Europe Acts to End Film Subsidy Race; Film Biz Asks: “What Race?”

Europe Acts to End Film Subsidy Race; Film Biz Asks: “What Race?”


“Subsidy race?  What subsidy race?”


–European Film Community

I wrote about the European Commission’s ongoing consultation for State Aid for Film back in March.  A few days ago, the EC published dozens of responses to their June 2011 issue paper.  The main thrust of the EC issue paper was as follows:

Major US-financed films have an average production budget of $65 million (€46million), with the most expensive films exceeding $200 million (€141 million). This is many times higher than those of typical European productions. While attracting them with subsidies may ensure that these high profile films are made in Europe rather than elsewhere, such subsidies distort competition among European production locations. In these cases, the question is not whether the film will be produced but only where this will be done.

To the extent that this use of public subsidies in effect leads to competition with other Member States, this is detrimental both to the sector and to European taxpayers. It was not envisaged when the original State aid rules for promoting the European cinematographic culture were designed. Avoiding subsidy races is precisely one of the objectives of the State aid provisions of the Treaty….

The aim is to prevent European countries from using subsidies to compete among themselves for prestigious Hollywood projects…

Setting a cap will ensure that other parameters for the location decision-making, such as the quality of local crew, stages and technology remain decisive, and that competition takes place primarily on the basis of quality and price, rather than on the basis of state aid.

While the principles expressed above sound rational and logical to most people, it did not get a warm welcome from European film backers.  To their credit, many of the responses acknowledged the need to avoid a subsidy race but disagreed on how to achieve that goal.  Specifically,  almost all of the responses rejected a proposal to cap subsidies at 10% for non-Euro films with budgets over $26 million.  The far more interesting responses, however, were those that rejected the notion a subsidy war was even taking place.

The British Film Institute (BFI) said it “”does not believe that a subsidy race exists” among the EC Member States and faulted the EC for not producing “actual evidence” one existed:

The BFI does not believe that a subsidy race exists between Member States. Furthermore the Commission has failed to bring forward any evidence to underpin the existence of such a situation…

We note that, in the dialogue with the industry, the Commission has referred to anecdotal evidence of this but that no actual evidence has been produced. In view of the potential impact of this measure on European film production, we do not think that such a regressive scale should be introduced without hard data and evidence to support the Commission’s view that the Member States are competing with each other on the basis of their tax incentive schemes. The principal competition is with non-EU countries such as Australia, Canada, South Africa and the United States itself, where many individual states offer production incentives.

Thus, while the BFI rejected the idea a subsidy race existed in Europe, they are quick to point out the EC is competing with other nations (including the US), all of which do offer incentives.  Therefore, the BFI is claiming there is a subsidy race between the EC and these other nations, which is odd because they did not present any “hard data” or “actual evidence” the subsidies in other nations was hurting production in the EC.  Can you say hypocrisy?

When the UK government announced a proposed 25% tax credit for video games, animation and high-end TV productions, the UK film industry said it prevent an Exodus to other nations of “dramas telling a British story” and that the incentive was needed to make the UK competitive:

TV Coalition, which comprises some of the biggest names in U.K. and international TV production, gave it a thumbs up.

It could put an end to the exodus from the U.K. of dramas telling a British story, the TV Coalition said, citing shows such as Strike Back, The Tudors, Camelot, Parade’s End and the Julian Fellowes’ drama Titanic, as examples of productions made abroad in countries including South Africa and Canada in the last year….

HBO exec vp business and legal affairs Glenn Whitehead said: “The U.K. is one of the best places in the world to film as it has highly skilled people and exactly the right infrastructure to make great television.  Today’s news on a new tax incentive has turned the U.K. from one of the most expensive options into a competitive and affordable location.  We would therefore love to bring more production to the U.K.”

Back in 2005, the UK government had been considering ending the film incentive.  When producers for “Harry Potter” said Warner Bros. was mulling moving production of the films to the Czech Republic, however, the UK government caved in to the shake down and kept the tax credit.  It seems those most eager to compete are same people denying there is an actual competition.    The Hungarian response, which echoed the BFI,  said “the dangers and threats articulated by the European Commission remained hypothetic and unclear.”  Really?  Maybe Hungary does not want to admit there is a subsidy war because they are actually the ones who started it in Eastern Europe.

In the early 2000s, the Czech Republic was the darling location for producers in Eastern Europe, where very cheap prices and labor meant there was no need to offer subsidies.  But then things changed. Wanting to divert Hollywood’s attention from Prague, Hungary decided to one-up its neighbor by offering the first significant film incentive in Eastern Europe in 2004.  According to the“Wall Street Journal”, Hungary’s move decimated the level of production in the Czech Republic and even France “followed suit”:

The Czech Republic began losing film-industry business in 2004, when scrappy Hungary seized the moment to jump-start a film industry virtually from scratch by creating tax breaks to attract moviemakers; some other European countries, including France, which had previously focused on domestic movie-making, followed suit.Czechs have been known for movie-making since film’s early days, and the country’s film schools have churned out a steady stream of highly skilled professionals, including Milos Forman, who won Academy Awards for best director of “One Flew Over the Cuckoo’s Nest” and “Amadeus.”

By 2008, money spent by foreign film producers in the Czech Republic had fallen a stunning 85% to $40 million from $270 million in the peak year of 2003, according to financial consultancy EEIP. Back then, U.S. and U.K. producers channeled about 5% of their annual spending on English-language films and TV shows to the Czech film industry; this fell to barely 1% last year, according to the Czech Audiovisual Producer’s Association.

In 2010, after years of pleading from Czech filmmakers, the Czech Republic finally authorized a 20% rebate to compete with the Hungarian incentive:

One reason why Prague lags behind Budapest, Bucharest and other places in the region has been the lack of tax rebates for foreign film productions. But according to Czech Radio correspondent in Brussels, Pavel Novák, this will soon change.

Under the plan, film producers will be able to get 20 percent of their costs back – something Czech filmmakers have been calling for for years.

And when the Bulgarians heard about the new Czech Republic tax credit, they proposed a new 30% tax credit.  If approved, the Bulgarian film incentive would be the most generous in Eastern Europe.  And since Bulgaria can already undercut its EC rivals with cheap labor and prices, adding an incentive on top would likely lead Prague & Bucharest to increase theirs.  And let’s not forget the Hungarian incentive caused the French to follow suit by offering their own tax rebate in 2004.  And now it appears France may need to increase them.   According to “Variety”,  French productions prefer more “generous tax incentives” in places like Belgium and Luxembourg.
But shhh!  There is no subsidy race, wink wink.  Besides, according the BFI the subsidies are needed to promote and protect European culture:

Films and audiovisual works play an important role in contributing to the promotion, development and enhancement of culture in the UK, in Europe and internationally. European cinema has the power to “open our eyes” to our history, to our culture and to our identity.

While I agree with the above, I am at a loss to see how non-European films such as “Tom Sawyer & Huck Finn” promotes Bulgarian culture and identity by filming there.  Likewise, how did “Hatfields & McCoys” promote Romanian culture and identity by filming in that nation?  As the EC issue paper pointed out, American films do not promote the culture of the EC members and actually crowd European films out of the box office, where roughly 70% of the films are US studio releases.  Subsidies, particularly in Eastern Europe are not promoting culture or identity with such films.  Some American films have actually portrayed certain EC member nations in a very inaccurate and negative light.  For example, Eli Roth’s 2005 horror film “Hostel” was deeply offensive to people in Slovakia:

The film’s release was accompanied by strong complaints from the country of Slovakia, and also from the Czech Republic. Slovak officials were disgusted by the film’s portrayal of their country as an undeveloped, poor and uncultured land suffering from high criminality, war and prostitution,fearing it would “damage the good reputation of Slovakia” and make foreigners feel it was a dangerous place to be.  The tourist board of Slovakia invited Roth on an all-expense paid trip to their country so he could see it is not made up of run down factories and kids who kill for bubble gum. Tomáš Galbavý, a Slovak Member of Parliament, commented: “I am offended by this film. I think that all Slovaks should feel offended.”

Maybe the BFI should explain to Slovakia how “Hostel” promoted their national culture and identity.  Perhaps subsidies can be utilized in a way that promotes culture, but they can also have the unintended consequences of destroying it.  In Italy, for example, subsidies in Eastern Europe are being blamed for devastating the Italian film industry and may lead to the closure of a historic cultural landmark….

The famed Cinecitta Studios in Rome is now “fighting for its future”:

Summing up its effect on his creative juices, the Italian film director Federico Fellini described Rome’s Cinecitta studios as “my ideal world, the cosmic space before the big bang”.

But the legendary 40-hectare (100-acre) lot built by Mussolini, which became a home from home for Hollywood stars in the 1950s and 60s, is now fighting for its future.

It is now pinning its hopes for income on an amusement park, hotel and spa being built on the site where Richard Burton and Elizabeth Taylor smooched while shooting Cleopatra in 1963.

Times have also changed in the centre of Rome. Tourists attempting a tour of real locations today discover that the garret where Gregory Peck and Audrey Hepburn fell in love in Roman Holiday is in a state of disrepair.

Why is this famed historic studio struggling to survive?  Because Italian filmmakers are spending 71% of their budgets abroad, thanks to “incentives offered by countries like Hungary”:

But if Cinecitta could attract Hollywood productions with its skilled and cheap staff in the 1950s, the low-cost lots are further east today. Cinecitta’s last big outdoor set, for the HBO series Rome, wrapped up in 2007, and even Italian filmmakers are now spending 71% of their budgets abroad.

“We cannot guarantee big profits with film, meaning we need parallel projects based on the brand,”

“What has hit hard are the incentives offered by countries like Hungary, which made them around 25% cheaper,” said Maurizio Sperandini, deputy general manager.

“But now Italy has confirmed tax incentives for the next three years which should level the playing field. And we’ve got the weather. Woody Allen will be shooting in Rome in June and we really hope he will use us.”

Denying there is a subsidy war in Europe or claiming that subsidies are not distorting or harming EC member nations is belied by reality (see above).  Hopefully, the EC will see through the biased self interest of the film industry groups who make such ridiculous claims.

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