An Early Weak Euro Casualty: Hollywood

Posted on by

We’ve begged to differ with those who argue that the US will emerge largely unaffected by the economic headwinds hitting Europe at near gale force. The Eurzone has lashed itself to a deflationary mast via the scale and scope of its austerity measures. Its only route (absent a breakup) to alleviate the impact is a further fall in the euro. Both are negatives as far as the US is concerned. And as we discussed earlier, the US is more deeply entwined with Europe than most want to believe.

We are already seeing some early casualties of the weakening euro. If the movie industry is being affected adversely, it stands to reason it is not alone. From Hollywood Reporter (hat tip reader Buzz Potamkin):

A couple of summers ago, a weak U.S. dollar and stronger world currencies resulted in a generous “exchange-rate bonus” to international boxoffice…But with European currencies hovering at longtime lows, studios could take a double-digit-percentage bruising this summer.

Last year’s foreign boxoffice received an estimated 10% lift from favorable exchange rates during a 12-month span. But with decidedly unfavorable conditions prevailing in Europe of late, studios could absorb a 10% regional hit in theatrical revenue during the all-important summer release season..

In less than six months, the value of the euro against the U.S. dollar has dropped nearly 20%, and the British pound sterling has hit a 14-month low. One euro is worth $1.24, down from $1.51 on Dec. 3; one pound equals $1.44, off from $1.64 on Jan. 19.

Meanwhile, foreign boxoffice gathered in local currencies is converted into dollars by the publicly held companies that own the major studios. So the stronger the local currencies, the higher the company revenue.

Countries using the euro include Europe’s biggest theatrical territories — France, Germany, Italy and Spain — and Britain is the No. 1 foreign boxoffice market. (In Japan, another big territory, the yen has stayed relatively stable.)…

“Should the euro’s current value of $1.24 continue through the summer, and the summer 2010 gross equals 2009’s international summer of $5.8 billion, it would reduce the majors’ boxoffice total by about $210 million,” Sony international distribution president Mark Zucker said.

Countries using the euro account for about 32% of major studios’ international boxoffice, he estimated.

1.24 to the dollar? I imagine most readers would see that as optimistic.

Print Friendly, PDF & Email


  1. Francois

    “those who argue that the US will emerge largely unaffected by the economic headwinds hitting Europe”

    What could they be possibly smoking? A weaker Euro affects international revenues of American multinationals, and put our exportations at a competitive disadvantage.

    Unaffected? Maybe in Wasila, Alaska but in the real America…

  2. alex black

    Seeing as how you assert that the only route available to alleviate the impact of a deflationary spiral in the EU is a devaluation of the Euro (which makes perfect sense), is this the opening gun in “the race to the bottom”?

    Most of the Western nations are in the same boat – high deficits to GDP, high debt to GDP, aging populations, promised entitlements that far exceed their future abilities to meet those promises. The austerity required to maintain credibility as a borrower (ability to pay bonds, without trashing the currency), would be crushing, possibly enough in each case to lead to a deflationary death spiral, not to mention the civil unrest.

    It has seemed apparent for a while that the route of least resistance is currency devaluation/inflation. The EU has now gotten a head start. I envision Bernanke green with envy.

    I just read some interesting numbers. (my computer won’t link – see – a Jim Jubak article). A study was done to calculate the debt/GDP ratio when unfunded liablities for the retired or soon-to-be-retired were added to the tab. Greece came in at a whopping 875%. Average for the EU is 434%. UK 441% Germany 418%. France was 549%. Weirdly, Spain only came in around 244%.

    But wait, they calculated it for the US, just for fun. We win. 890%.

    If the EU is indeed realizing that of all the bad choices out of this unsolvable problem, devaluing the currency is the least painful (which they seem to be doing quite well), our true debt/GDP ratio is MORE THAN TWICE THEIRS! Can we find an option that they haven’t thought of?

    My incredibly uneducated guess is that the race to the bottom is on, and America has become so non-competitive that we can’t even win a race to the bottom.

    Curious to hear other people’s thoughts….

    1. Martin

      Adding “unfunded liabilities” from retirement payments is bogus. Then you either have to add a virtual capital equivalent to what would return you the social security payments, or you have to take a large part of the gov’ts income as possible payment on that interest.

      You can do the same for private households. I have an unfunded liability to buy food for about the next 50 years. Assuming, I’m eating for ca. 4000 Euro per year, I have 200,000 Euro of unfunded liabilities. So with a net income of ca. 20,000 Euro per year, I look pretty broke, don’t I, given, that apart from eating, I have further liabilities, e.g. clothing?
      And countries don’t even have to save for retirement…

      1. alex black

        I’m uneducated in economics and here to learn, so bear with me.

        I’m not sure that this is a good analogy. An individual might have a lifetime of “unfunded liablities” facing him – but he also has a lifetime of labor to offer in exchange for them. This analogy seems to break down if the individual is 70, sick, unable to work, and needs 20 years of food, shelter, and health care. THAT “unfunded liability” is, indeed, unfunded.

        When you apply “unfunded liabilities” to a society, it gets more complex, but as an example, Social Security worked great when it had, what, 40 workers for every retiree. In 20 years, it falls to what, 2 or 3 workers per retiree? The “liability” grows while the “funding” shrinks.

        Again, I’m not sure, but my understanding of “unfunded liabilities” is the amount of anticipated liablities over and above the expected amount of tax revenue to cover it – not just the liability itself.

        1. LeeAnne

          “I just read some interesting numbers. … A study was done to calculate the debt/GDP ratio when unfunded liablities for the retired or soon-to-be-retired were added to the tab. Greece came in at a whopping 875%. Average for the EU is 434%. UK 441% Germany 418%. France was 549%. Weirdly, Spain only came in around 244%.

          But wait, they calculated it for the US, just for fun. We win. 890%.”

          followed by this:

          “I’m uneducated in economics and here to learn, so bear with me.”

          How about just one fact from The Center for Corporate Policy websitehere

          According to Citizens for Tax Justice, 82 of 275 top U.S. corporations paid zero taxes between 2001 and 2003, although they earned $102 billion in pre-tax profits. 46 companies with a combined profit of $42.6 billion paid no federal income taxes in 2003 alone. Instead they received rebates totaling $5.4 billion

          It isn’t for nothing that Greenspan pleaded before Congress for globalization while pointing to the increasing US productivity without mentioning that worker incomes remained flat and executive compensation soared beyond anything ever seen in the civilized world as they printed their own money in the form of insider controlled stock options while workers were being scammed into allowing their savings and retirement funds to be consolidated and turned over to an unregulated, lawless finance sector, including health insurance companies, to do what they pleased with it while gutting the US of infrastructure and experienced workers with the historical knowledge now so glaringly missing for reform.

          Its called rape and pillage and there is no justification for it.

          So all this posturing by people like Pete Peterson who have been feeding at the ‘public service’ trough to the tune of $Billions for themselves personally would be laughable if it weren’t so sick and evil.

          Greed, stinginess and feelings of scarcity are closely related.

          1. alex black

            Thanks. Like I said, I’m just here to learn, so I ask questions – so please take no offense:

            Through an IRA, 401K, pension plan, or individually, have you ever been a shareholder in any of those corporations whose stock prices benefited from their tax strategies?

            Would you argue that anyone who has should return any capital gains or dividends that were increased by these tax strategies?

            I enjoy a lively conversation.

          2. kstills

            Good grief.

            For the last time, Corporations do not pay taxes. They have expenses that they pass on to their consumers, either downstream mfgs or us.

            Any tax you impose on any Corporation ultimately becomes a cost of doing business that makes that good or service more expensive.

          3. LeeAnne

            Good grief.

            Corporations then don’t ‘pay’ for anything. Right? Because all their expenses are passed on to consumers. So, just transform all your tax-free earnings into securities earnings, increase the number of shares outstanding, write stock options for yourself, and pay capital gains taxes at half the rate the people who work for you pay.

            Even Warren Buffet commented on that.

          4. Ed Seedhouse

            “For the last time, Corporations do not pay taxes. They have expenses that they pass on to their consumers, either downstream mfgs or us.”

            kstills, I do hope it really is the last time because it is total nonsense. If I say “People do not pay taxes. They have expenses that they pass on to the consumers of their labor” that would be equally as true as your original statement. And equally nonsensical.

            If Corporations can’t pay taxes, why do they hire all those lobbyists to make sure their taxes keep going down? Are they delusional?

            Someone here is delusional, but it certainly isn’t the Corporations.

          5. hibikir

            One more time: People don’t pay taxes: they have expenses that they pass on to their employers.

            Oh wait, but just like a company doesn’t really get full price elasticity, people’s wages cannot be increased whenever they wish. So everyone and everything that actually gives money to the government every year pays taxes. Any other analysis comes from the economics’ equivalent of the spherical, frictionless horse.

        2. LeeAnne


          You might just as well have asked if anyone ever benefited from overfishing and despoiling the oceans, from agribusiness, from farm animal factories, Monsanto genetic seed manipulation and control, or scores of other societal ills over which no one has direct control and can’t always avoid what with tricky labeling and corn syrup in everything.

          Not even powerful bureaucracies created for that purpose have any control over corporate abuse. Because corporations own the government. We have only to observe the behavior of BPs CEO on the Louisiana shore despoiled by British Petroleum giving orders to photographers to move away from the public property to see fascism in action.

          Tossing the elderly and sick under the bus for lack of imagination I’m afraid is the fantasy of people who have no sense of their own mortality nor of the greatness for which this country was formerly known.

        3. Martin

          Well, first, to get to the values, you cite, one has to take the full amount regardless of the income. So even a society with a constant dependency ratio would have these huge “unfunded” liabilities. Of course a society, that has only 70 year olds would have an enormous problem. But that is not the real world.

          Ok, so what happens in the real world. There indeed the dependency ratio increases. As a consequence the estimate is, that the social security payments in the US will grow from 4% now to 6% of GDP in 2050 or so. So on the macro economic perspective, this means roughly the equivalent of 1 year of growth extra.
          It is important to note, that at any constant birth/immigration whatever model, you as well end up with a constant dependency ratio after some time. So this 6% for social security are unlikely to ever run a lot higher, unless the underlying trend completely changes.

          In Germany the equivalent of social security as a share of GDP is for various reasons about 10% today – and will not grow too much in the future. However, obviously you can run a country with a 10% share of GDP for retirement benefits paid by via a public mechanism without crippling your economy.

  3. ginger_tosser

    What would happen if the GBP, EURO, USD, YEN and other major currencies all devalued at the same time?

    Relative to the minor economies it would be seen as a devaluation, relative to all others in the group it would be seen as business as usual. Am I being naive here in thinking that coordinated action would be a good plan?

    1. alex black

      I’m guessing the currencies wouldn’t deviate tremendously from each other if they all devalued together, but inflation would show up, especially in basic commodities. A Euro might still buy you $1.22 in dollars, a pound would still buy you $1.44 in dollars…. but if they all devalue, they devalue against real goods and/or services. That $1200 no longer buys an ounce of gold – it buys a half ounce.

      Real taxes or real spending cuts are difficult if not impossible to enact politically. Inflation is a stealth tax. Politicians can put their hands in their pockets and whistle and say “Gee, yeah, ain’t that awful?” – but they can redirect people’s eyes as to who is destroying their savings (and wages and pensions and benefits).

      When the politicos run out of money, throughout history, their easiest way of getting more was to clip the coins.

  4. Michael

    Well good. About time they got some of their own medicine for trying to have all the profits to themselves.

    I for one would welcome a bit more diversity, although I doubt this will make any difference. These days I wait for movies to reach (unpaid for) TV – and even then they’re rarely even worth the time it takes to watch them.

  5. Amit Chokshi

    So what re Hollywood profits? Hollywood does a lot of shooting in foreign locations, for example Cold Mountain was shot in Romania. A cheaper Euro will also translate into lower overseas production costs. It’s naive to suggest that the Euro decline won’t impact the US but citing one industry is a bit much. The Eurozone buys 14% of non-oil US exports and 9% of SP500 revenues are Euro w/key exposure in autos and materials. A lot of that Euro weakness I think has been reflected. I have shorted PCAR off/on for years, big truck co with about 67% of revs outside the US and HUGE exposure to Europe and the bottom line has so far been that new truck orders, diesel engine orders, etc and cost cuts have led to positive earnings surprises that outstrip the FX issue. Maybe things will change in the next 3-9 months but so far it seems like a minor point.

    Not to mention the bigger companies are more exposed to the Euro and int’l currencies. Almost favors small cap w/US heavy exposure.

  6. Bill

    IMHO, everyone in this country including so-called “news” media, spend way too much time and money on Hollywood, TV, etc.

    It won’t be a bad thing if Hollywood gets smaller and less visible, but look what happened during the GD1, of course admission prices might have to fall back to a nickel.

  7. Vinny

    Considering the trash they produce, and the immorality they brainwashed into our youth, Hollywood can go bust for what I care.


Comments are closed.