Will Sky High Inflation Hurt the Movie Business?

As the impact of the pandemic starts to dissipate, studios and film financiers are winding down some of the costly COVID protocols that added millions of dollars to their bottom lines. They are also avoiding the kind of prolonged shutdowns that dogged film sets during the initial years of the virus. That’s the good news.

But as the entertainment industry converges on Cannes, hoping to sell finished films and line up financing for their next projects, they are grappling with economic headwinds that threaten to sweep aside the cost savings associated with post-pandemic production.

“It’s just the nature of the industry right now — whenever something positive happens, there’s a new challenge that arises,” says Simon Williams, managing partner of Ashland Hill Media Finance. “You’ve cut a lot of what had been budgeted for COVID in terms of testing and contingency plans if someone gets sick, but all those costs have been replaced by the 10% increase we’re experiencing from inflation.”

In the U.S., where major studios and agencies are based, the inflation rate has hovered at or above 5% for the past two years, with costs jumping nearly 8% in 2022, marking a 40-year high. That means the price of everything from labor to transportation to securing materials for sets have all climbed to dizzying levels, making it harder for movies to stay on budget. That’s to say nothing of the costs associated with lining up financing, which have also increased as interest rates continue to rise. Borrowing money has rarely been such an expensive proposition.

“It’s tough to navigate,” admits one producer. “Rates are at an all-time high, so you’re paying high financing costs any time you need a bank loan.”

Some producers on independent films have even opted to defer their fees until their movies secure distribution deals or sell off their foreign rates as a way of maintaining their profit margins. But that’s not always enough in terms of cost saving. That’s left some film financiers scrambling to find pockets of the world where inflation isn’t a nagging problem, but those places are few and far between. There’s Saudi Arabia, Bolivia, Japan, Hong Kong — and then the list gets shorter and shorter. Plus, top talent may be willing to uproot themselves to make a movie in Georgia, but they may not be as keen to spend a summer in Riyadh. And many production hubs that may be more attractive, such as Hungary, where inflation hit a 26-year high in 2022, and the U.K., where inflation reached a 41-year high last fall, are suffering from escalating costs.

As filmmakers hit France for the Cannes market, they are warning buyers to brace for the higher price of doing business.

“There needs to be an acceptance that things are costing more,” says Williams. “In some places, the cost of labor has gone up by 100% and that’s not helped by labor strikes like the one we have with the writers [in the U.S.]. Financing fees are up. Everything is more expensive across the board.”

Sometimes these rising prices have delayed movies that were announced with great fanfare at previous markets.

“A deluge of new projects were presented to the market in Cannes last year and I know many buyers and sellers who are frustrated at how few have since actually made into production,” said Stuart Ford, founder of AGC Studios, the company behind “Moonfall” and “John Lewis: Good Trouble.” “Pre-selling movies is only one step in the process and the broader financing climate is still challenging.”

There may be one silver lining. In 2023, the cost of movie tickets in the U.S. increased 15% from pre-pandemic levels, but moviegoing still remains relatively economical compared to eating out, attending concerts or other popular diversions.

“It’s challenging, but a cinema ticket is still the most affordable entertainment around,” says Thorsten Schumacher, the founder and CEO of Rocket Science. “That might make more people go to the movies.”

John Hopewell contributed to this report.

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