Opinion of the Economic and Social Committee on the 'Proposal for a Council Decision establishing a European Guarantee Fund to promote cinema and television production` ()

(96/C 204/03)

On 30 January 1996, the Council decided to consult the Economic and Social Committee, under Article 130 of the Treaty instituting the European Community, on the above-mentioned proposal.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 3 April 1996. The Rapporteur was Mr Pellarini.

At its 335th Plenary Session (meeting of 24 April 1996), the Economic and Social Committee adopted the following Opinion by 94 votes to three votes against and eight abstentions.

1. Introduction

1.1. The Commission's 1994 Green Paper on strategy options to strengthen the European programme industry, and the subsequent European Audiovisual Conference of industry representatives (Brussels, 30 June - 2 July 1994), both confirmed the need to strengthen support measures for this highly specialized 'industry`, which has special cultural significance.

1.2. Two important measures springing from the Green Paper were adopted by the Council: a training programme for professionals in the audiovisual industry [95/0026 (SYN)], and an incentive programme for the development and distribution of European cinema and television films [95/0027 (CNS)], more generally known as Media II.

The funding provided is a total of MECU 310 over five years, to be distributed as loans covering a maximum of 50 % of project costs (with up to 75 % exceptionally permitted for training) and as non-returnable grants.

1.3. In its Opinion, adopted on 5 July 1995 at its 327th Plenary Session, the ESC, despite its positive assessment of the Commission initiative, was critical of the procedures and instruments of Media II, noting shortcomings and delays in analysis, the lack of an overall strategy, and inadequate funding.

1.3.1. Indeed, in the conclusion to the Opinion, the Committee expresses 'its dismay at the shortcomings in the general analysis of the audiovisual sector's problems, and feels that the proposals are unlikely to produce structural effects, due to inadequate funding and the sectoral nature of the proposals themselves`.

1.4. Moreover, the Commission itself considers that the Media programme 'needs to be augmented further by raising additional resources directly in the market place`, because 'public-sector incentives are no longer sufficient to mobilize the critical mass of investment needed to make the audiovisual industry more competitive`.

1.5. To this end financial institutions were consulted and a study on the feasibility of a Community financial instrument confirmed that the financial sector was interested in action to support the audiovisual industry.

1.6. The Audiovisual/Cultural Affairs Council held on 21 June 1995 called on the Commission to draw up a proposal for a decision. This was presented on 14 November 1995.

2. Aims and instruments of the Guarantee Fund

2.1. Two interconnected motives underpin the conception of the Fund: the difficulties encountered by the European audiovisual industry - composed mainly of small and medium-sized firms - in obtaining financial backing from banks, and financial operators' need for adequate guarantees covering the risks of investing in the sector.

2.2. The Fund is therefore set up in the form of a guarantee instrument intended to make it easier to obtain financial backing, whilst encouraging banks and financial operators to invest in the audiovisual sector. The similar systems already operating, in countries such as France, Spain and Italy, have a very positive track record and have triggered substantial investment in the sector. The European Fund should therefore operate in conjunction with national support funds and the insurance systems already in place.

2.3. The Fund is to 'focus primarily on the production of European cinema and television films` with priority being given to drama and feature films for both television and cinema, the area in which Europe lags furthest behind.

2.4. To be eligible for support, projects must have potential for European and international distribution; productions aimed purely at national markets are thus excluded.

2.5. The recipients of funding are to be European production and distribution companies, who will have access to it via intermediary financial institutions (banks and associations).

2.6. The ceiling for cover is fixed at 50 % of short term credit (for production) and medium/long term loans (for production, the constitution of production catalogues and strengthening companies financially).

2.7. The Commission proposes that implementation, management and administration of the Fund should be carried out by the European Investment Fund (EIF), which has expertise, both in Community level guarantee work in general, and specifically in the audiovisual sector, in which a number of the EIF's member organizations already operate.

2.8. The Commission proposes that the guarantee capital should ultimately reach a total of 200 MECU, including a Community contribution of 90 MECU. This should be adequate to insure financial resources for audiovisual productions of at least 1 billion ECU.

2.9. The MECU 90 will be deducted from the allocation for Media II and spread over the four year period 1997-2000.

3. Positive aspects

3.1. The audiovisual sector is strategically important because of its world-wide cultural influence, particularly in view of the globalization of markets.

3.2. The spread of new audiovisual technologies throughout the Union has led to a sharp rise in demand for televisual fiction, and in its centenary year even the cinema seems to be on the upturn following years in crisis.

3.2.1. In 1994 the cinema and audiovisual market grew by 9,7 % world-wide, but by 15,8 % in Europe. According to the European Commission, demand for programmes has expanded from 200 000 hours in 1981 to 650 000 hours in 1992. It is estimated that demand for audiovisual production, currently standing at ECU 23 billion, will grow to ECU 45 billion by the turn of the century.

3.3. The situation on the supply side is one of spiralling deficit, in the sense that while American cinema and television production and distribution is going from strength to strength, the European industry continues to be squeezed both financially and in terms of space and time, with declining numbers of cinemas in many countries and the growing presence in television schedules of American fiction.

3.3.1. In 1994 American producers' takings reached $20 billion; they helped the US balance of payments to the tune of $4 billion.

The European Union imports 60 % of its films from the USA and has a trade deficit of $4,2 billion and a negligible share of the world market.

3.4. The structural weakness of the European audiovisual industry is at its most pronounced when it comes to product distribution. The proportion of the total project budget going towards publicity and distribution - nearly 50 % in some cases - is far higher in America than it is in Europe.

3.5. It is thus clear that quality productions which appeal to the public are not in themselves enough; they must be adequately publicised and programmed. Films often have to wait many months or even years before they can find cinemas willing to screen them, and then perhaps only for a few days.

3.6. Europe is currently witnessing the concentration of film production and distribution and also cinema chain ownership in the hands of a few big companies. To this must be added that the same companies may also own major television networks; more and more frequently, small-scale producers are finding insurmountable obstacles to getting their work on screen, with a consequent failure to cover costs. This causes further problems for producers and film-makers, since subsequent projects have still greater difficulties finding backing, leading to a vicious circle of concentration on one hand and weakness on the other.

3.7. The creation of a guarantee fund must therefore be greatly welcomed, in the first instance because it puts the cultural industry in general and the audiovisual sector in particular back on the political agenda.

3.8. The success of a cinematographic production depends on the creative input, but also on the overall investment that a company is prepared to make in the sector.

3.9. An effective European audiovisual policy undoubtedly needs not merely to be based on products with high cultural value, but also to offer good scope for returns on investment, and so encourage more of it. This can be done by increasing the potential penetration by European audiovisual products into the cinema, TV and domestic video markets. Otherwise, European cinema is destined to fill ever-diminishing niche markets, just when the growth in demand for programmes is opening up new vistas for the whole audiovisual industry.

3.9.1. In this light the Guarantee Fund is in a position to use its selection criteria to encourage creators and producers to pay more attention to meeting popular demand in order to provide an acceptable commercial return.

3.10. The encouragement of new private investment is also positive, as is the Fund's potential for consolidating businesses in the sector. This should help to develop a European audiovisual industry capable of responding to growing internal demand and of competing with the American majors in the international marketplace.

3.11. The 'condition` that, for projects to receive support from the Funds, they must have European and international market potential is also significant, in that it could help to overcome cultural barriers and encourage the production of works with wider appeal.

4. Conclusions

4.1. Firstly, the source of funding - the MECU 90 subtracted from the appropriation for Media II (already reduced to MECU 310) - seems strange. This clearly contradicts the emphasis repeatedly laid in the introduction to the Memorandum on the structural weaknesses of the sector and the need to strengthen it. The ESC therefore considers that the Fund should be allocated its own independent resources from the Community budget.

4.2. It is also disputable whether enough money has been set aside to achieve the Fund's goals. This is not so much a matter of ascertaining whether 90 MECU is enough, as of considering the potential danger of overstretching the resources if - alongside the film industry proper - producers of TV drama are also able to benefit from the Fund.

There is actually a declaration in the Explanatory Memorandum (C.1, third paragraph) which even appears, by the use of the word 'sceneggiati` ('drama`) in the Italian version, () to suggest that priority be given to television productions.

4.3. There is a need to identify more clearly which types of producer are to benefit from the Fund; a choice has to be made between large-scale productions capable of competing internationally with the Americans, or the independent producers and film-makers who represent the best of European culture, and whose genuine masterpieces have earned them a place in the world market in recent decades.

4.4. Therefore small and medium-scale production companies should be favoured, with emphasis on plans for more films in order to be able to balance possible successes and failures and to limit risks.

4.5. On this point it should be noted that it is not necessarily huge and costly productions which turn out to be hits in the international market. By way of demonstration some of the multimillion-dollar flops of recent years (mainly of American origin) should be compared with the great success enjoyed by high quality European films made on shoestring budgets.

4.6. The cultural development aspect of the operation should be stressed along with the economic wisdom of producing programmes as a defence against a commercial invasion. From this point of view the Fund should be restricted to cinema alone, excluding audiovisual productions (serials and dramas) made exclusively for television.

4.7. Since distribution is a major weakness of the European film industry, it might be worth earmarking a substantial proportion of the resources for helping with the creation of European distribution consortia.

4.8. Particular attention should be paid to the 'young` cinema, for which a proportion of the funding could be set aside.

4.9. Since (as outlined above) the appropriation is limited, it might be worth considering offering a level of cover within a band between 20 % and 50 %, so that the Fund is able to assist a larger number of productions while limiting the risks of investment and thus encouraging banks to become involved.

4.10. Any reinsurance of the investment risk must not be charged to the intended beneficiaries but to the Fund itself, otherwise the funding will lose much of its value.

4.11. Finally, it is important that repayments to the Fund should only become due after all other items of expenditure have been covered.

Done at Brussels, 24 April 1996.

The President

of the Economic and Social Committee

Carlos FERRER

() JO no C 41, 13. 2. 1996, p. 8.

() (Translator's note: 'sceneggiati e lungometraggi` (drama and feature films) is rendered in the English version of the Commission document as 'works of fiction` and specifically 'whether for cinema or television`).