In recent years, the Russian film industry has been remarkably robust. The 78 Russian films released in 2008 enjoyed a 22% share of the $830m CIS gross (excluding Ukraine), according to local analysts Nevafilm. Russian box office grosses alone came to $548.1m (rub19.9bn). State funding for production increased to $88.5m (rub2.6bn) in 2007, the last year for which figures are available, and 2008 saw a 20% growth in the number of screens in Russia, as ticket prices also increased.
But the global credit crunch made itself known in October when 20% of the projects in development at state studio and producer Mosfilm were put on hold. The usual sources of funding - government finance, private financiers and bank loans - were drying up.
Prime minister Vladimir Putin quickly announced new support for production but has delivered no new funds.
'There would definitely be no money (for 2008), we were told,' says Armen Dishdishyan, vice-president of international sales and co-production at leading Russian outfit Central Partnership. 'Even the first few months of 2009 do not look too promising. But the money promised by Putin is there, it will just take time for the officials to decide how it will be distributed.' Central Partnership says several projects it has in development have also been halted due to a lack of funds.
Both Dishdishyan and Mosfilm general director Karen Shakhnazarov point out wealthy individuals have also stopped lending money to their film-maker friends, and that film financing is no longer a priority for troubled banks. 'Nobody has spare money,' is how Dishdishyan puts it.
As in many other territories, some producers believe the financial squeeze will weed out the underperformers. 'The financial stress will leave only the most efficient firms on the market,' says Yuri Sapronov, CEO of Russian World Studios, which says it is not experiencing any slowdown in production.
To that end, the country's leading producers, including Central Partnership, Russian World Studios and broadcaster CTC Media, are calling for a more transparent pricing structure for services as well as salary cuts for crews and actors. They hope budgets will fall and make the territory more attractive for international film-makers.
'Foreign investment may bring foreign professional expertise to the market, which certainly will add to its development,' says Sapronov.
With the rouble at a three-year low against the US dollar, Western producers have Russia in their sights. Russia is a member of the European Convention on Cinematographic Co-Productions and has separate co-production agreements with Bulgaria, Canada, France, Germany, Italy and Spain. It is discussing a similar deal with India.
But co-productions with European partners are thin on the ground. The few collaborations include Dau, a Germany-Russia-France-Sweden project now shooting in Russia and Ukraine; festival favourite Tulpan (Germany-Kazakhstan-Russia-Poland) and Captive (Russia-Bulgaria).
These European-style dramas tend to do well at festivals but attract little attention at the crowded Russian box office. Not a single independent, European or Asian title was among the top 50 grossing theatrical films in Russia in 2008. Instead, the box office was dominated by local and Hollywood titles.
Russia's state production incentives are designed to support national film productions, not co-productions. To qualify as a national film, 70% of the production's budget must come from Russia. National films do not pay VAT (18%) in production or during exhibition. In theory, a co-production with a non-Russian minority partner could qualify for this benefit, but an equal partnership production would not.
In theory, majority-Russian co-productions can tap into increased state funding for production. Back in October, just before the crisis hit, the government announced plans to provide $68.8m (rub2bn) a year - and $143m (rub4.3bn) a year from 2010 - for Russian films. But the funding has not yet been made available with the government conceding it will not be until spring 2009 at the earliest.
Paramount, Sony, Twentieth Century Fox, Universal Pictures and Walt Disney have all teamed up with Russian partners to distribute their films in the territory and to co-produce local films for the large, growing market.
Paramount Pictures International (PPI) has struck a production and distribution deal with Moscow-based Central Partnership, which will distribute Paramount titles in Russia and the CIS while PPI will distribute select Central Partnership titles internationally.
Ruben Dishdishyan, Armen's cousin, is president and CEO of Central Partnership; Andrey Radko is vice-president, theatrical distribution.
'We are currently working closely with CP to find the right films to invest in locally,' says PPI's London-based president Andrew Cripps. He acknowledges the economic crisis is having an impact on the Russian market but says he expects long-term growth. 'We will wait until the right project comes along and assess the viability in Russia as well as international markets.'
Sony Pictures Entertainment has partnered with Shari Redstone, Michael Schlicht and Paul Heth of the Moscow-based Patton Media Group to form a joint venture called Monumental Pictures, to produce and distribute Russian-language films in Russia and the CIS.
US-born, Moscow-based Heth opened his first cinema in Russia in 1993. His Rising Star Media is one of the top five distributors in the territory. Sony participates in Monumental through Columbia Pictures. Russian producer Dmitry Shutko is Monumental's executive in charge of production; James Heth is the company's production supervisor.
Monumental produced The Very Best Film, one of last year's most successful films (a sequel has just been released). Monumental has five additional films in post-production awaiting 2009 release and is partnering with broadcaster and producer CTC Media on several film projects.
Disney has a similar set-up in Russia. Disney CIS, run by local producer Marina Zhigalov-Ozkan, shot its first local production, The Book Of Masters, in 2008. Produced in association with Nikita Mikhalkov's Three T Productions, the $7m children's adventure is directed by Vadim Sokolovsky, head of production at Disney CIS.
Timur Bekmambetov's Bazelevs Production is working with Universal Pictures International (UPI) and Marc Platt Productions to produce the thriller The Knights Templar as part of Bazelevs' agreement with UPI.
UPI's Russian division, run by Vadim Ivanov, was the most successful distributor in Russia and the CIS in 2008, grossing $204m. UPI's Madagascar: Escape 2 Africa earned $40.8m, becoming the highest-grossing non-Russian film ever released in the territory.
Twentieth Century Fox CIS took the second-highest market share with a total $155m theatrical gross. Approximately one-third of this came from local title The Irony Of Fate 2, the highest-ever grossing film in Russia with $50m. Buena Vista Sony Pictures Releasing was in fourth place, grossing $121m.
A number of Russian films are on their way to international careers. The $37m The Inhabited Island, which claims to be the most expensive Russian film ever made, is being released in two parts. Based on the popular science-fiction novel by Arkady and Boris Strugatsky, the first film opened on January 1 and has grossed $22m to date, and the second is due for release in October. The William Morris Agency is handling international sales. (Paul Heth and Michael Schlicht of the Patton Media Group had already introduced Mike Simpson at WMA to Bekmambetov and, based on this established relationship in Russia, Simpson picked up Island in late 2008, shortly before the film's release.)
Another genre title, Viy, will be released on March 12 to coincide with the 200th anniversary of the birth of Nikolai Gogol, who wrote the story that inspired the screenplay. Directed by Oleg Stepchenko, the Russian and English-language film stars UK actor Jason Flemyng as an 18th-century English cartographer who happens upon a Ukrainian village haunted by an evil presence.
Meanwhile Sergei Bodrov is developing a sequel to Mongol. He is also in talks to direct The Silk Road: The Adventures Of Marco Polo for Endgame Entertainment.
And Nikita Mikhalkov is in post-production on Burnt By The Sun 2. He plans to release the film in two parts, in May and autumn 2010. His Three T Productions is in negotiations with Wild Bunch to handle international sales.
Projects from up-and-coming directors are also generating international interest. Dau is an international co-production from director Ilya Khrzhanovsky based on the life of Nobel laureate Lev Landau and will continue shooting throughout 2009. Meanwhile, Bakur Bakuradze's Hunter, a drama about the relationship between a farmer and a woman from a prison colony, was at both Berlin's Co-Production Market and Rotterdam's CineMart. It is produced by Sergei Selynov of CTB Film Company and Bakuradze's Salvador D outfit.
The piracy problem
Piracy remains a huge problem in Russia. The US-based International Intellectual Property Alliance (Iipa) says that Russia is, after China, the world's worst piracy hotspot and the source of $2bn in losses for US companies each year. The Russian DVD Publishers Association estimates there are 4,000 pirate points of sale in Moscow alone, selling an average of $20m of illegal DVDs weekly.
'You would be shocked, shocked - in the Casablanca sense - to find that things are not improving in Russia with regard to piracy,' says Iipa counsel Eric Schwartz. Schwartz says that with some exceptions, Russia's anti-piracy efforts have slipped. 'There remains good co-operation with some enforcement authorities, but overall the intensity and the focus on piracy is not what it should be.'