Crisis-Proof Industries Off to a Poor Start

In most Western recessions, there is a crisis-proof triumvirate: booze, cigarettes and Hollywood.

Born in the Great Depression, the U.S. film industry reported box office gains during five of the last seven recessions. The Russian sectors, however, are off to a poor start.

In December, Russian box office earnings dropped 33.8 percent year on year, according to the figures from the magazine Russian Film Business Today. Cinema attendance for the period fell 45.5 percent. Winter is supposed to serve as the industry's blockbuster season, like summer does for Hollywood, said Alexander Semenov, the magazine's editor-in-chief. It also serves as a barometer to predict year-end results.

Though figures have been up year on year for the first three weeks of January, the film industry is likely to stagnate or experience a slight downturn in 2009 given the effect of the financial crisis on its consumers, Semenov said. "People with a variety of different incomes go to the movies in Russia, not just the well-to-do and middle class," he said. "The crisis isn't hurting cinema attendance enormously, but it is affecting it."

While Russian box office receipts jumped roughly 40 percent in 2008, for years monthly attendance has never fallen more than 5 percent to 10 percent year on year, according to his statistics.

The industry is financially dependent on private investors, moviegoers and the state, which has invested millions of dollars into the industry in the past couple of years. All three parties are likely to have less money in 2009, and there will probably be fewer film releases because of the crisis, said Nikita Trynkin, chief financial officer at First Media Fund, a private film investment fund.

Other traditionally recession-proof industries appear likely to get hit as well. Vodka sales were down 19.4 percent for the month of November year on year, the most recent data released by the State Statistics Service. Beer sales for the same period were down 9.6 percent.

Even output of cigarettes was dropping off in November. Domestically, 35 billion cigarettes were produced in the month, a 5.5 percent decline from October and 5.1 percent fall year on year, according to the State Statistics Service.

Natasha Zagvozdina, a retail analyst at Renaissance Capital, said the crisis might give the two domestically produced beverages a boost as imported alcohols, such as wine, become more expensive. "Now because of the devaluation of the ruble, all imports will become much less affordable," Zagvozdina said. "Consumers, rationing their spending, are turning to domestically produced vodka again."

During the 1998 crisis, beer consumption did increase, but no more than it did in 1997, according to Euromonitor. Vodka consumption during the period actually decreased.

While the contemporary Russian film industry barely existed in 1998, one might view 1930s Hollywood as a precedent, said Trynkin of First Media Fund.

"The Great Depression in the U.S. resulted in the golden age of Hollywood," he said.