[Documents/Docheader.htm]

Challenges facing the European audiovisual sector

Doc. 10253
 8 July 2004

Report
 Committee on Culture, Science and Education
Rapporteur: Mrs Milena Milotinova, Bulgaria, Liberal, Democratic and Reformers’ Group

For debate in the Standing Committee — see Rule 15 of the Rules of Procedure

Summary

The European audiovisual industry remains in a precarious and unstable state, facing fierce competition from the United States majors and, increasingly, from other parts of the world. Many governments have established public support schemes which are vital for sustaining national film production but have little or no impact on the circulation of audiovisual works Europe-wide.

European audiovisual works therefore need to achieve a truly European dimension, in terms of the cultural values that they represent as well as in terms of their market reach. Due to the enormous cultural and economic potential of the audiovisual sector, it should be regarded as a priority of the cultural policy of the Council of Europe. The existing European support programmes in this area should be reinforced and better co-ordinated.

I.          Draft recommendation [Link to the adopted text]

1.         Cinema was born in Europe and throughout its history, and later that of television, audiovisual works have played an important cultural, social and economic role. Today, audiovisual production is one of the most powerful means for the transmission and shaping of values and attitudes in society and one of the fastest growing industries in the world. The economic and political stakes therefore are enormous and European institutions should pay special attention to the cultural implications.

2.         In Europe, the audiovisual sector remains in a precarious and unstable state and has not been able to take full advantage of the steady growth in production over the last decade and the rise in cinema admissions. European audiovisual works may be successful at home but it is still difficult for them to cross borders Europe-wide. For that reason, even if Europe in terms of consumers is a larger potential market than that of the United States, most European audiovisual works have to rely on budgets which are insignificant compared to the US majors.

3.         The Parliamentary Assembly is concerned by the economic implications for Europe of its ever growing trade deficit in audiovisual products vis-�-vis the United States and by the cultural implications of the dominance of US productions on the cinema and television screens in Europe. Competition in the audiovisual sector is also growing with other parts of the world, namely Asia and Latin America. The Assembly is also alarmed that many cinema theatres, especially in town-centres, are closing for lack of funds and increased competition from multiplexes.

4.         The Assembly has followed the evolution of this question from its earlier Recommendation 862 (1979) on cinema and the state, Resolution 887 (1987) on European Cinema and Television Year and Recommendation 1067 (1987) on the cultural dimension of broadcasting in Europe. Many of the concerns remain valid today.

5.         The difficulties for national audiovisual works to achieve a truly European dimension lie in the small size of most markets and the cultural and linguistic differences between European countries. Most local producers and distributors are small and with modest resources. Funds and structures are also missing in order to establish control over the entire “value chain” of products - from idea and project development to worldwide distribution in cinemas and on TV and to develop optimally the successive exploitation of one and the same product in different formats (known as “windows”).

6.         Many European governments have long realised that the national market alone will not provide for adequate funding of their film production and have instituted a number of public support schemes. While vital for sustaining national film production, these schemes have little or no impact on the circulation of audiovisual works at the continental level.

7.         The real challenge facing the European audiovisual sector at present is to combine artistic creativity and cultural diversity of European works with a truly European dimension, in terms of the cultural values that they represent and in terms of their market reach. The Assembly welcomes the efforts in this direction of the two major European programmes, Eurimages, the Council of Europe’s cinematographic co-production fund, and the MEDIA Plus programme of the European Union.

8.         Co-production plays a special role in that respect as it not only expands the European dimension of film-making but also increases the chances of cross-border distribution. The Assembly deplores the lack of funds to that effect Europe-wide. The MEDIA Plus programme focuses on pre- and post-production, leaving the financing of production to national schemes according to the subsidiarity principle. Eurimages remains the only pan-European scheme for co-production but its annual budget is far from meeting even the modest demands of the European film industry.

9.         The Assembly welcomes provisions in the audiovisual legislation and regulation stemming from Article 10 of the Council of Europe Convention on Transfrontier Television and Article 4 of the European Union “Television without Frontiers” Directive, which establish the requirement to maintain “where practicable” a majority proportion of transmission time for European works on television. The cinema and television industry in member countries, in particular the distribution sector and especially in Eastern Europe, need further political and financial backing in order to abide by this rule.

10.       Attempts of countries, especially those with low production capacity or a restricted linguistic area, to join forces and create regional blocks for the promotion of national production, should be encouraged. The annual European Film Awards, the Felix prizes, deserve far greater publicity by the media. Stronger support should also be given to various initiatives which promote a higher proportion of European films in cinemas - such as the network of Europa Cin�mas - and “counter-stream” cultural programming in cinemas: cin�mas d’art et essai in France, AIACE in Italy, kommunale Kinos in Germany or Folkets Hus Bio in Sweden.

11.       The new technologies in screening and distribution, for instance when cinema theatres download their programmes electronically and image and sound are received via broadband or satellite, open new opportunities for wide-reaching dissemination of audiovisual works. Electronic distribution, however, when not properly regulated, can easily create unfair competition.

12.       The Assembly deplores the persistent and growing threats to the integrity and special value of culture in a commercial environment.  Audiovisual works, because of their cultural value, must not be regarded as a simple commodity and treated like any other service in the framework of the Doha Round of the World Trade Organisation.

13.       The Assembly therefore recommends that the Committee of Ministers:

i.          regard the development of a high-quality, culturally diverse and economically competitive European audiovisual sector as a priority of the cultural policy of the Council of Europe;

ii.          reinforce the mandate of the cultural sector in consequence and ensure more effective co-ordination between existing structures, in order not only to observe developments in the audiovisual sector but also to formulate recommendations and take appropriate decisions at the political level in the Council of Europe, in co-operation with the European Union;

iii.         engage in a political initiative vis-�-vis its member states to increase membership funding for Eurimages, along the lines of Assembly Recommendation 1138 (1990) on Eurimages;

iv.         invite the European Union to co-operate on increasing funding of pan-European film production, either by the European Commission joining in Eurimages as a member or by the EU making use of the capacities and competence of Eurimages in the administration of an EU-financed production support fund;

v.          continue to insist on cultural diversity as a political justification for maintaining national support systems for film and audiovisual creation, in line with the aims of the European Cultural Convention, in order to enable each culture to express itself and contribute to the rich European cultural heritage ;

vi.         support the work currently being carried out to establish an international instrument for the protection of cultural diversity under the auspices of Unesco and develop related instruments more appropriate to the European context.

II.         Explanatory memorandum

by Mrs Milotinova

INTRODUCTION

1.                This report was prepared on the basis of meetings held by the Committee on Culture, Science and Education, one in the Assembl�e Nationale, Paris, on 3 March 2003 with the participation of Mr Jacques Toubon, President of Eurimages and the other in Barcelona on 27-28 May 2004 on the occasion of the Universal Forum of Cultures. The rapporteur expresses her gratitude to all participants in these debates. She expresses particular appreciation and thanks to the Consultant Expert, Mr Nils Klevjer Aas, Special Advisor, Research & Policy, Norwegian Film Fund, for his invaluable assistance in the production of the report.

THE EUROPEAN AUDIOVISUAL LANDSCAPE: A look around

2.                Total cinema admissions have been rising steadily in Europe for ten years.  Since 1992 European cinema admissions have gone from 592 million a year to 933 million a year in 2002  Feeding into this growing market, European films have gone from less than 100 million admissions in 1992 to nearly twice that number ten years later.  European film production has risen from 476 films a year in 1992 to 625 in 2002.

3.                The consultancy company PriceWaterhouseCoopers has estimated a world-wide 4,8% compound annual growth rate in entertainment and media spending over the years 2003-2007, with the cinema and video/DVD sector poised to show typical results for the field.  Video games, also a branch of the audiovisual, is expected to be the fastest growing industry segment over this period.

4.                Despite the generally weak world economy the audiovisual sector thus shows great resilience and capacity for growth, as well as for creating employment.

5.                At the same time, however, the European trade deficit in audiovisual products vis-�-vis the United States has increased two and a half times in ten years and is now close to USD 10 billion.

6.                The market share of US films in Europe has been fluctuating steadily between two-thirds and three-fourths over the last seven years.  Over the same period European films, while able to boast considerable successes in their home markets, have only slowly increased their shares in the European over-all market.  Currently commanding 25to 30% of admissions in European cinemas, European films have therefore not been able to profit optimally from the rising market in cinema admissions.

7.                Most European states maintain some form of public support for film production, and most European governments have some kind of national film policy.  Yet the European  cinema as a whole remains in a precarious and unstable state.  This is why the field of audiovisual policy should also be a concern of the Council of Europe.

THE EUROPEAN AUDIOVISUAL LANDSCAPE: A look back

8.                The cinema was born in Europe.  The brothers Louis and Auguste Lumi�re are credited with having held in Paris on 28 December 1895 the first public performance of living pictures to an admissions-paying audience (a definition of “cinema” which remains valid until this day). And while the US inventor Thomas Alva Edison was the first to record continuous motion by photographic means and to reproduce it by projection, most of the actual work was carried out by his English assistant W.K.L. Dickson.

9.                During its first decade, the “itinerant” period of cinema, the same few films could be used again and again by projectionists moving between shows at county fairs and in community halls.  With the establishment of permanent cinemas the need for renewing the programme became paramount, a new programme being a major “selling point” in the soon-fierce competition between cinemas.  Film “factories” soon grew up, and shortly thereafter film “exchanges” - the forerunners of today’s production and distribution companies.  Again, Europe was at the head of developments, with France taking an early lead.

10.             On the other side of the Atlantic disputes over access to and use of film-making equipment disrupted production around the turn of the century. This was the so-called “patents war”, in which a trust of manufacturers of cinematographic equipment, led by the Edison Company, tried to have other, competing machinery outlawed by bringing law suits against producers and users of non-trust-made equipment for patents infringement.  Ironically, it was to be mavericks who tried to circumvent the patents controversies by taking their operations from the American East Coast to the Pacific shores of Hollywood, California, that were to “invent” cinema as a commercial system, a machine for making money out of celluloid dreams. 

11.             Meanwhile, however, European companies (Path� Fr�res, mainly) furnished two thirds of all films screened in the US in 1907, and from 1910 also established themselves in the US.  One of these European companies opening activities in America was, incidentally, run by a woman, who also became the first recorded female film director-scriptwriter, Alice Guy-Blach�.  Concurrently, Denmark became a dominant player in the international film market, led by the enterprising producer Ole Olsen of Nordisk Films Kompagni, and contributing the first femme fatale with star status to the cinema, Asta Nielsen.

12.             Already the cinema was well on its way to establish its basic modes of expression, as well as its attendant publicity appendages - and new professions:  Narrative structure(s) based on conventionalised image-shot-relations and continuity editing materialised, the first genres developed (for instance, the Western and the melodrama), the first movie stars appeared, specialised fan magazines were marketed.  Many of these innovations had their roots in Europe, but the cinema of the pre-WWI years was a highly international medium, and one in rapid growth, both artistically and commercially, and everybody, it seems, “stole a little from Shakespeare” - and from each other.

13.             World War I was to bring change to the early European dominance of the cinema.  While all types of war-related restrictions forced French, Italian, British and German film production companies to drastically scale back their operations, US companies profited from American neutrality to first gain control over its own immense home market, then to build up a foothold on the European continent that was to become the stepping-stone for further expansion once the war was over. American businesses on a broad front immediately prepared to take over the markets once supplied by the warring nations.  As for film exports, the turn-around to US world dominance occurred as early as 1915-1916. 

14.             By 1922, US exports to Europe equalled approximately half the number of films censored; by 1926 45% of films censored in Germany were made in the US, while US films accounted for 79% of censored titles in France, and 84% in Britain.  The response from European countries were quotas, restrictions on the number of foreign (mostly US-made) films allowed put into distribution to the cinemas.  By 1930 Germany, Italy, Hungary, Austria, Britain and Portugal had put film import quotas in place to protect their native film industries.

15.             But another initiative was also under way.  Sponsored by the League of Nations three “Film Europe” conferences were planned (two were actually held, Paris 1926 and Berlin, 1928).  The idea of “Film Europe” was explained by Erich Pommer, the famous head of Germany’s UFA production company.

European producers must at last think of establishing a certain co-operation between themselves.  It is imperative to create a system of regular trade which will enable the producer to amortise their films rapidly.  It is necessary to create ‘European films’, which will no longer be French, English, Italian, or German films; entirely ‘continental’ films, expanding out into all Europe and amortising their enormous costs, can be produced easily.

16.             The conferences set high and lofty goals across a long range of subjects, from appeals to film-makers to pay heed to human rights and calls for copyright protection, to plans for educational films and establishment of national film archives.  During the same time European film producers and distributors tried setting up trans-frontier co-operation.  The Soviet Union’s film authority Sovkino also participated in the International Film Congresses and in a German-Russian distribution company, DeRuFa (later called Derussa).  As in later times, distribution proved to be the stage most readily accommodative to co-operative ventures. In the US, the Department of Commerce set up a films section on the advice of the Motion Picture Producers’ and Distributors’ Association (MPPDA) with the double aim of collecting data and information on foreign film markets through US trade diplomatic and trade representations abroad and of countering protectionist policies in foreign countries.

17.             Pan-European cinema efforts declined during the 1930’s for a variety of reasons:  The coming of sound obviously contributed to break down the idea of an integrated European market for films into national cinemas, defined by language.  The Depression weakened many markets and firms, and in Germany and the Soviet Union political and artistic control tightened dramatically.  Nevertheless, the 1930’s also produced a string of classics of European cinema, and European films slowly re-conquered territory lost to US films over the previous decade.

18.             Nazi Gleichschaltung in Germany increased the flow of film talent from Europe to Hollywood from a trickle in the 1920’s to a stream towards the mid-1930’s, a movement that was to continue as Nazi dominance spread to new countries in Europe.  The artists and craftsmen and -women who thus contributed to “the golden age of Hollywood”, however, were well-versed in the dominant style of film-making, that of the classical Hollywood movie.  Their smooth assimilation into the US “dream factories” testify to the pervasiveness of the Hollywood mode of cinematic expression forty years after the film was born as a medium.  In this sense American movies have had a profound - albeit in an inverse sense - artistic influence on the cinema.  As the film historian Kristin Thompson, herself an American, puts it: “Virtually any avant-garde style in the cinema can be studied as a direct or indirect reaction against the dominant norm of Hollywood”.

19.             The war years brought two important developments to European cinema.  One was structural: Governments discovered the importance of the cinema, not only as a propaganda device, but also as a means of cultural expression and manifestation.  The other one was artistic: The war provided an almost unquenchable source of new story material and gave rise to splendid works of cinematographic art.

20.             European cinema blossomed in the post-war years.  Audiences had (re-)acquired the habit of cinema-going, and admissions rose steadily, providing a large income basis for film production.  While mainstream entertainment films no doubt constituted the majority of European films - and the majority of what European audiences saw in the cinemas - the cinema as a means of cultural expression went through stages of artistic development as never before: The Italian neo-realist movement of the 1940’s, the French Nouvelle Vague of the 1950’s, the New German Cinema of the 1960’s, as well as the works they inspired in other countries, firmly established the cinema as the 7th art form, embraced, first and foremost, by the cultural �lites of Europe, who - to a large degree - disdained its American competitors.  Thus, it has been argued, the price to pay for cinema’s elevation to an art form, was its sequestration to an �lite ghetto, where it depended on state subvention and never developed the market clout and commercial sharp edge of its main competitor from across the Atlantic.

21.             European governments came out in support of national film production shortly after the war.  The cinema became a tool for the (re)construction of society, both as a means for constructing national consensus and identity, and for stemming the export of hard currency needed for rebuilding devastated infrastructure.  France and the UK reintroduced quota systems, supplementing protection with money for film production from taxes and levies, and soon other countries followed suit.  But the US film industry had a head start, having worked almost uninterrupted during the war years and now commanded both a large catalogue of films not seen in Europe, as well as a well-oiled production machine running at full speed.  Spurred on by anti-trust rulings at home and helped along by alliances between the main industry body MPAA and the State department, US exports of films to Europe rose from around one-third of the market before the war to 50% or more by the mid-1960’s, thus repeating the cycle of the post-World War I years.  By that time people’s standard of living and - in particular - their leisure activities were changing, posing a challenge to the cinema as mass entertainment.  But the main challenge to the cinema was a new popular medium spreading rapidly across Europe.

22.             Television, although originally developed in Europe, reached maturity as a mass medium in the United States, where it spread as a purely commercial medium, with programme production paid for by advertising.  When it reached Europe in the post-war years and throughout the 1950’s, however, television was - with some notable exceptions - amalgamated with the predominant public service model of broadcasting and thus came under state stewardship - and state funding.  Under the twin pressure of direct-broadcasting satellite television transmissions and deregulation of broadcasting monopolies during the 1980’s, television in Europe started to changed its looks.  A proliferation of commercial channels - financed by subscription and by advertising, terrestrial as well as satellite - took on the “white elephants” of state-owned television, with varying degrees of success, but with long-term implications on programming and content profile both in commercial and public service television.

23.             One major effect of this development has, paradoxically, been to increase the value of the cinematic film.  The unquenchable appetite for entertainment among mass audiences is reflected in the recipe for successful commercial television: Sports and movies.  However, the films that tend to generate large audiences (and thus to command the higher price) also tend to be made-in-Hollywood product, and the vertically integrated Hollywood majors have been extremely efficient at exploiting the opportunities opening up in the European media landscape.  The Hollywood majors are also producers of a large number of successful American television series and hold the rights to large catalogues of programme material that had already been paid for by US networks.  As they have been offering theses series to fledgling European commercial channels that needed programming material to fill their broadcasting slots, and as prices have been seen as affordable in relation to the series’ power to attract and retain audiences in front of the television sets, US corporations have profited doubly from the expanding European television market.

AUDIOVISUAL POLICY: Culture versus trade

24.             Nevertheless, Europe has been able to hold its own, in particular in the national home markets.  The recent review of the European Union’s Television Without Frontiers Directive indicates that most European television stations abide by the rule to “when possible” maintain at least a 50% share of European programme material.  The European insistence on public service broadcasting and on coupling conditions on programming provenance and diversity, “must carry”-obligations and other provisio to the licensing of broadcasters has no doubt played an important part in stabilising this situation.  In the cinema, there is a commercial European cinema (which has always been there, but which, it may be argued, has increased considerably in importance over the last ten to fifteen years) co-existing with a vast array of artistic and creative works that are no longer identifiable by sets of common expressive and artistic denominators (as in the case of previous epochs and periods), but which present themselves in a more diverse, varied and many-facetted and differently inflected ways than before. 

25.             It must, however, be kept clearly in mind that both these trends rest on active and benevolent public policies towards the audiovisual.  Without the explicit and active support of political decision-makers and public authorities the state of the European audiovisual landscape and industry would, in all probability, be much different.

26.             And there is still a long way to go before Europe would be in a position to be the leading force in its own audiovisual market:  In 1992 US-European trade in audiovisual products showed a surplus in favour of the United States of close to USD 4 billion.  In 2002 this deficit had risen to more than USD 9 billion.  With a foreign trade deficit of record proportions (USD 43.1 billion a month in early 2004) it is not surprising that one of the most successful export industries in the United States should still be enjoying the tacit political support of the US government.  Thus, Europe’s main competitor in the audiovisual field also has a political interest in the cinema and television, but rather from a trade than from a cultural perspective.

Audiovisual policies anchored to cultural objectives

27.             The importance of cinema, and later of television, in nation-building as well as in fostering a European identity, has long been recognised.  The warring parties used the cinema for patriotic and chauvinistic propaganda in both World Wars, and in the reconstruction phase after 1945 the cinema - implicitly or explicitly - became an object of state policy in most European countries.  Expanding from a base that originally was conceived partly to foster public enlightenment, partly to construct national consensus and encourage artistic expression, cinema policy (as well as those concerning public service television at a later stage) gradually developed into fully-fledged, culturally based policies as European governments also recognised the significant position of the cinema as a cultural force and in shaping general attitudes and habits in the population.

28.             The coming into force in 1950 of the first GATT treaty prohibited taxes or levies that privileged national film production, while extracting levies from imported films.  In 1993 the audiovisual sector, along with other cultural products and services, again came under attack in the GATT/GATS context, during the final stages of the “Uruguay round”.  European nations, with France in the vanguard, resisted US attempts to incorporate cultural goods among items of free trade, open to global competition. The debate over the integrity of culture in a commercial environment has not been concluded.  In the framework of the WTO’s Doha Round the nature and the negotiability of audiovisual goods remain among the non-resolved questions.

29.             At the same time a growing international movement in defence of cultural diversity has sprung forth, aiming inter alia at shielding cultural goods, in their role and function as expressions of identity, conscience and creation, from the danger of being crushed or replaced by alien influences through the workings of market mechanisms.  The European nations have rallied around this principle of protection of cultural diversity.

30.             The Council of Europe has a distinguished record of protecting the freedom of creation and the freedom of expression, and has enshrined the safeguarding of cultural diversity in its Cultural Convention.  The Council of Europe should therefore

CONSTRUCTING A COMPREHENSIVE AUDIOVISUAL POLICY: Some building blocks

31.             Even if Europe constitutes a larger market than the US in terms of population, the cinema-going public in European countries is approximately 30% smaller than in the US (US annual per capita admissions of 4.66 (2002) far outrank the European figure of 2.46 admissions per year/person). Europe does not provide a market of sufficient size to generate the revenues needed to entertain a self-sustaining audiovisual industry because of the weak market penetration of European films. European governments have long realised that the market itself will not provide for adequate funding of European films.  The “market failure” of audiovisual production in Europe has led countries across Europe to institute a number of schemes to encourage and support audiovisual production on a national level.  In 2002, 31 European states canvassed by the European Audiovisual Observatory provided a total of € 1272 million in grants and subsidies to the audiovisual sector.  90% of these appropriations, however, were provided by the 15 member States of the European Union, and 71% (€ 863 million) by the “big five” film-producing nations in Europe (Spain, Italy, Great Britain, Germany and France).  Thus a considerable imbalance exists between countries of western and northern Europe and of central and eastern Europe, and between large and small countries.

32.             Yet the challenge of the audiovisual sector consists not so much in subsidising and/or protecting European films and television programmes, as in privileging and enabling European artistic visions to compete on and to (re)conquer European television and cinema screens.  If we genuinely
believe that the stories and story-tellers are there, if we are convinced that the business acumen and the enterprising spirit is present, the challenge of culture-based European audiovisual policies must consist in providing the right conditions for these talents to flourish and develop, to be expressed and to reach audiences across the continent.

33.             To this end Europe must fashion policies that address both the creative, the commercial and the cultural aspect of the audiovisual, both on a national and a pan-European level.

PRODUCTION

34.             Of the € 1272 million in government funding (see para 31) for audiovisual production in 2002, some € 880 million was allocated for project development and production purposes.  However, more than half of this money was allocated through automatic support schemes, thus outside the scope of objectives-oriented policy.

Company development

35.             Many audiovisual production companies are very small (an average of 1.44 full-time employees in France in 2000) and their continuity is feeble.  An important goal of national film production support schemes must therefore be the focus on measures likely to foster development of production companies with a potential for continuity, i.e. with the capacity to remain in a continuous and cyclical pattern of development and realisation of new projects.  The experience, competence and production volume that can be built in this way are keys to overcoming the structural problem of discontinuity in production.  Yet only a small fraction of total annual appropriations are available for developing this type of companies.  Support on this level may take many forms, from providing funding for a certain volume of productions over a period of time (“slate funding”) to providing training and competence-building inside individual companies, to encouraging networking and alliance-building among production companies.

36.              The Council of Europe may wish to urge member States to investigate the needs that national audiovisual production companies may have for specific assistance to build competence, engage in networking, access slate funding and other means of attaining a higher degree of continuity in their production.

Value chain control

37.             One interesting observation regarding the rapid rise in US income from the European audiovisual market can be drawn from the example of the capacity of the US industry to exploit new windows of opportunity:  Within years the video cassette, once shunned by Hollywood as too prone to copying and piracy - and thus potentially destructive to the income-flow of the studios - became one more stable “window” in the exploitation chain of the same product.  Lately, the success of the video cassette has been overshadowed by the DVD.  In several European markets, income from video/DVD distribution has surpassed income from cinema ticket sales.  Yet, in spite of the competition from television, video and, lately, from DVD, the cinema remains the showcase of the audiovisual industry, likened to the live performance of music in relation to recordings.

38.             The successive exploitation of one and the same product in different formats (the so-called “windows”) is a defining feature in US audiovisual production.  The difference from European audiovisual production has been amply illustrated by a comparison (made by IMCA in 2002 for the European Commission) of sources of revenue between the typical US and the typical European film:  While European films obtain 82.1% of their revenue from theatrical exploitation, US films (on average) receive 36.2% of its income from theatrical screening, but 36 .9% from video/DVD (4.7% in Europe).  Income from television distribution is at 3.4% from Pay-TV and 9 .8% from free TV in Europe, while US producers can count on twice as much - 15.7% income from Pay-TV and 11.1% from free TV.  Clearly, European audiovisual production companies are financially and structurally too weak to be able to optimally exploit the entire value chain of their products.  The balanced income pattern from different “windows” makes the US producer less dependent on success in one particular window, thus reducing the risk involved   Control over the value chain is, on the other hand, also an instrument for maintaining market dominance.

39.             However, maximising exploitation in different windows also has a price - in very concrete, pecuniary terms:  The average US mainstream film in 2002 spent USD 33 million on marketing (and 57 million on production). European films, on the other hand, seldom reach beyond USD 5-7 million in production budgets, and beyond 10% of those budgets set aside for marketing.

40.             Given these facts of the marketplace, it is not surprising that a stated main goal and preoccupation of the dominant players among producers of audiovisual “content” (films and television programmes, and - lately - interactive games) is to retain control of the value chain, from idea and project development through to sales (and, often in television, re-sales) in various windows.

41.             The Council of Europe may consider these observations as reasons to

National production support

42.             “The creative wealth of European art house cinema requires no demonstration”,  observes dr. Andr� Lange, editor of the publication Focus 2003. World Market Trends: This artistic richness  is on display in cinema theatres and in international films festivals across the continent year round, dr. Lange claims:  “But Europe’s capacity to produce a significant number of popular films, capable of crossing borders, does remain to be demonstrated”.  His concern is echoed by the authors of the ICMA study, who observe that European films with a high budget (which tend to be “commercial” or “popular” films) are more easily exported than lower-budget films of - typically - more artistic ambition.

43.             As already reported, European states spend in excess of € 1.2 billion a year in support of audiovisual productions.  The justification and legitimacy of this state aid is based on the cultural role and function of the products that it helps create.  Nevertheless, most public support systems attempt a balance between entertainment and edification, between culturally worthwhile and commercially viable audiovisual products. 

44.             National audiovisual production support is - and rightfully so - adjusted to the political aims of the country’s authorities, thus reflecting different cultural sensitivities and emphases.  Some countries privilege artistic creation when according production grants.  Others take a less orthodox line, giving both the artistically ambitious and the unabashedly popular film an equal chance.  Still others refrain from evaluating content quality at all, instead concentrating on nationality criteria, market-related considerations and/or evaluation of the technical and financial solidity of the project in granting national support.

45.             Still, the “European system” tends not to produce the sort of film that fires the imagination of large segments of the population.  The cinema market is driven by large-scale productions, “blockbuster” movies that cater to the 15-to-25-year-olds that constitute the largest audience segment.  Hollywood has long excelled in efficiently bringing this type of product to market.  Thus, between 1996 and 2000, 348 US-made films made more than one million admissions in European cinemas, while less than half that number (165) of European films crossed the threshold of one million admissions.  In a European mixed-economy context these “locomotives” (if for no other reason) are important because they have the capacity for pulling a whole train of other, less commercial films along with them.

46.             The biggest successes in European cinemas tend to be comedies, with historical pageants (preferably based on canonised literature and with a certain feel-good appeal) also score high up on the rankings.  Capitalising on proven thematics is a tried and true cinema formula, but often requires bigger budgets than normally available.  On the other hand, the cultural value of the epic movie may be considerable, both in the present and over time.

47.             Demographics constitute another important consideration in the cinema marketplace: MPAA research indicates that the up-swing in US cinema market over recent years owes much to popular entertainment films targeted at children in the 13+ age group (films with “PG 13” ratings): Spider-Man, Harry Potter, Lord of the Rings and others.  While genuine children’s films have become a staple of some European countries’ production, family-oriented entertainment of both European and American origin have been among the top-listed films in terms of admissions and box-office receipts in many European countries.  Privileging films for children and young people may therefore be a way of promoting both cultural and social values, and of stimulating European film production.

48.             In a more business development perspective, the interplay between popular cinema and video games has become increasingly obvious over the last few years, as a definite cross-fertilising effect has become evident.  Thus, in a perspective of audiovisual creation as a tool for creating employment and for fostering enterprises on the cutting edge of technology, much could be said in favour of the pairing of the successful commercial film and the successful video game.

49.             In a more traditional sense, however, it would be fair to argue that if indeed broad acceptance of a cultural phenomenon may be one standard by which to judge the success of a cultural product, then there is also a case to be made for the popular film.  And if public support money is, in part, amortised through the wider dissemination of the product that it has helped create, then the quality “commercial” film also has a place in the palette of national audiovisual policy.  In order to increase the penetration power of European cinema in Europe it may therefore be necessary to pay attention to and to facilitate the production, distribution, marketing and exhibition of the quality entertainment film.  On the other hand, such policies should not exist to bring profit from public assistance to private operators, and appropriate checks and balances must be an integral part of a support system that caters to audiovisual products with a genuine potential for making considerable profit.

50.             In order to accommodate various sensitivites and considerations in establishing and implementing audiovisual support policies, the Council of Europe may wish to

Supra-national film production support

51.             One way of expanding the European dimension of film-making is the co-production of films.  Films made in partnership across European borders do not only bring different cultural, linguistic and artistic sensibilities together.  They also come with a built-in cross-border potential for distribution, primarily in the countries directly involved in the project, but also in other countries and regions.  Yet there is a definite lack of production funds on the European level. 

52.             The production stage is by far the costliest phase of a film’s gestation.  Some 70% of the total budget of a film is spent at during the actual shooting.  Nevertheless, the best-funded pan-European support scheme for the sector, the European Union’s MEDIA Plus programme (2001-2006), which disposes of roughly 70 million Euro a year, solely addresses training and development (the pre-production stage) and distribution (the post-production stage).

53.             Launched as a trial project, the i2iAV (“eye-to-eye audiovisual”) initiative of the European Union and the European Investment Fund (2001-2003) has demonstrated the need to supplement the financial and infrastructural support measures put in place by successive MEDIA programmes with access to financing targeted to the production stage of film-making. 

54.             There are altogether five supranational funding bodies in Europe, but except for Eurimages and MEDIA Plus they have a geographically limited mission, and more limited resources. Currently Eurimages, the Council of Europe’s cinematographic co-production fund (established 1989), remains the only pan-European scheme with the vocation of providing public funding for film production.  With its annual budget of some 19 million Euro Eurimages is far from answering to the demands of the European film industry.  Strengthening the funding of Eurimages to answer to the genuine needs of the European film industry must be a priority in fostering the organic development, production and marketing of co-produced European films.

55.             At the same time it is worth noting that the current debate in the European Union concerns the successful integration of its ten (and soon twelve) new members.  Eurimages has 30 member States, among them all 25 member States of the European Union, and therefore considerable expertise and competence in handling pan-European public film funding.

56.             The Council of Europe may therefore wish

57.             Failing the establishment of closer co-operation between the Council of Europe and the European Union on providing increased pan-European film production funding, the Council of Europe must unilaterally engage in a political initiative vis-�-vis its member States to increase funding for Eurimages.

DISTRIBUTION

58.             The home market remains the most important outlet for European films.  One in five cinema tickets in Europe is sold to a national film.  In spite of some rather striking national differences this figure obviously constitutes an important argument for continued public support for the cinema throughout Europe.  It is, however, both in a commercial and a cultural sense in reaching across the indigenous borders that the European cinema has a capacity for increasing its significance.

59.             The success of the European Union’s MEDIA Distribution in increasing the circulation of European films must be acknowledged when discussing how best to bring European audiovisual products to the screens of countries in which they were not produced.  Nor should the (despairingly much smaller) distribution aid offered by Eurimages be overlooked in this context.  However, the fact remains that the market share of European films in non-national European markets in 2002 was between 6 and 7%, down from about 11% in 2001, a very good year for the circulation of European films outside their home markets.

60.             The lament that European films do not travel has more than a ring of self-fulfilling prophecy to it.  Good stories do travel.  The structures to disseminate and nurture European films outside their home markets are, however, sadly lacking.  While US distribution companies are well-established in most markets and territories across Europe and co-operate efficiently through their European headquarters, few European distribution companies operate outside their home territories.  In reaching out to new markets the European film often has to rely on small local distributors with modest resources.  Combined with producers who also have little or no means to follow up on the export of their products, this combined financial and infrastructural weakness would seem to consign the European film to a supporting role when trying to branch out of its home market.

61.             Some European states have highly efficient film export organisations on a central level.  These are usually industry-controlled enterprises that enjoy public support.  Other countries have joined in creating regional bodies for the promotion of their films, thus increasing their possibility for being present to present their national production in major film markets.

62.             Europe-wide events that high-light the achievements of the European film may be another way of preparing the non-national markets.  The annual European Film Awards, the Felix prizes, have not yet attained the status of the Oscar night, but is being carried on a number of European television channels.  There is no denying, however, that European popular print and broadcasting media – essential as they are to generating attention and “buzz” around the cinema - give far greater play to American film stars and the events that they attend, than to European efforts to publicise the cinema.

63.             Technological developments may change film distribution as we know it dramatically.  Pessimists have predicted the total collapse of the distribution sector when cinema theatres receive their film programmes directly on-line from a centralised programming point, controlled by the owner of the film rights (see also below, para 68, under “Exhibition”).  In this vision cinema theatres are all equipped with high-resolution electronic projectors, that are being fed the sound and image signal simultaneously, either via broadband or satellite, from a (very limited) number of  transmission points.  However, in the foreseeable future, and probably as long as the cinema remains a collective experience, a mediating link between the producer and the exhibitor will remain.  It is in the interest of all concerned that this link should be as strong as possible.

64.             The Council of Europe may wish to consider various ways to help increase the circulation of European films outside their home markets, among them:

EXPLOITATION : Cinematographic art meets its audience

65.             The cinema theatre is a magical place.  It is, arguably, also the arena for the fiercest competition in the whole field of the audiovisual.  The cinema is where the battle for the attention and the recognition of the audience is fought, and where the outcome is decided by the amount of hard cash left by patrons at the box-office.  Cinema exhibition is often extremely competitive on a pure business level, and with the added competition between films for screen time and publicity exposure the more modest films easily get swept away by (expected) blockbuster movies.

66.             Various initiatives have over time been instituted to establish and operate cinemas that actively promote a “counter-stream” programming - cin�mas d’art et essai in France, AIACE in Italy, kommunale Kinos in Germany, Folkets Hus Bio in Sweden, as well as other art-house-type cinemas.  Over the last decade a network of cinemas that have pledged to screen a proportion of European films as part of their over-all programming has sprung up in the form of Europa Cin�mas in the EU and EEA member States, and supplemented by the cinema support scheme of Eurimages for non-EU member States.

67.             The cinema is not only a place for the screening of films, it also plays an important part in the urban environment in general.  In many smaller communities the cinema and the library are the only public cultural institutions available.  In this context special mention must be made of the many cinemas left, and often neglected, from lack of funds in Central and Eastern European states. With the coming of the market economy many have been forced to close, others are in dire need of technical and constructional refurbishing.  These communities are not only being deprived of the possibility to see films as they are intended to be seen - on the large screen - but are also being impoverished by the disappearance or neglected state of a significant element in their local cultural infrastructure.

68.             Screening technology is rapidly advancing.  While the traditional 35mm film print may not yet be obsolete, electronic projection equipment and image carriers are rapidly increasing their quality.  Already there are a number of cinemas equipped with electronic projection equipment, and the number of films released digitally has increased.  In most instances the films have until now been distributed on DVD, in some cases on hard disks, while future prospects include broadband distribution.  Print production, subtitling (and large-scale dubbing) and freight costs are drastically reduced through electronic dissemination and may therefore open new opportunities for wide-reaching distribution.  Electronic distribution does, however, also entail potential risks. Exclusion pratices are possible through the use of proprietary systems for transmission and exhibition - the attempts by certain broadcasters of digital television to force customers to subscribe to their services by controlling the purveyance of software (“proprietary systems”) for signal decoders and electronic programme guides. Another risk is the monopolisation of the market. A complaint has already been raised by Brazil in the framework of the WTO negotiations against the US, which Brazil complains is filling the local market with a large volume of low-priced products, thus effectively crowding out local audiovisual production and preventing companies from achieving profitable operating levels.

69.             The Council of Europe should take heed of the role of the cinema theatre as a cultural arena of strategic importance to the European film, and of equal importance to local communities by focusing on policies of film exhibition that privilege European films, e.g. by

AUDIOVISUAL CULTURE:  further aspects

Exploiting Europe’s cinematographic heritage

70.             One of the fastest-growing audiovisual media markets over the last few years has come with the rapid spread of DVD technology.  DVD player penetration in European homes reached 18.3% in 2002, up from 8.4% in 2001, a fact which has made the Video Cassette Recorder (VCR) obsolete in a few years. 

71.             Much of this development has been spurred on by an explosive rise in the supply of pre-recorded DVD disks.  The spread of the VCR machines during the 1970’s was hampered by a “systems war” and by a consequent slow rise in pre-recorded video cassettes. However, while the DVD disks are, in fact, recorded in different standards to correspond with different geographical “zones” as a precautionary measure against piracy and illegitimate copying, the general availability of “multi-zone” players has all but eliminated this threshold. Equally availability of pre-recorded disks has been plentiful.  In fact, between 1997 and 2001 the volume of DVD rental and sales of pre-recorded DVD disks registered an annual growth rate of 147% in Europe.  Another development has also helped the spread of DVD - the sale of disks through Internet mail-order.

72.             In the UK, Germany and France it is estimated that DVD turn-over now exceeds receipts at the cinema box-office, but the effect on the revenue stream of production companies of this recent trend has not yet been charted (see para 37). While the DVD market is thus rapidly becoming a major source of commercial income for film producers, it also offers an unprecedented opportunity for exploiting Europe’s cinematographic heritage.  The storage capacity of the DVD disk does not only provide room for the film itself, but also for multi-lingual soundtracks and a wide selection of sub-titles.  In addition, there is still space for considerable amounts of “background” information - documentaries detailing the making of the film, interviews with film-makers in various capacities, samples of publicity material and copies of original documents to name but a few options already being included on current-day DVD releases.  Eclectic buyers will consider not only the film itself, but also the supplementary material when making the decision to buy a DVD.

73.             The Council of Europe may consider to support the development of the DVD technology as a means of disseminating and exploiting the European cinematographic heritage in several ways:

Exploiting the festival circuit

74.             Over the last two decades film festivals have sprung up from Troms? (Norway), 700 kilometres north of the Arctic circle, to Antalya (Turkey), diagonally across the continent in Asia Minor, and their admission figures have soared.  The film festival has become an important meeting-place for discriminating, cinema-loving audiences, in many ways taking over the role played previously by the Cine Clubs and art-house cinemas.  This makes the film festival into an important arena for the artistically ambitious and the avant-garde film, and the proliferation of thematically organised festivals cater to most tastes and preferences in film.  Furthermore, film festivals are often important spheres of cultural interaction, offering a scene of action to a variety of art forms and expressions.

75.             In parts of Europe a film festival may be the only opportunity to see non-American films at all.  Eastern Europe, once a haven for the artistically (and - often - ideologically) pure film, has become infested with multiplexes screening the latest US releases, and the independent cinema theatres have had a hard time surviving.  In these countries, the film festival offers a refuge for the many true film enthusiasts, bent on other cinematic fare than a blockbuster with popcorn and Coke.

76.             The number of film festivals in Europe has not been precisely determined, nor has the size of their audiences.  But indications are that as many as one in twelve cinema-goers in Europe may actually see the film at a festival rather than in a regular programme cinema. 

77.             Under these conditions film festivals offer an important arena for the European film, and the Council of Europe may well find it advisable to pursue policies that encourage and support the film festivals across Europe, as well as their programming of European films.  Such initiatives could take many forms, among them:

Educating the young: visual literacy

78.             Audiovisual culture, it has been argued, will be equally important to master for coming generations as the literary culture for past and present generations.  Combined with the advances in IT technology, some educators fear that we may be headed for a society of dual illiteracy - lack of basic knowledge both of reading and writing, and of information-carrying images.  The Council of Europe took an early lead in advocating film as an important teaching aid and has taken an equally important stand on media education (see Recommendation 1466 on media education)  The Council of Europe should thus continue to press for the inclusion of cinema studies (or similar) in national curriculae in member States.

Reporting committee: Committee on Culture, Science and Education

Reference to committee: Doc. 9511 and Reference No. 2756 of 3 September 2002

Draft recommendation unanimously adopted by the Committee on 24 June 2004

Members of the Committee: MM. de Puig (Chairman), Baroness Hooper MM. Prisacaru, Smorawinski (Vice-Chairpersons), Apostoli, Banks, Barbieri, Mrs Bemelmans-Videc, Berceanu (Alternate: Canacheu), Mrs Bilic, MM. Braga, Buzatu, Colombier, Cubreacov, Dalgaard, Mme Damanaki, Mr Debono Grech, Mrs Delvaux-Stehres, Mr Devinski, Mrs Dromberg, Mrs Eymer, Mrs Fern�ndez-Capel Ba�os, MM. Gadzinowski, Goutry, Grachev (Alternate: Chernyshenko), Gross, G�nd�z I, G�nd�z S, Gunnarsson, Mrs Hadziahmetovic, MM. Hegyi, Henry, Howlin (Alternate: Mooney), Huseynov R, Iannuzzi, Jakic, Jarab, Kocharyan, Legendre,  Lengagne (Alternate : Nachbar), Letzgus, Libicki, Livaneli (Alternate : Kepenek), Mrs Lucyga, MM. Malgieri, Marxer, McNamara, Mrs Melandri, MM. Melnikov (Alternate: Fomenko), Mestan (Alternate: Pavlov), Mezihorak, Mrs Milotinova, Mrs Morganti, Mrs Muttonen, Mrs Nakashidze, MM. Nazar� Pereira, O’Hara, Mrs Ohlsson, Mrs Papadimitriou, Mrs Pericleous Papadopoulos, MM. Rakhansky, Randegger, Mrs Reps, MM. Ribera Ambatlle, Rockenbauer, Mrs Rugate, Mr Rybak, Mrs Samoilovska-Cvetanova (Alternate: Mrs Petrova-Mitevska), M. Schneider, Mrs Serna Masia, MM. Shybko, Šileikis, Mrs Skarb�vik, MM. Skoch (Alternate: Korobeynikov), Stojadinovic, Sudarenkov, van Thijn, Vakilov (Alternate: Mirzazada), Mrs Westerlund Panke, M. Wodarg, ZZ, ZZ  (Alternate: Mrs Radulovic-Šcepanovic)

N.B. The names of those present at the meeting are printed in bold

Head of secretariat: Mr Grayson

Secretaries to the Committee: Mr Ary, Mrs Theophilova-Permaul