20 April 2005
i2i audiovisual to Innovation 2010 Initiative – does it matter for the audiovisual industry ?
What is the issue?
Making films costs money – distributing them even more so.
To recoup the investment of a film may take four to five years and the
costs continue to rise because of ever increasing marketing costs (access
to market is made much more difficult without a proper marketing campaign
including TV advertising). European cinema is increasingly marginalized
by the cost of marketing a film.
In Europe there are enough films – more than 750 are made each year but there is a shortage of well financed films that get a proper distribution.
The film industry in Europe is a low volume, low budget industry with insufficient movies that circulate internationally to generate sustained investments.
Banks are understandably not keen on underwriting film projects because of the risk attached.
There is a clear market failure and traditional banks have abandoned film financing in Europe with very few exceptions.
This is dangerous as it contributes to disconnecting our film makers from financial discipline and market realities – It is imperative to get the financial and the cinema communities to connect to each other again and kick start capital investment in a sector which is facing an extraordinary business opportunity with online cinema.
The political context
The problem was acknowledged by the Head of State and Government at the Lisbon council in March 2000 – the Presidency concluded that the community and the Member States, with the support of the EIB, should foster the development of content for information technology and telecom networks.
For the first time at the highest political level of the EU – there was recognition of the need to support the content industry as a key element of the Lisbon strategy to boost competitiveness.
Funding for creative industries – not only in cinema – is a problem in Europe. Industries relying on people and less on fixed assets are perceived as more risky by the financial community. Nevertheless the creative sector is recognised as a key area for the development of a services-driven and knowledge based society.
The Commissioner Reding / President Maystadt initiative
In May 2001 the European Commission and the European Investment Bank announced a joint strategy aimed at providing 1 billion Euro to support investment in the audiovisual sector. The objective of the initiative was - inter alia - to :
- enhance the competitiveness of the European film and audiovisual industry
- act as a catalyst for support from the financial and banking sector.
It was announced that the EIB group would improve access to finance for the European and audiovisual industry with a lending capacity that would exceed 500 million Euro.
What has happened?
The EIB has provided:
- long term loans to essentially public television group ( BBC world €40 m and Denmark Radio - €210 m ) to cover infrastructure investment needs ( studios, broadcasting stations).
- global loan facilities to banks such Hypovereinsbank (15 m) , Banca Nationale del Lavoro (100m) and the Catalan finance institute (30m) – but with a very poor track record according to the EIB itself..
- credit lines to banks specialised in finance for small audiovisual production companies –the EIB act as a co-financier on projects selected by agents such as Coficine and Cofiloisir which are French institutions pecialised in lending to audiovisual SMEs – they have a unique set up in Europe ( state guarantee – guaranteed TV investment in film production – distribution pre finance ) which make the venture a safe bet. (€40 million x 2).
In short the EIB has lent 83 million Euro to the French film industry through agents Coficine and Cofiloisirs.
The EIB has made clear that it would lend only to cinematographers in Europe that enjoy a safe environment like in France (state guarantee – guaranteed TV investment in film production – distribution pre finance )
The European Investment Fund (EIF) – a branch of the EIB focusing
on providing risk capital – activities in audiovisual is even more
dismal. It manages a portfolio of 184 funds corresponding to a commitment
in excess on 2.5 billion. None of these funds are focusing on audiovisual
or creative industries. Its focus is almost exclusively on technology.
The EIB has very conservative settings. The bank accepts that there is
a clear market failure as traditional banks are no longer interested in
gap financing. But it does not hide the fact that it cannot take any risks
even by contracting with agents that are experts in managing these risks.
What should happen?
1. The EIB has to adapt its operational activities to take into account the specifics and constraints of the creative sector if it is to be serious about implementing the mandate from the Lisbon council. The EIB is historically focused on hardware and traditional industries – it should look into industries with intangible assets.
2. Deals in relation to independent productions and co-productions are
time consuming for normal banks. The EIB‘s role is to promote financial
institutions back in the market. Its role is to mobilise funds for the
sector.
It should set up film banking funds with banks and let banking specialists,
which are used to managing risks in the sector, manage the funds.
3. There cannot be a scheme that works only for one Member State.
4. More generally, creative industries are not sufficiently integrated in structural EU policy initiatives aimed at supporting SMEs and micro enterprises, developing applications in new technologies, promoting regional development or initiative on education.
It is up to the European parliament to put pressure on Mr Maystadt and
its team to deliver on their promises.
In Europe, the copyright industries contributed more than € 1.2 billion
to the EU-15 economy in 2000 and produced value added of € 450 billion
– which equals 5.3% of the total EU-15 GDP.
The proposal is that the European Parliament calls on:
1. the EIB to do a feasibility study on the role and functioning of a
film/ creative industries banking fund
2. the EIB to foster relationship between finance institutions and the
audiovisual sector by organising working seminars.
3. the European Commission to review the results of the commitments made
in 2001 to industry professionals and adapt the strategy accordingly with
a view in particular to promoting links between the financial sector and
the audiovisual industry.
Political pressure to invest in audiovisual is non existent at management
level within the EIB.
We count on the support of the European Parliament.
There is an opportunity with the emergence of the digital delivery of
films (VOD, mobile platform). The demand for films linked to digital delivery
will increase to the advantage of niche cinema and content. Distribution
of European films will be given a new chance. This will require the industry
to adapt its business models and to invest in technology (digitisation
of back catalogue, in licensing infrastructure).
ABOUT EFCA
The European Film Companies Alliance (EFCA), founded in Brussels in September 1995, is a non-profit organisation with a scientific and artistic purpose.
It aims to bring together European entrepreneurs active in film production and distribution. It is an essential platform for information exchanges and business networking.
EFCA considers that the following key issues are central to its mission:
? To promote European cinema within Europe and in third countries
? To encourage a sustainable and competitive European film industry
? To facilitate and improve access to EU grants and capital for the sector
? To prepare for the emergence of the digital market place
? To stimulate European co-production
? To liaise with film bodies, associations, film professionals and European
authorities
? To raise awareness to the key issues at stake in the European film industry
? To function as a network for exchanges and co-operation
The organisation, on its own or through KEA European Affairs (which manages its secretariat) is involved in major research relating to film distribution, censorship, protection of copyright, competition and international trade law.
The organisation has a consultative status with the European Union and the World Intellectual Property Organisation. EFCA is a member of the European Audiovisual Observatory Advisory Committee.
www.efcasite.org
European Film Companies Alliance
51 rue du Trône
1050 Brussels
Tel. +32 2 289 26 00
Fax +32 2 289 26 06