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.