases, though, buyers have dollar-based contracts to sell films to local TV outlets, thus yielding a further currency benefit to a film buyer.
Point of negotiation
“It’s a point of negotiation, much like anything else,” notes Howard Kaplan, Morgan Creek Intl. chief operating officer, who is also vice chairman of finance for the American Film Marketing Assn.
For the film biz, the weak dollar has a negative side in instances where U.S.-based companies are funding production overseas in strong-currency territories.
A more typical scenario is that production money is coming from multiple sources that could be a blend of weak dollars and other currencies that are strong.
“You’d think in the long run it would have a favorable impact, but in the near term the impact has been difficult,” Hansen points out.
Libraries less risky
Sales companies with sizeable film library titles — older movies produced at least two years ago — have less proportional exposure in potentially currency-risky new production.
To insulate against currency gyrations, production funding is sometimes backed up with future foreign currency contracts designed to neutralize exchange rate changes.
Indie finance execs say such hedging maneuvers work in production but not film sales. Productions have fixed start dates and thus predictable timetables for currency needs. Film sales are a patchwork and unpredictable, making it difficult to precisely schedule when currency draw-downs would need to occur in the future.
For two years, the dollar has ratcheted down, a result of relatively low U.S. interest rates and a ballooning federal budget deficit.
Two years ago, it took 1.15 euros to match a dollar. Last year at this time, the exchange rate required just 0.93 euros and now it’s just 0.80.
The story is the same for the U.K.’s pound sterling. The exchange rate in British currency went from 71 pence to the dollar two years ago to 54 pence these days.
The dollar’s decline is dramatic, though the film industry didn’t get too excited at first.
One reason is that film sales deals typically require 80% of payment upon delivery of a finished film, which for a new production would be about a year into the future, when the currency rate will be different.
But impact is immediate for the 20% down payment and nearly immediate for acquisitions of finished films when the 80% final payment is perhaps only a month off.
Another reason for the blase attitude is that film buyers and sellers tend to manage their businesses on a day-to-day basis, simply looking at money coming in and money going out, without great regard for broader economic trends.
“You would certainly think now is the time for buyers to make any payments that they’re late on, and everybody pays late,” notes Lewis Horwitz, president of movie banker the Lewis Horwitz Organization and head of AFMA’s affiliated financial members.
“We haven’t noticed any big change in payments. Now is certainly time to make any payments that are late.”
Weakening the euro
The euro currency zone may undergo its own weakening in the future as the European central bank is pondering whether to lower its relatively high interest rates to promote economic growth. Western Europe accounts for 62% of international indie film sales (international excludes the U.S.)
One thing’s for sure: The weak dollar now has film sellers sharpening their pencils to recalculate their pricing models for films sales going forward.
“Sellers will re-evaluate and, where it makes sense, pricing will increase,” says Sands. “The full benefit of the weak dollar can’t be taken totally by the territorial buyer. It’s not fair. Some of that benefit needs to be shared.”