2007/515/EC: Commission Decision of 21 March 2007 on the measure implemented by Germany for Bavaria Film GmbH — C 51/03 (ex NN 57/03) (notified under document number C(2007) 1170)   (Text with EEA relevance)
Date: 2007-03-21
Institutions: European Commission
Subjects: Germany, State aid, control of State aid, film industry

L 190/18

EN

Official Journal of the European Union

21.7.2007

COMMISSION

COMMISSION DECISION

of 21 March 2007

on the measure implemented by Germany for Bavaria Film GmbH — C 51/03 (ex NN 57/03)

(notified under document number C(2007) 1170)

(Only the German version is authentic)

(Text with EEA relevance)

(2007/515/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

on the site, called Filmstadt Geiselgasteig, in the German
Land of Bavaria. BAV is a privately incorporated film
production company (2).

Having regard to the Treaty
establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments (1)
and having regard to their comments,

Whereas:

1. PROCEDURE

(1)

Film GmbH (hereinafter

Following complaints concerning alleged State aid to
called ‘BAV’),
Bavaria
the
investigation procedure
Commission opened a formal
on 23 July 2003. Germany submitted comments on
20 October 2003; no comments were received from
competitors or other interested parties. The Commission
requested information on 3 May 2005, which Germany
provided by letter dated 1 July 2005. Following a
meeting on 12 October 2005, Germany submitted
further information on 9 and 21 November 2006.

2. DESCRIPTION OF THE ORIGINAL MEASURE

2.1. Introduction

(2)

In 1999, the construction and fitting-out of a state-of-
the-art film studio (hereinafter called ‘the studio’) was
begun on a site owned by BAV. BAV has its headquarters

(1) OJ C 249, 17.10.2003, p. 2.

(3)

(4)

(5)

2.2. The investor — the special-purpose vehicle BFH

The abovementioned investment was effected through a
Filmhallen
special-purpose
GmbH (hereinafter called ‘BFH’).

called Bayerische

vehicle

BFH’s equity capital amounts
to EUR 50 000. The
company is owned 49 % by the publicsector bank LfA
Förderbank Bayern (hereinafter called ‘LfA’), 21 % is held
in trust by a private individual, Lothar Wedel (3), while
the remaining 30 % belongs to BAV. The nominal value
of BAV’s equity stake is, therefore, EUR 15 000. The
stakes held by LfA and BAV were determined on the
basis of their respective funding contributions to BFH.

2.3. Investment conditions

In addition to the paid-up equity capital, LfA awarded
BFH a grant of EUR 3,8 million and a loan (to be
converted into a grant at a later stage) of EUR 3,1
million (4). The total of EUR 6,9 million was intended
to finance the full cost of building the new studio.

(2) From its early beginnings as a studio in 1919, Bavaria Film has
steadily grown until
it now has more than 30 subsidiaries and
joint ventures in Germany, Austria, Italy and the Czech Republic.
The Bavaria group operates worldwide in every sector of the audio-
visual
is more than 50 % owned by
regional public broadcasters.

industry. BAV's share capital

(3) It was originally intended that LfA should hold 70 %. For legal
reasons
the
Banking Act), a 21 % share was made over to a lawyer, Mr Lothar
Wedel.

the single large loan ceiling under

(exceeding of

(4) Contrary to what was stated in the decision opening the procedure,
the EUR 3,1 million was only partly converted into a grant.
Following the Commission’s decision to open the procedure, the
last loan instalment of EUR 1,345 million was not converted into
a grant, the loan plus interest being instead prolonged.

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Official Journal of the European Union

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(6)

(7)

In addition to the paid-up equity capital of EUR 15 000, BAV leased the land on which the studio
stood to BFH free of charge for 25 years. At the end of the 25-year period, ownership of BFH’s new
building together with its fixtures and fittings was to revert free of charge to BAV.

BAV administers the facility on behalf of BFH. Under a business management contract, the income
earned from renting out the studio was allocated for the first three years, from October 1999 to
October 2002, as follows:

(a) BAV guaranteed BFH a rental income of at least DEM 300 000 (EUR 153 000) a year.

(b) Rental income of between DEM 300 000 (EUR 153 000) and DEM 500 000 (EUR 256 000) was
retained by BAV to compensate it for the cost of repairs, maintenance, insurance and marketing.

(c) Any income in excess of DEM 500 000 was to be divided between BAV and BFH (5).

Table 1 shows the actual income from renting out the new studio during the first three years and
its distribution:

Table 1

Income and payments 1999 to 2002

From October
1999

2000

2001

(EUR)

Up to
September
2002

Rental income

Guaranteed rent for BFH

Remaining income of which:

— compensation for BAV

— surplus divided between BAV

and BFH

Total BFH

Total BAV

of which direct costs incurred for
repairs and maintenance, water, elec-
tricity, heating, etc. (*)

61 000

38 000

23 000

23 000

38 000

23 000

7 000

333 000

153 000

180 000

103 000

250 000

174 000

153 000

115 000

97 000

97 000

59 000

59 000

77 000 of which:

— 39 000BFH
— 38 000BAV

192 000

141 000

53 000

153 000

115 000

97 000

66 000

59 000

52 000

(*) There are other, indirect costs for administering the facility, such as security costs, overheads (marketing, client acquisition, etc.)

which have not been included here.

(8)

After the three-year start-up phase, as of the fourth year starting in October 2002, the business
management contract provides that the income from renting out the new studio — less the cost of
insurance and marketing — will be divided among the shareholders in
repairs, maintenance,
proportion to their equity stakes in BFH (6).

Table 2 shows the actual
distribution:

income from renting out the new studio from 2002 to 2005 and its

(5) The underlying reason for this roughly 50/50 split, which does not correspond to the actual shareholdings of 30 %
and 70 %, is the recognition that the value of the infrastructure services and activities provided by BAV (including the
rent-free use of the site) far exceeds the share it receives by way of compensation from the rental income (i.e. a
maximum of EUR 103 000).

(6) It was agreed that the approach would change after three years, because the first few years were considered to be a

start-up phase needed to stabilise BFH.

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Official Journal of the European Union

21.7.2007

Table 2

Income and payments 2002 to 2005

Income

Repair and maintenance costs (real
cost to BAV)

Overall security (BAV)

Overall marketing (BAV)

From October
2002

31 000

10 000

3 000

12 000

(EUR)

2003

2004

2005

252 000

18 000

13 000

48 000

258 000

181 000

42 000

31 000

13 000

48 000

13 000

48 000

After deduction of costs, the remaining income is distributed as follows:

70 % of remaining income (BFH)

30 % of remaining income (BAV)

Total BAV

4 000

2 000

17 000

121 000

52 000

113 000

109 000

62 000

46 000

27 000

107 000

85 000

(9)

3. OPENING OF THE PROCEDURE

the

such that LfA's

financing with the

In opening the procedure, the Commission took the view
the terms on which the respective parties had
that
invested in BFH were
investment
amounted to aid within the meaning of Article 87(1)
the
of the EC Treaty, and it expressed doubts about
compatibility of
common
market. In particular, the Commission expressed doubts
whether LfA's shareholding in BFH was in keeping with
the principle of a private investor in a market economy,
since BAV and LfA did not invest in BFH on equal terms.
In fact, LfA had received a 70 % share of BFH's share
capital in return for a EUR 6,9 million cash injection on
top of the cash payment for BFH's shares, while BAV had
received a 30 % share in exchange for EUR 15 000 plus
the 25 years rent-free lease of the site, the value of which
was tentatively put at around EUR 3 million.

under the so-called cultural exception in Article 87(3)(d)
of the EC Treaty.

(12)

subsidiaries — rent

The studio is rented out for film productions. According
to Germany, all tenants — including, therefore, BAV and
its
the same
conditions. This is laid down, moreover, in the business
management contract, which governs the way in which
In
BAV manages the complex and runs the studio.
Germany’s view, BAV does not,
therefore, enjoy any
favourable treatment.

the studio under

(13) Germany submitted a list of films produced in the studio,
demonstrating that more than two thirds of the films had
been produced by companies unrelated to BAV (7).

(10)

In its decision to open the procedure, the Commission
reasoned that LfA was a publicsector bank and that the
investment financed by it through state resources poten-
tially constituted aid incompatible with the common
market of which BAV was the ultimate beneficiary.

(14)

4. COMMENTS FROM GERMANY

for 25 film studios

In order to prove that neither BAV nor any other user of
in 2005
the facility enjoyed preferential
treatment,
showing the rental
Germany submitted a price list
prices
from
(ranging in size
748 m2 to 4 225 m2)
located inter alia in Germany,
the Czech Republic, Slovakia, Bulgaria,
the United
Kingdom and Italy. The rental prices varied between
EUR 0,27/m2
EUR 4,34/m2
(United
and
Kingdom).
the rental price for BFH's new
3 060 m2 studio was EUR 1,02/m2. All users of the
studio, including BAV, were charged this price.

In 2005,

(Italy)

(11) Germany essentially took the view that no aid was
involved as the investment was in infrastructure and no
advantage was conferred on any particular undertaking. If
aid was involved, however, in Germany’s opinion it fell

(7) Of the 14 films produced in the studio between 1999 and 2005,
two were produced by BAV and another two by Odeon Film AG or
Odeon Pictures GmbH. In 2000, when these films were produced,
BAV held between 32,75 % and 38,45 % of Odeon Film AG, which
in turn held 100 % of Odeon Pictures.

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L 190/21

5. DEVELOPMENTS

IN THE
PROCEDURE

COURSE OF

THE

(15)

Following the opening of
the procedure, Germany
proposed, in order to remove any doubts that aid was
involved and to make the transaction more transparent,
to amend the scheme as follows (hereinafter called the
new approach):

(a) LfA will become BFH’s sole owner. It will purchase
BAV’s 30 % shareholding at its total nominal value of
EUR 15 000.
It should be pointed out here that
BFH’s articles of association make provision for the

sale of the shares at their nominal (original) value to
the other shareholder(s). LfA will also acquire the
remaining 21 % (8);

(b) BAV will waive its 30 % share of the profits corre-
sponding to its original
shareholding and will
henceforth be responsible only for running the new
studio. BAV will charge BFH annually for the actual
cost of administering the business. For 2006, this
cost has been estimated at EUR 106 405 and will
be audited by an independent expert.

(EUR)

2006 costs

21 539,29

4 160

2 080

50 906,13

25 800

Table 3

2006 business administration costs

Cost centre

Explanation

concerning

land
snow clearing

Services
cleaning,
gardening; maintenance
waste disposal, etc.

and
and

buildings:
gritting,
and repair work,

calculation basis

The
land and
buildings share of 6 %. Comparative offers
were in same price range.

the

is

Commercial
invoices, drawing up of contracts.

transactions,

e.g.

issuing of

2 hours per week at EUR 40

Property management

1 hour per week at EUR 40

Fire brigade, security services, alarm system,
maintenance of fire installations

BAV is obliged by law to have its own fire
brigade. The overall cost comes to EUR 1
million per year

Marketing, distribution,
secretarial
marketing,
management, production supervision, etc.

services;
client

including
acquisition,
project

services,
budget

calculations,

of

the

costs

department:

Overall
EUR 175 000
secretarial services: EUR 200 per month;
coordination of distribution: EUR 100 per
month;
coordination of marketing: EUR 100 per
month;
marketing activities: EUR 400 per month;
regular client care: EUR 200 per month;
acquisition of new clients
in Germany:
EUR 200 per month;
international
EUR 100 per month;
calculation of budget: EUR 100 per month;
production
EUR 200 per
month;
project management: EUR 150 per month;
client complaints: EUR 200 per month;
analyses of
month

competitors: EUR 100 per

acquisition of new clients:

supervision:

Press: press releases, press cuttings,
and Internet, etc.

Intranet

2 hours per week at EUR 40

Accountancy

2 hours per week at EUR 40

960

960

106 405,42

(8) LfA will buy the shares held by Lothar Wedel at their nominal value

of EUR 10 500.

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expert

independent

(c) BFH undertakes to pay a market rent for use of the
site. This rent, following market practice, amounts
to 5 % of the site’s value, which was assessed by
an
at
EUR 3 670 000. The rent was accordingly set at
EUR 183 500 per annum, plus VAT.
It will be
linked to the consumer price index. However, BFH
will not pay the rent monthly but will accumulate it
as debt, to which interest amounting to the base rate
plus 4 % will be applied.

January

2006

in

(d) In 2024, the market value of the new studio will be
assessed by an independent expert and BAV will pay
BFH that market price to acquire the new studio's
assets, possibly offsetting it against the accumulated
unpaid rent plus interest. If the value of the studio
exceeds the debt, BAV will pay the difference to BFH
(LfA).

6. ASSESSMENT

(16)

The original measure under investigation is composed of
the EUR 6,9 million investment in the new studio by LfA
and its shareholding in BFH.

(17) As indicated in the decision opening the procedure, the
operation could constitute State aid within the meaning
of Article 87(1) of the EC Treaty in favour of BAV for
the following reasons:

(a) LfA is a publicsector bank whose acts and decisions
are imputable to the State (the Land of Bavaria); State
resources are thus involved.

the

costs of

(b) LfA’s investment might have conferred on BAV an
economic advantage stemming from possible over-
administration,
compensation for
benefits from the BFH share acquisition on unwar-
ranted preferential
terms compared with those of
LfA, the unconditional ownership of the new studio
after 25 years, and, finally, preferential access to, and
the low-cost availability of, the studio, which BAV
might not have obtained under normal market
conditions.

(d) Finally, the operation of the new studio might have
had an effect on trade between Member States in
view of
that BAV competes with other
undertakings on international markets.

the fact

6.1. Existence of aid — effect of the new approach

6.1.1. For the future

(18) Germany has prepared all the amendments needed to
implement the new approach, eliminating all possible
aid elements both for the past and for the future, and
has undertaken to put
into effect as soon as the
Commission's decision is adopted.

it

(19) With regard to BAV’s 30 % stake in BFH, LfA will buy it
back from BAV for EUR 15 000. This price was provided
for in BFH’s articles of association, being the price BAV
originally paid for the shares. BAV will not receive any
advantage which could be regarded as aid in return for
selling its shares in BFH. LfA will own 100 % of the
the
shares
revenues from BFH.

accordingly receive 100 % of

and will

(20)

(21)

incurred

In future BAV will invoice BFH annually for the ‘actual
costs’
the new studio.
in administering
According to the information provided by Germany in
November 2006, the annual costs in 2006 amounted to
EUR 106 405. The actual costs will be calculated and
charged on an annual basis and will be audited by an
independent expert. It will be ensured that BAV will be
paid only for services actually provided, so that any over-
compensation can be ruled out. There will therefore be
no advantage to BAV in the form of excessive com-
pensatory payments
facility,
which would be tantamount to aid.

administering

the

for

BFH will pay BAV a market rent for the site until 2024.
This rent amounts to 5 % of the site’s value, as assessed
by an independent expert (9). It can thus be considered to
be a market rent and to provide BAV with a reasonable
return on its asset. However, BFH will not pay the rent
monthly in cash but can accumulate as debt the unpaid
rent plus interes (10). It will be ensured that BAV will be
paid only for the use of the site, so that any overcom-
pensation can be ruled out.

(c) Since the advantage was selectively granted to BAV
and not to its competitors, LfA’s investment might
have distorted competition.

(9) The value of the site is estimated at EUR 3 670 000. The annual
payment will be EUR 183 500, thus ensuring a nominal rate of
return of 5 %, reflecting normal market conditions.

(10) BAV will charge a market interest rate. The interest rate is the
prime lending rate plus 4 %, which would appear to reflect the
rate that can be expected from lending money to an undertaking
such as BFH.

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(22) After 25 years,

the market value of
the accumulated debt

in 2024, the market value of the new
studio will be assessed by an independent expert and
BAV will be able to buy the new studio from BFH at
that price, possibly offsetting it against the accumulated
the
If
unpaid rent plus interest.
building in 2024 exceeds
to
BAV, BAV will have to pay the difference.
It can be
excluded, therefore, that BAV will enjoy any advantage
in acquiring the studio (11). It can thus be concluded that
the new approach ensures that, in future, BAV will not
derive any advantage within the meaning of Article 87(1)
of the EC Treaty from the operation of the new studio
and that, accordingly, possible future State aid to BAV
can be excluded. BAV will give up its 30 % shareholding
and charge BFH the real cost of administering the new

studio and of renting the building. After 25 years, BAV
will also have to pay the market price for acquiring the
facility. It was originally planned that, when the 25 years
were up, ownership of BFH’s new building, together with
its fixtures and fittings, would be transferred free of
charge to BAV.

6.1.2. For the past - effects already produced by the operation

prior to the new approach

(23)

Tables 1 and 2 indicate the payments received by BAV
from 1999 to 2005. These payments can be divided into
two categories: compensation for administering the site
and BAV’s agreed share of the earnings. They can be
summarised as follows:

Table 4

Payments to BAV — compensation and profit

From
October
1999

2000

2001

2002

2003

2004

2005

(EUR)

A. Total income

61 000

333 000

250 000

205 000

252 000

258 000

181 000

B. Guaranteed payments

38 000

153 000

153 000

115 000

to BFH

C. Operating costs (paid

23 000

103 000

97 000

84 000

79 000

103 000

92 000

to BAV)

of which:

D. Maintenance, water,

7 000

53 000

66 000

62 000

18 000

42 000

31 000

electricity, heating, etc.

E. Security, marketing,

16 000

50 000

31 000

22 000

61 000

61 000

61 000

overheads and admin-
istration

F = A-B-C Profits

0

77 000

0

6 000

173 000

155 000

89 000

of which:

G. Profits to BFH

H. Profits to BAV

Total payments to BAV: I
= C + H

39 000

38 000

4 200

121 100

108 500

62 300

1 800

51 900

46 500

26 700

23 000

141 000

97 000

85 800

130 900

149 500

118 700

(24)

The payments which BAV has received for administering
the site (see item C and the breakdown in items D and E
of Table 4) reflect in part actual expenditure and in part
business
estimated
management contract. These sums are, even allowing
for the ‘good’ years 2000 and 2004, when payments

agreed

exante

costs

the

in

to BAV amounted to EUR 103 000, consistently lower
than the detailed cost projections made for 2006,
amounting to more than EUR 106 405 (see Table 3),
and have not conferred on BAV any undue advantage.

(11) In view of the fact that payment of the rent is deferred, according
to Germany the possibility can be excluded that BFH might become
insolvent and that BAV might derive in the course of the insolvency
proceedings an advantage from the fact that the studio is built on
its land.

(25) As regards BAV’s share in the earnings, this was intended
to compensate BAV for the rent-free use of the land.
These payments are lower than the market price for
renting the land, which currently amounts
to EUR
183 500 per annum (see paragraph 15).

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6.3. Conformity of

the new approach with the

market economy investor principle

(30) As for the market economy investor principle, to which
reference was made
in the decision opening the
procedure, this had to do with the fact that LfA and
BAV did not invest on equal terms in BFH, which was
considered tantamount to aid in favour of BAV. The new
approach tackles this problem by making LfA sole owner
of BFH. Under the new approach, LfA will own 100 % of
the income earned by BFH, which will be charging all
users of the studio market prices, and it will receive all
in 2024, LfA will
the dividends paid by BFH. Finally,
the studio.
receive the market price for the sale of
in BFH is in
Therefore, prima facie, LfAs investment
line with the market economy investor principle.

7. CONCLUSIONS

(31)

In the light of the foregoing, the Commission has found
that, under the terms of the new approach, the measure
under review does not confer any advantage on BAV and
therefore does not constitute State aid within the
meaning of Article 87(1) of the EC Treaty in favour of
BAV,

HAS ADOPTED THIS DECISION:

Article 1

LfA Förderbank Bayern's investment in Bayerische Filmhallen
GmbH, as communicated by Germany in an amended form,
does not constitute State aid within the meaning of Article
87(1) of the EC Treaty in favour of Bavaria Film GmbH.

Article 2

This Decision is addressed to Germany.

Done in Brussels, 21 March 2007.

For the Commission

Neelie KROES
Member of the Commission

(26)

Even adding up all revenues accrued to BAV (adminis-
tration and profits, as indicated in item I),
it can be
concluded from Table 4 that the sum of all payments
made to BAV during the period 1999 to 2005 is lower
overall than the estimated market value of the use of the
site (currently EUR 183 500 per annum). The reason for
this is that it was originally planned that, at the end of
25 years, ownership of BFH’s new building, together with
its fixtures and fittings, would be transferred free of
charge to BAV, and this would have constituted an ‘ad-
ditional’ advantage for BAV. Under the new approach,
however, BAV will pay a market price for acquiring the
studio. On the basis of these considerations,
it can be
concluded that BAV has not derived from the operation
– in the years from 1999 to 2005 — any advantage
within the meaning of Article 87(1) of the EC Treaty.

(27) Accordingly, concerning the past operation of the new
it can be concluded that BAV has not received

studio,
any State aid.

6.2. Possible aid in connection with the use of the
studio

(28)

It could be argued that, apart from any possible over-
payments to BAV for administering the studio (see Table
4), BAV might benefit from preferential treatment when
using the studio.

the

(29) According to the information provided by Germany,
films were produced by companies
most of
unrelated to BAV (12). Germany has confirmed that
BAV does not have preferential access to the studio.
Furthermore, all
film producers have been, and will
continue to be, entitled to use the studio under the
same conditions and at the same price as BAV. The
Commission has been assured that BAV is treated on
an equal footing with all its competitors and that it did
not and will not benefit from any preferential treatment
and thus has not derived and will not derive any
advantage within the meaning of Article 87(1) of the
EC Treaty from the use of the new studio.

(12) See footnote 7.