An interview with Russian World Studios CEO

Russian World Studios CEO in an interview for Business FM Radio about the economic crunch’s influence on the film industry; about RWS policy and the prospects for Russian TV and film industries for 2009.    

Everyone says that 2009 is going to be tough for the film industry. Have you already stalled any projects?

- We are not planning to stall any projects. It is going to be more like a restructuring: if we had many expensive projects in our portfolio 6 months ago, now we have reviewed our plans in favor of middle- and low-cost projects. Some of the projects will be held for better times, and vice versa: some projects we were not going to move forward with may come to the foreground now. We are going not to reduce the production output but to increase it.

You have mentioned that some of the projects may come to the foreground. Is this connected with the change in the world situation as well?  

- It is connected with the state of the market, and the economic crunch that affected everyone and cannot be ignored. Every company has a set of projects including very expensive, high-, middle- and low- cost ones. Currently the TV-channels cannot clearly define their purchase budgets for 2009, so we cannot risk substantial production budgets and will retarget to low-cost projects. Low-cost doesn’t mean uninteresting or of low quality. People watch modern stories with the same interest as high-cost historical costume screen adaptations.       

What is your forecast for the Russian television and film industries in the upcoming year?  

- First of all, easy cash will be pulled out of the market. During recent years money was actively invested in the film market on a non-systematic basis. Now this money is leaving the market and so many projects are suspended. But on the other hand it will enable market consolidation, exclude non-professionals and encourage business being done for the right reasons. The risk on these new projects will be thoroughly calculated, and they will be undertaken with new budgets, with a focus on the return on investment and not for the satisfaction of somebody’s ambition.      

What is your forecast concerning the decrease in the Russian film industry turnover?

- According the most optimistic forecast it is going to be a twofold decrease. Probably, more than that.
People still go to the cinema as they did before. According to the recent data there are even more viewers now, so it is not the case of a decrease in demand. Another issue is that a film industry reconstruction should take place. There are two ways to make return on investment in the film industry possible: increase revenues on one side, and lower costs on the other.
The costs have been already lowered, so if recently only a few films brought returns, then in the years to come the number of such films will increase due to the cost reduction that is already taking place. 
If cost reduction enables an increase in the number of films that bring returns then it is likely that there will be increased investments made in the industry, and so it will work in accordance with traditional laws of business.
Regarding television, there are difficulties connected not with the lack of money for productions but with the absence of clear responses concerning the purchase prices from the channels. It is difficult to guess the sales prices for the series for next fall.           

The government promises to support the film industry and allocate finances. But are there other means of support?

- There were times when it was proposed to support the Russian market by taxing the foreign film industry. Apparently this was caused by our intention to join the World Trade Organization. I will come back to this issue. Now the import duties for foreign made cars are being increased, the “chicken” market is being supported…but this support doesn’t cover the film market. In comparison with any single substantial western major the joint resources of all Russian production companies are considerably weaker. They certainly have more hits and blockbusters. They can easily affect cinema chains and set their conditions. And this is one more reason why it is so difficult for Russian production companies to compete with western ones. The problem of returns on the Russian titles is not only in their big budgets, but also the fact that we don’t know the way of film shooting, let’s say, in Hollywood. We do have good films as well. And such films turn to be unsuccessful  because they are shown on fewer screens than American ones. People rarely go to the cinema to watch a particular movie. They just go to the cinema and then decide which film to see. The Russian film ‘Admiral’’s total gross amounted to 36-37 million dollars, not because it is good or bad but because it was scheduled for as many screenings as possible. A person comes and buys the ticket, voting for the film this way. But such cases are rare. It is difficult for the Russian film industry to compete with Hollywood. It needs to be backed, I think. And how? By means of economics, i.e. higher import duties which will initiate the situation when 50 foreign titles will be equal to 50 Russian ones at least.

Will people go to the cinema rarely due to the economic crunch?

- I don’t think the number of viewers will decrease. The total gross in rubles will increase. Concerning the gross in dollars, it will hold steady or slightly reduce. 

Speaking about television: will the revenues generated from advertisements decrease?

- I think it is not likely. Probably, there will be a decrease in the rate of growth. And a certain retargeting will take place. Probably, some expensive segments will become less expensive ones. But this is the way it will be if the situation doesn’t take a turn for the worst. Someone said that several months ago the situation was reminiscent of before the Great Patriotic War. People thought that the war would last a couple of months. But nobody could foresee that it would take four years, tens of millions would die and the whole country would be destroyed. So we can make some forecasts for 2009 but only on the condition that the situation doesn’t get worse than it is now. Another issue is that the channels will optimize their expenditures and, of course, take advantage of the current situation. 

What is cheaper for the channels, to buy series or produce their own?

- It is much cheaper to buy imported products but the thing is that Russian series now have more viewers. 

Does it mean that the number of TV-series will reduce due to cost saving?

- I think there will be more experiments with foreign series. The channels will substitute Russian series for foreign ones to see their performance. On the whole the Russian series have no rivals for the moment. But everything changes. And the stream of Russian movie started after a decade of watching foreign series. And now we have a decade of watching Russian series. Probably, the time has come to add some foreign content. I believe it’s impossible to guess the potential audience. That’s why it is good when there is the possibility to experiment, and I think many channels will give it a try.      
        

December, 2008