Last month, we reported on the publication of the European Commission’s new Cinema Communication 2013 Communication from the Commission on State Aid for Films and Other Audio Visual Works)  ( the “Communication”).  We now consider the Communication in more depth, detailing the background and the various provisions.

European Background

Each year, Member States provide an estimated EUR 3 billion of film support for over 600 different support schemes and so the EU Commission works to control the regime through which state aid is flowing into the film industry. The film industry creates significant economic activity in Europe, providing work to over 1 million people in the European Union.

Section 11 of the Communication refers back to Art. 107(1) of the Treaty on the Functioning of the European Union (TFEU) prohibits aid granted by a State or through State resources, which distorts or threatens to distort competition and trade between Member States. However the Commission may exempt certain forms of state aid from this prohibition.

Promoting Culture

One of the exemptions from the prohibition on State aid (under Article 107(3)(d) TFEU) allows for aid to promote culture, where such aid does not affect competition and trading conditions to an extent contrary to the common interest.

The Communication establishes that existing state support schemes belong to two main groups:

(i) grants awarded to selected film productions where the maximum aid is determined as a percentage of the production budget (e.g. Czech Republic); and

(ii) schemes which define the aid amount as a percentage of the expenditures of production activity undertaken in the granting Member State which applies more or less automatically if the productions fulfil certain eligibility criteria (e.g. Hungary).

The Communication

In the Communication the Commission considers and comments on the following aspects of the current regimes:

(1) Scope of Activities

(2) Cultural Criterion

(3) Territorial Spending Obligations

(4) Competition to attract major foreign productions

(5) Cross boarder Production

(6) Film Heritage

(1) Scope of Activities: In addition to aid being provided for the production of films, the Commission agrees that aid may cover all aspects of film creation from story concept to delivery to the audience, i.e. aid to script writing or development is not excluded. Such aid shall, however, be considered if the script or project is made into a film. Aside from script-writing, development, promotion or distribution, aid granted for specific production activities is not allowed. Therefore, aid must not be reserved for individual parts of the production value chain.

Aid to cinemas should fall under the de minimis regulations (Commission Regulation (EC) No 1998/2006 of 15 December 2006 on the application of Articles 87 and 88 of the Treaty to de minimis aid, OJ L 379, 28.12.2006, p. 5.), but might be accepted as a higher amount if a Member State can justify such aid as aid to promote culture.

Transmedia storytelling (also known as multi-platform storytelling or cross-media story telling) is inevitably linked to the production of a film, since it is the technique of telling stories across multiple formats and platforms using digital technologies, like films and games; the film production component is considered to be an audio visual work within the scope of the acceptable aid.

On the other hand games do not generally fall into the same category, thus state aid schemes cannot cover games automatically.  However if the games serve a cultural or educational purpose, the Commission will accept such as subject to state aid under the same aid intensity criteria as for films.

The aid is to be awarded in a transparent manner. Member States must publish the following on a single website: the full text of the approved aid scheme, information of the beneficiaries and the aid amounts.

(2) Cultural Criterion : Aid has to be granted to a cultural product.  In this regard, the Commission expects the existence of either a cultural selection process or a cultural profile to be fulfilled by all audio-visual works as a condition of the aid. Linguistic diversity is a factor which is acknowledged as promoting culture.

(3) Territorial Spending Obligations: It is highly debated whether territorial spending obligations (i.e. obligations imposed on film producers to spend a certain part of the film production budget in a certain territory) is acceptable from the Commission’s perspective.  Nevertheless, there has been no decisive evidence presented to determine if the positive effects of the territorial spending obligations outweighed the negative effects, namely fragmentation of the internal market of audio-visual production.

The Commission still acknowledges that such territorial obligations may be necessary to maintain a critical mass of infrastructure for film production in a Member State granting the aid. Nevertheless, the Commission has stated that it would seem appropriate to exclude discrimination of services provided by non-resident firms and to exclude the discrimination based on the origin of goods and services involved in film productions. Provided that a Member State does not apply discriminative measures, film production support schemes with territorial spending obligations are accepted if they either:

 - require that up to 160% of the aid amount granted to the production of a given audio-visual work is spent in the territory of the Member Sate granting the aid; or

 - calculate the aid amount as a percentage of the expenditure on film production activities in the granting Member State (typically in form of tax support schemes)

The territorial spending obligations shall not exceed 80% of the total film production budget in any of the above cases.

The aid intensity must in principle be limited to 50% of the production budget of the film.

(4) Competition to attract major foreign productions: The Commission acknowledges that major foreign productions are necessary to maintain high quality audio-visual infrastructure, studio facilities, equipment and staff, to contribute to technology transfer, know-how and expertise.  Further many of the films which are considered to be major third country projects are in fact co-productions also involving European producers.  Therefore these subsidies would contribute also to the promotion of European audio-visual works.

Therefore the Commission accepts that such aid to foreign productions would be compatible with the state aid concept of the TFEU as aid to promote culture. However, since the amounts of aid for major international productions can be high, the Commission will monitor the development of this type of aid. 

(5) Cross border Productions: The Commission considers that higher aid levels (up to 60%, which is more than the generally allowed 50%) are acceptable for cross- border productions funded by more than one Member State.

(6) Film Heritage: Member States should support producers to deposit a copy of the aided film in a film heritage institution selected by the Member State granting the aid for preservation as well as for specified non-commercial use agreed with the right holder(s) and without prejudice to fair remuneration for the right holder(s) after an agreed period of time such that the normal use of the film is not interfered with. The practice of some Member States of paying the last instalment of the state aid after receipt of the copy of the film by the film heritage institution seems to be an efficient instrument to ensure such goals.

Member States will be required to harmonise their existing state-aid schemes with the Communication within two years of its publication in the Official Journal of the European Union.