Argument

Hollywood

How foreign audiences saved Tinseltown.

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.

See Slavoj Zizek on how capitalism won the recession. 

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Argument

These 7 Countries

The rise of China and India has long since become a cliche. In fact, neither country has done all that well since the crash of 2008 -- but these emerging powerhouses have cleaned up.

See Frederick Kaufman on how McDonald's won the recession.

SOUTH KOREA
"I am confident that this crisis can advance our dream of becoming an advanced first-class nation," President Lee Myung-bak told a group of business leaders in 2009. To accomplish his goal, South Korea boosted government research and development spending from 3.4 percent -- already among the world's highest -- to 5 percent. The emphasis on innovation, combined with generous subsidies, not to mention a policy of keeping the won low to boost exports, has helped South Korean industrial giants like Samsung, Kia, and Hyundai rack up global market share. South Korea was the first wealthy country to emerge from recession in 2009, and household income has grown for the last 11 quarters. The country's credit rating was upgraded by Fitch in September, cementing its status as a haven for investors. South Korea still faces economic challenges -- domestic consumption has been low, and Korean households are among the world's most debt-laden -- but once global trade picks up, expect the Korean wave to crash on a shore near you.

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POLAND Poland was long considered one of the least promising of the newly capitalist states of Eastern Europe, lagging behind tigers like the Czech Republic and Slovenia. But Europe's bad years have been good for the Poles. The country's economy grew 15.8 percent between 2008 and 2011, while the European Union's cumulative economy shrank by half a percent. In 2009, the worst year of the crisis, Poland's was the only EU economy that didn't contract. Analysts credit smart monetary and fiscal policies and low debt levels for the Polish miracle, along with a large market of domestic consumers that meant Poland's companies were less dependent on exports than its neighbors. Poles also simply try harder than many other Europeans, working about 500 more hours per year than Germans despite earning about a fifth of their salaries. The continent's woes may finally be catching up with the Polish tiger, however: Poland recently had to revise its 2013 growth projections from 2.9 percent down to 2.2 percent.

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CANADA On July 1 -- Canada Day -- of this year, it became official: The average Canadian is richer than the average American for the first time. This would have seemed an unlikely scenario two decades ago, when Canada was hampered by debt and sluggish growth. But the government slashed spending and reduced the deficit in the 1990s, which allowed it to rely on fiscal easing and stimulus spending when the 2008 recession hit. At the same time, it "resisted the siren call of deregulation" for its financial sector, as former Prime Minister Paul Martin put it, forcing banks to avoid many of the risky practices that endangered financial institutions elsewhere, while the government continued to invest in infrastructure. Canadians' disposable incomes have increased some 15 percent over the last 10 years, and three of the world's 10 most livable cities, according to the Economist, are in Canada. But not all is well in the True North: Canada's economic growth is dangerously dependent on oil exports from its lucrative tar sands; the United States gets 22 percent of its oil from its northern neighbor. And the easing strategy that helped cushion the blow of the recession has led to an explosion in housing prices, which many investors fear may be inflating into a bubble.

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SWEDEN Sweden suffered its own financial implosion in 1992, when a real estate bubble burst and the government was forced to take over several of the country's banks, so it was ready when the current crisis hit. Sweden has cut its famously high taxes on corporations and individuals, though they're still among the world's highest, while maintaining high rates of spending on education and health care. The government has managed to keep its debt low -- about 38 percent of GDP, compared with 80 percent in supposedly frugal Germany -- and proved prescient in its decision not to adopt the euro, which has allowed it to float its currency. Sweden was Europe's second fastest-growing economy in 2011 (after tiny Estonia), and the krona has consistently risen against the euro. Sweden is still vulnerable to slumping exports to Europe, however, and unemployment is on the rise. But with government finances in order, it has weathered the storm better than most.

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INDONESIA Indonesians are nothing if not confident. Eighty percent believe their country has the potential to become a global superpower, and they recently overtook Indians as the world's most bullish consumers. They've earned the right to be cocky. Indonesia has maintained annual growth rates of over 4.5 percent throughout the recession and had the second-highest growth rate in the G-20 (after China) last year. Some of that growth is dependent on commodities like coal, palm oil, and tin, but Indonesia also has a large, growing middle-class consumer market -- car sales are up 15 percent since last year. Multinational companies have taken notice, including carmaker Nissan, which is spending almost $400 million to double its production in Indonesia. Foreign investment accounted for nearly a third of the country's GDP the second quarter of 2012. With the world's fourth-largest population, nearly 250 million people, Indonesia is enjoying the kind of demographic dividend -- a high ratio of working-age adults to those who depend on them -- that propelled China's and India's explosive growth over the past decade.

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TURKEY Turkey's recent rise is generally covered as a political phenomenon, but its economy may be the real story. Over the past decade, Turkey, with relatively little exposure to the European financial crisis, has managed to nearly triple its GDP and its per capita income. Turkey is now Europe's largest carmaker, hosting Honda, Hyundai, Renault, Toyota, and Ford factories, and a leader in pharmaceuticals as well. Much of the credit goes to the government of Prime Minister Recep Tayyip Erdogan, which has liberalized investment rules and put in place stricter regulations to tackle corruption since coming to power in 2003. Turkey has also seized back its historic role as a bridge between Europe and the Middle East: Its largest trading partner is Germany, but Egypt, Iran, Iraq, and Saudi Arabia are increasingly important to the country's bottom line. Analysts warn that Turkey needs to tackle its high inflation rates and attract more direct investment, and a years-long effort to join the European Union seems to have stalled. But for the surging Turks, maybe staying out of stagnant Europe is not such a bad thing after all.

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MEXICO Mexico might seem a surprising choice on a list of success stories, given the horrific drug violence that has killed more than 50,000 people in the past six years, but what gets much less attention is the country's economic boom. Growth exceeded even that of much-ballyhooed Brazil last year. More than 700,000 new jobs were created in Mexico in 2010 as factories exported record quantities of appliances, challenging China for a share of the U.S. market. Inflation and debt levels are low, and for the first time in years, net migration to the United States has fallen to zero in 2012, and may have even reversed. U.S. politicians still mostly focus on Mexico as a source of drugs and immigrants, but with Mexico contending to replace China as America's second-largest trade partner after Canada, it may be time for the United States to start thinking of its southern neighbor as a source of customers and jobs instead.

See Stephen Galloway on how Hollywood won the recession.

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