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Staff Reporter

How much is Asia dragging down Hollywood’s overseas box office?

That’s the $64 question analysts and studio executives have been grappling with for more than a year. And despite anecdotal evidence of the serious downturn, especially in Korea and Japan, the extent of an Asian fallout remains unclear.

While Hollywood studios posted their best year ever overseas totaling $6.8 billion, a 17 percent gain from a year ago some analysts point out that the numbers would have been even higher if the Asian economies were in decent shape. They also point out other problems, such as currency devaluation and the loss of ancillary income for merchandising and licensing of film-related products, especially in the Disney and Warner Bros. stores.

“You could see a 20 to 40 percent decline,” said Jeffrey Logsdon, an analyst at Seidler Cos.

But some studio executives note that attendance in Asian theaters actually was up in 1998, helping offset the losses from currency devaluations. “It shows that, like in the Depression, there is more reason to go to the movies during the bad times,” said an executive at Walt Disney Co.

Jim Gianopulos, president of Twentieth Century Fox International, agreed that the Asian downturn may have created an increased appetite for escapist entertainment.

“It’s a diversion,” he said. “Fantasy takes you out of the reality.”

Attendance has not been affected as much in Asia, Gianopulos said, because movie-goers have decided that the price of a movie ticket is still cheap, compared to other entertainment costs. “It’s good value,” he said.

Value is a relative term.

In Japan, one of the hardest-hit Asian economies, the price of a movie ticket averages $15, and can be as high as $20 at some theaters. And that’s why revenues for New Line Cinema have held up surprisingly well in that country essentially remaining unchanged, said Rolf Mittweg, president of New Line International.

Final box-office returns will not be tabulated for several months.

At the least, Asia’s troubles have caused Hollywood studios to rethink their strategies for doing business overseas. Although New Line has been asking distributors overseas to advance minimum guarantees, it revised downward its projected revenues for Korea.

“The value of their currency dropped by one-half,” said Mittweg. “We had to reduce the minimum guarantee by half.”

But he added that New Line remains confident of its partners in Korea. “We deal with Daewoo,” he said. “We know they have money, but it is hard to get.”

Mittweg said he expects Asian countries will require “three to four years” to recover. “It can’t be remedied in 12 months,” he said. “Each territory has to bottom out and then rebuild.”

This year, New Line plans to release its first film in China, “Rush Hour,” the action comedy starring Jackie Chan. Like most film companies, New Line expects giant box-office returns from China in the years ahead.

“China has been the territory with the highest population,” Mittweg said, “but nobody has received returns comparable to the amount of people.” One reason is that Chinese officials have limited the number of Hollywood films that can be released in their country.

Logsdon said Asia’s economic woes go much deeper than the studios let on. Currency devaluations have created situations in which Asian businessmen can no longer fulfill their contracts for pay-TV deals, distribution rights, home video and free television.

“Contracts are not being paid,” he said. “It’s going to get tougher.”

Moreover, Logsdon said, the Asian woes have reduced the number of Asian distributors interested in each film, which has led to a corresponding reduction in the price Hollywood films can command.

“In the past, there might be two or three people bidding on a movie (to distribute),” he said “Now it’s one guy. There’s no competition.”

Logsdon anticipated the slump would lead to a narrowing in the types of U.S. films released in Asia. “The marginal film will not make it,” he said. “They will only bet on home runs ‘Titanic,’ not ‘Beloved.’ ”

It would not be surprising, Logsdon said, if Asian distributors were able to pressure Hollywood studios into paying for prints and advertising, meaning the distributors would merely have to cover the direct costs of distributing films.

Despite Asia’s uncertainty, the worldwide numbers for 1998 are compelling and point to a continued pattern of international growth for Hollywood. A total of 17 Hollywood films surpassed the $100 million mark overseas.

“Business is strong internationally,” said Bill Shields, president of ACNielsenEDI’s international division, which tracks box-office returns. “No matter how you slice it, going to the movies is the cheapest form of entertainment outside the home.”

Gianopulos said the key to Hollywood’s success is that audiences have tired of home videos, pay television, cable and the increased number of free local channels so they’ve returned to the movie house. Moreover, he said, the increased number of state-of-the-art multiplexes being built overseas is finally paying off though development in Asia will likely slow.

“There may be fewer shopping malls built,” he said. “Financing for them will be harder to get.”

Hollywood’s foreign box-office champ for 1998 is Twentieth Century Fox Film Corp., which took in $1.97 billion overseas, a 97 percent increase over 1997. That was followed by Disney’s $1.7 billion. It was the fourth year in a row that Disney exceeded the $1 billion mark, a Hollywood record.

The top films of the year overseas were Fox’s “Titanic” with $1.2 billion, Disney’s “Armageddon” with $262 million, and DreamWorks SKG’s “Saving Private Ryan” at $232 million.

Fox’s success overseas was helped by such hits as “There’s Something About Mary,” which earned $161 million, “The X-Files” at $101 million, and “Dr. Dolittle” with $135 million.

Among Disney’s other hits overseas were “Mulan” at $154 million, “The Horse Whisperer” with $109 million, and “Six Days, Seven Nights” at $85 million.

New Line was one of the great turnaround stories. Backed by hits like “Blade,” “Lost in Space” and “The Wedding Singer,” New Line generated $262 million overseas in 1998, a 152 percent jump over 1997.

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