Hollywood

See Joshua E. Keating on how these 7 countries won the recession. 

As the summer officially came to an end this Labor Day weekend, the major studios were in a funk. Theater revenue from early May through early September (when Hollywood traditionally reaps some 40 percent of its annual earnings) was down 3 percent compared with a year ago, leading to a box-office take for the season of $4.27 billion in the United States and Canada; 3-D was showing signs of petering out; DVD sales had all but flatlined; and fewer people went to the movies this past summer than at any comparable time in 20 years.

But so what? These are actually boom times in Hollywood, thanks to the American entertainment industry’s secret new weapon: foreigners.

"Bingo!" exults Mark Gill, a veteran studio executive who serves as president of Millennium Films. "Foreign box office has saved Hollywood."

"International" revenue (that is, anywhere that’s not North America) is up 35 percent over five years ago and accounted for 69 percent of the studios’ box-office receipts in 2011, according to the Motion Picture Association of America. As of Sept. 13, the studios’ income from foreign theaters was running at $11 billion, compared with $7.6 billion domestically, per media data analyst Rentrak.

As America has struggled in the wake of the 2008 financial crisis, Hollywood has gone global, with breathtaking results. Facing little room for domestic growth and with movie screens already saturating the United States, the film business has had little choice but to look abroad. Thanks to the recession, Tinseltown may have found its own salvation.

The emerging markets of China and Russia are the biggest drivers of Hollywood’s overseas growth. But other countries have factored in too. Even India, which has long resisted American movies in favor of its own thriving Bollywood film industry, is opening up. "Hollywood has 9 to 10 percent of a giant market there, and four or five years ago it was only half of that," notes Andrew Cripps, president of Imax’s Europe, Middle East, and Africa division, who is working on plans for a 14th Imax screen on the subcontinent.

After years of discounting the rest of the world, Hollywood has started to take real notice, even for the first time greenlighting some big-budget films based almost entirely on their foreign appeal, such as Ice Age: Continental Drift, the fourth in 20th Century Fox’s animated franchise, which had made a modest $157 million in North America but a whopping $677 million abroad as of Labor Day.

Last year’s top grosser, Harry Potter and the Deathly Hallows: Part 2, made $381 million domestically, but that was paltry next to its $947 million international haul. Indeed, among the top five moneymakers in 2011, not a single one earned more in North America than the rest of the globe. In 2008, The Dark Knight, the second in Christopher Nolan’s popular Batman trilogy, whose ever-increasing foreign revenues are emblematic of the broader Hollywood trend, made $533 million domestically versus $470 million abroad. The Dark Knight Rises, this year’s installment, had earned $438 million domestically versus $603 million abroad by summer’s end.

Even two domestic catastrophes — Universal’s Battleship and Disney’s John Carter (whose failure cost studio chief Rich Ross his job) — did much better overseas than at home. The former reaped 78 percent of its $303 million box-office revenue abroad, while the latter took in 74 percent of its $283 million overseas.

Hollywood’s success abroad is no accident. For starters, American studios are making more "tent pole" or "franchise" movies — large-scale films packed with action and special effects rather than dialogue, which often translates poorly to audiences across the world. "Animation also does better overseas — anything that is not language-bound," says Bill Mechanic, former chairman of Fox Filmed Entertainment.

Second, countries such as Russia and China are building state-of-the-art theaters at a staggering pace. Between 2007 and 2011, Chinese movie screens doubled to more than 6,200, and that number is projected to rise even further by 2015 to 16,500. This still leaves room for a massive increase, given that the United States, with its far smaller population, has almost 40,000 screens, per the National Association of Theatre Owners.

Third, China has started opening its doors for an increase in U.S. movie releases after years of restrictions. In February, the United States and China agreed to a deal allowing 14 Imax or 3-D films from the United States to be shown annually in China, on top of the previous quota of 20 American movies. Hollywood already has seen the benefits of this pact; China’s growing appetite for American films was evident in the re-release of James Cameron’s Titanic in 3-D, which raked in a record-breaking $67 million in just the first week it opened in China — nearly $10 million more than it earned over the entire course of its American release.

Unsurprisingly, Hollywood is doing everything to maximize its foreign revenue. Several studios have created operations to finance local-language or "indigenous" products. Legendary Pictures, which co-financed the Batman series, has even formed a venture solely to jointly fund Chinese movies, and 20th Century Fox was one of the backers of John Woo’s Chinese-language epic Red Cliff. At the same time, leading talent agencies such as Creative Artists Agency have opened foreign offices, including one in Beijing, to scout local filmmakers and improve the potential for co-productions.

Many studios are also premiering their movies abroad for the first time, defying conventional wisdom that U.S.-based publicity drives a movie’s global performance. Steven Spielberg recognized this last year when he opened The Adventures of Tintin in Brussels and Paris almost a month before it opened in the United States.

Moviegoers may no longer be flocking to theaters in the United States, but as Hollywood is finally recognizing, foreign revenues remain a bright light for one of the great domestic industries. As film-industry reps love to point out, movies are one export the United States can still count on.

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