CEPI FIAPF IVF Submission in response to the European Commission Issues Paper Assessing State Aid for Films and other Audiovisual Works

Transcription

1 CEPI FIAPF IVF Submission in response to the European Commission Issues Paper Assessing State Aid for Films and other Audiovisual Works Reference : HT.2950 September 30 th, 2011 The European Coordination of Independent Producers (CEPI - ID ) represents the interests of approximately 8000 independent film and television producers in Europe, equivalent to 95% of the entire European audiovisual production industry and over hours of new programming each year to broadcasters in Europe, ranging from single documentaries and special event programming, to game shows, light entertainment and highcost drama serials. The International Federation of Film Producers Associations (FIAPF) is a trade organisation dedicated to the defence and promotion of the legal, economic and creative interests of film producers throughout the world. FIAPF s members are 26 national producers organisations from 24 countries across the globe from Europe, Africa, Asia-Pacific, North and Latin America. The members of the International Video Federation (IVF - ID ) - are businesses active in all segments of the film and audiovisual content sector in Europe. Their activities include production of films and audiovisual content as well as distribution thereof on digital media and in online channels. We appreciate the opportunity offered to take part in the public consultation on the Commission s Issues Paper on Assessing State Aid for Films and other Audiovisual Works. We and our representative organizations have participated actively in the past debates as well as in recent consultations organized by the European Commission. There are many issues raised by the Issues Paper, and we anticipate that the Commission s dialogue on this topic will continue for a while. At this stage, there are five areas in respect of which we wish to offer our comments: The role of state aid for the film and TV production sectors The range of activities to be covered by the new Cinema Communication The intensity of the state aid Territorialisation conditions, and Digital technologies JOINT SUBMISSION CEPI - FIAPF - IVF

2 Introduction We believe that European integration and mutual understanding between the Member States is not possible without a cultural dialogue. Art and culture represent powerful instruments to communicate common European values, and audiovisual creative productions are strategic considering the very close relations of European citizens with their national cinema and TV programmes. We also strongly defend the fundamental principle that each film is a cultural good. Any regulation, which does not fully recognize the specific provisions relating to aid to promote culture and heritage preservation in Article 107.3(d) of the Treaty on the Functioning of the European Union or which assumes that such aid must be measured in strict theoretical application of competition law only, fails to take into consideration the letter and the spirit of Article 107.3(d) and the condition that aid must affect trading conditions and competition in the Union to an extent that is contrary to the common interest in order to be incompatible with EU law. Furthermore, Europe s cultural industry is, with 3 % of the EU GDP and an average employment of 6 million people in Europe, one of the few sectors with increasing employment and therefore a driver for economic growth within the EU. From copyright to state aid, many important regulations affecting the creative industries are set at European Union level. Thus, it is important that the European Commission be fully aware of the practical application and relevance of its decisions especially in the future Cinema Communication; well-intentioned but essentially misguided policy choices in this area could lead to serious threats to the European film and audiovisual sectors in economic, social and cultural terms. 1. Role of state aid for the European film and TV production sectors (in reference to Sections 20 to 37 of the Issues Paper) The production of cinematographic and TV works is a risky-undertaking. Projects are developed without any assurance of entering into production. Closing a production budget involves a complex mix of various sources of financing; they may include the producers own funds, private investors, pre-sales, equity investments, etc. Each film is a cultural and industrial prototype. As is the case with any prototype, raising financing is always a challenge. State aid facilitates access to private funding. In doing so, it helps reducing the risks for the producer and other investors at a moment in the life of a project when the producer is very exposed and may have no certainty that other potential investors will firm up their commitments. Europe is an important market for film and TV productions, in terms of the number of films produced annually as acknowledged by the Issues Paper. It also boasts an experienced industrial production workforce with highly skilled staff, and releases a wide variety of works reflecting the diversity of Europe s national cultures and languages. The existence of various cultures and languages is specific to Europe and it explains why any attempt to compare the number of films in Europe with the local US or Chinese situation is both unfair and inapplicable. We therefore object to the statement made by the Issues Paper of a supposed degree of over-production (cf. Section 17). 2

3 We believe that the main challenge for the European film and audiovisual industry and national and European decision makers is to stimulate the circulation of the films produced in the EU. The market faces many challenges amongst which rampant online piracy, nascent online distribution services which do not compensate for the contraction of the physical video market experienced over the past couple of years, etc. There is also a disturbing trend among broadcasting companies, in particular public service broadcasters, to allocate less time slots to cinematographic and TV creative productions. We believe that public support plays an indispensable role in backing the ambitions of the European film and TV production sectors in their efforts to develop original stories and content which Europeans want to watch. By doing so, Member States support the ongoing professionalization of their respective cinematographic and audiovisual sectors and facilitate the emergence of sustainable technical facilities. State aid thus has a directly beneficial economic and social impact. Section 23 of the Issues Paper states that Europe s national, regional and local film funds do not appear to have common objective or strategy. It is a reality that film funding on every level (national, regional, local) can apply different sets of criteria and goals. However, the experience of our respective membership brings us to the conclusion that this situation does not lead to a contradictory funding situation. It is inherent in the system that different criteria can lead to the fact that a project can be supported by a public funder and not by another one. Such unaligned decisions should not lead to the conclusion that the funding s objectives or strategies themselves are contradictory. Nevertheless, efforts by national/local decision makers to reach synergies between the various levels of funding for the benefit of cultural diversity are always welcomed. However, this should not imply that diverging funding decisions taken by the different levels can be excluded. We note the authors remark mentioned in Section 24, i.e. that there are relatively little comparable and comprehensive data about the European audiovisual sector in the public domain. We would like to highlight the important contribution of some national institutions as well as the European Audiovisual Observatory in that field. The latter has been providing public actors and stakeholders in the audiovisual sector, with reliable statistics covering many aspects of the industries concerned. As far as the specific physical and online video market is concerned (Section 25), we wish to draw the Commission s attention to the publication by the industry itself of a wide range of statistics on an annual basis 1. When it comes to information pertaining to business secrets, we recall that rules applicable to the audiovisual sector should remain aligned with those applicable to other industries and sectors as a prerequisite for sound competition. Sections 27 & 28 recall that the Member States are the relevant decision makers with regard to the objectives of their respective funding schemes. As representatives of film and TV producers as well as video right holders, we believe that national dialogue between the local producers community and public authorities to define the objectives of the relevant funding schemes or to adjust them where deemed necessary is the right way to ensure that funding schemes meet the national needs and challenges. Both from a cultural and a political point of view. Should it be deemed desirable to define common rules at European level, we would recommend that the core objective of the public funding schemes considered consist in enhancing the cultural diversity and in supporting the best environment for economic growth and employment. 1 The IVF European Video Yearbook, published by the International Video Federation ( 3

4 We urge the Commission to undertake an in-depth study of the cultural, economic and social consequences of any changes considered in the coming Communication before reaching the final decision. Section 29 indicates that the Commission has identified competition among some Member States to use State aid to attract inward investment from large-scale, mainly US film production companies, a development which the Issues Paper refers to as a subsidy race. We respectfully disagree with this notion. Like some non-european countries such as Canada, a limited number of Member States have been implementing a range of solutions for nonnational audiovisual producers to attract physical production and post-production using their national resources, infrastructure and skills. Many different criteria enter into the choice exercised by the producer, including the search for cost-effective production solutions, but this is not the only one. Indeed where the screenplay is set, the quality of the facilities offered by the country as well as the skills of the local staff, the natural sets and landscapes, etc. are also indispensable parameters in the final choice. Thus, despite the interest of Member States to present attractive financial and other conditions, we oppose the statement of the notion of a subsidy race, or competition between Member States. Europe has been a leader in promoting the recognition of the vital importance of the film and audiovisual sectors as vectors of cultural diversity and as important contributors to the economy in terms of jobs and innovation. European policy at the EU and national levels has aimed to preserve the richness and diversity of European cultures. The subsidiarity principle has to date been given a wide application. In framing their national support regimes, Member States have developed diverse approaches within an agreed common framework. We are of the opinion that the continuous success and future development of the European film and audiovisual sector depends, and will certainly continue to depend on public funding and support, in particular with regard to production incentives to attract the sustained and necessary commitments of private investments and capital. Inward investment plays an important role in this regard in a number of countries. Such investments are subject to duly approved conditions to ensure that they support the underlying public policy objectives. We acknowledge the debate referred to in Section 35. We would like to emphasize that it should be left to the Member States to decide on the use of the cultural criterion tests within their internal regulations and if this is used, the cultural content should be in line and verifiable according to their national criteria. The cultural criterion was seen to a great extent as ensuring that private investments and associated public support mechanisms for film and TV production really contributed to the public policy objective of fostering long-term sustainability of national cinematographic and audiovisual sectors. The cultural test governing the United Kingdom s film tax incentive is a case in point, as recognized in the paper, Section 35, where the regime is praised. The question raised in Section34 about whether or not profits from inward investments are repatriated is misplaced. The film sector has many specificities. One of them is that each production is a prototype, a new investment unlike an investment in, say, a car manufacturing plant. That said, the multiplicity of projects contributes to the continued growth of talent and technology. Now taking a step away from specific national examples, on a more general note we are of the opinion that attracting foreign investments into European film production markets is a real boon for the vitality of national film and audiovisual industries. In addition, other real and important direct/indirect macroeconomic contributions are made to national economies and 4

5 sustained high levels of investment in the film and TV sector. As a result, inward investments play a key role in: exporting national talent and crews worldwide, ensuring the existence of state-of-the-art production resources available to smaller and bigger future productions. This underpins an essential infrastructure without which local productions would suffer greatly absent additional state aid or other forms of intervention, and securing the position of EU Member States as creative hubs in a highly competitive global media market. 2. Range of activities and products to be covered by the new Cinema Communication (in reference to Sections 38 to 43 of the Issues Paper) We wish to express concern regarding the argumentation developed by the Issues Paper in relation to the opportunity to extend the scope of the activities in the future Communication. We believe that granting more legal certainty to the existing state aid dedicated to all aspects of filmmaking from development of the story concept to the delivery to the audience makes sense would benefit the industry as a whole, in particular for the small and medium sized distributors and publishers who play an indispensable role in promoting, distributing and publishing film and TV programmes. However we would welcome clarification on the Issues Paper s statement with regard to matching the supply of audiovisual productions and the demand (Section 40 2 ). Indeed we would like to stress that the number of audiovisual productions in Europe reflects and results from the cultural and linguistic diversity of the European Union and its 27 Member States. The common challenge for European decision makers, the Member States and Europe s cultural industries should then be 1/ to ensure a healthy offline and online marketplace where piracy will not be harmful to legal offer irrespective of delivery media and/or platform 2/ to encourage an increase of the time allocated by broadcasters to transmission of creative content in particular by the European public service broadcasters. We trust that the new Cinema Communication is seen by the European Commission as a tool to support the development of the sector, not to shrink the European market as Section 40 s misguided interpretation could suggest. We would also like to bring to the Commission s attention that should it consider including non-commercial activities such as film festivals in the Communication as stated in Section 40, our organizations would advise first to evaluate the cultural, economic and legal implications of any decision that might have significant consequences for the core existence of those important operators. Indeed film festivals in Europe are characterized by a fragile financing balance and by a certain level of dependence on public support and funding. We underline that over the past decade, the role of film festivals for the European cinema sector has been increasingly strategic both for the films themselves and for the knowledge and the attractiveness of European cinema to worldwide cinema market players and to European citizens. Section 41 questions stakeholders on how the digital transition of theaters should be covered by the next generation of the Cinema Communication. We recall that the modes of financing applied at national level are not uniform and relate to and are adapted to the national context. Many of them innovate to address specific challenges such as the challenge that digital 2 Section 40: ( ) This could help to avoid stimulating the supply of audiovisual content without ensuring that the corresponding distribution and promotion of such content matches demand. ( ) 5

6 cinema might leave cinemas with a limited number of screens after the digital transition. State aid is often seen as a tool to intervene in guiding the development in the desirable way. We encourage the coming Cinema Communication to provide the necessary flexibility for Member States to reduce the transition period for their theatrical exploitation sector. In Sections 42 & 43, the Issues Paper questions whether the definition of what constitutes an audiovisual work eligible for aid under the Cinema Communication may need to be reconsidered, e.g. cross-media, interactive works/video games, etc. In the area of TV productions, it is worthwhile noting that general entertainment productions are usually considered ineligible for subsidies, because they are usually seen as 100 % commission productions or are in-house productions of the TV broadcasters. An examination of to which extent the entertainment area could fall into the category which could benefit from TV film subsidies would be interesting, since the development of strong cultural interest programmes in the entertainment sector could also meet the objectives of the Cinema Communication. On a general point of view for the sake of consistency and efficiency, we recommend that the Commission consider including creative content whose core basic production and distribution business models are aligned with those of film and TV productions. In that context we invite the European Commission to consider a separate Communication for the video games sector which business model is different from the film and TV sector. As far as cross-media products are concerned, most of the productions are currently commissioned films in the image and commercial areas, which are usually excluded from state aid. 3. Intensity of the state aid (in reference to Section 44 of the Issues Paper) The current maximum aid intensity of 50 % of the production budget with increased rates for difficult and low budget films has generally proven its worth and is well-adapted to the needs of the sector itself and should therefore not be amended, especially not downwards. However in some Member States with small sized-market and a national language that is not shared with other European territories, the 50 % -maximum aid intensity has been as a significant challenge. We also believe that higher aid intensities for difficult and low budget films respond to the specific challenges experienced by producers, in particular for some feature films, animation films, shorts, etc. The Issues Paper questions the appropriateness of defining a maximum overall aid intensity based on the total project budget 3, should the scope of activities covered by the future Communication be extended. We would not recommend such an approach. Indeed the operational feasibility in administrative terms for the Member States of such an approach remains to be proven, implying uncertainties for the beneficiaries of the state aid. We believe in a simple approach consisting in stipulating a maximum aid intensity by activity. As far as the level where the maximum aid intensity should be placed for those activities that might be included for the first time in the Cinema Communication, we support a pragmatic 3 Covering script-writing, development, pre-production, principal photography, post-production, any forms of distribution, promotion and marketing costs. 6

7 approach, i.e. that the maximum aid intensity should reflect the level of risk inherent in the activity supported. Higher aid intensities should therefore be considered for the development stage, including scriptwriting. As regards the Issues Paper s question on the opportunity to encourage cross-border cooperation by allowing a higher overall aid intensity for film projects which involve activities in more than one Member State, we would like to recall some basic facts regarding co-productions in Europe. Co-production is a widespread method of financing and producing feature films in Europe (and to a lesser extent, high-end TV drama). In addition to addressing the critical size of the pre-financing markets in the Member States, this practice strongly reinforces the circulation of the works in the respective countries involved in the production 4. Considering the positive effects of co-producing both in terms of cultural diversity and circulation of the works, a higher overall intensity of the aid for co-productions of 60 % would be welcomed by CEPI, FIAPF and the IVF and would encourage more cross-border cooperation between producers, distributors and video publishers. Note that by cross-border cooperation, we mean co-productions within the EU area as well as between EU producer(s) and EEA/non-European peer(s). 4. Territorialisation conditions (in reference to Sections 45 to 52 of the Issues Paper) We urge the Commission to maintain status-quo on the local spend conditions in the future Cinema Communication and wish to express our most sincere opposition to the provocative statement included in the Issues Paper stating that film producers have supported territorial conditions in the past [because] they felt that they helped the funding bodies to encourage Finance Ministries to allow more film funding (Section 51). Indeed there is no discernible advantage in revising the territorialisation conditions and there is no evidence that a revision would result in more efficiency in the market for film/tv production. Nor is there evidence that the intensity of current territorial requirements is such as to generate distortion of competition within the EU market. On the contrary, we have defended and will continue to argue that to restrict Member States local spend obligations at this stage would have very negative effects on European productions as a whole. And this with unpredictable cultural, economic and social consequences. By taking away a key rationale for Member States support to film production, it would financially deplete a sector which is acutely vulnerable to market failure. It would weaken an important incentive for Europe s producers to co-produce, pool their resources and learn from each others skill sets and practices. It would affect some countries and regions that would not be in a position anymore to maintain a critical mass of activities to preserve skills and infrastructure to produce cinematographic and audiovisual works reflecting the national and regional culture. The Issues Paper would appear to argue that that local spend obligations as a condition for obtaining state aid results in the distortion of competition in the production of goods and in consistency problems with the fundamental principles of the Internal Market, because they 4 The European Audiovisual Observatory s 2008 Study called The circulation of European co-productions and entirely national productions in Europe concluded that European co-productions travel better that their 100% national counterparts in the sense that on average (mean) co-productions get released in more than twice as many markets as national films. In addition 77% of all co-productions get released on at least one non-national market, compared to 33% of entirely national films. 7

8 arguably prevent the producer from choosing location freely according to the most advantageous cost-of-production options. However, we would argue that the European film and television programming market possesses distinctive features which mitigate substantially the demand for competitive crossborder services. Amongst those are: Cost-of-production sensitivity is lower than for most standard product manufacturing because the film and television product is always a single prototype (each film is unique). There is no standardisation or assembly-line logic. Therefore, the pressure to reduce the cost-per-unit by looking at cheaper plant location options in the country of the state aid or outside is not comparable to what it may be for other types of products or services involving volume production; Most European feature films are on the lower end of the film cost spectrum, and highend television drama is below the average feature film cost. Therefore, the cost advantages which may be gained from locating any part of the production away from the geographical base rarely represent significant sums in relation to the total budget; Most European films and television is produced on home ground due to factors that are not primarily economic, but creative and/or cultural: the fact is that the majority of stories and scripts require local talent and locations (European film makers make less use of studios and sound stages than their American and international counterparts); Another, non-economic, stay-at-home factor for European producers is quality control: many film makers tend to stick with the crews, laboratory technicians and editors with whom they have worked in the past and on whose skills they have come to rely best to interpret their creative intentions. Locating abroad with unfamiliar crews and post-production technicians is deemed risky in this respect. We therefore consider that territorial conditions stimulate cross-border production and coproductions. It is in the context of co-production that territorial conditions can be said to foster a more integrated, less localised, market for production and production services in the European Union. As mentioned above, co-production is a widespread method of financing and producing features - and to a lesser extent, TV drama - in Europe. Whilst the main motivation for resorting to co-production is financial, the territorial conditions of the state aid encourage coproducers to locate production, lab work, etc. across national borders. These provisions give an incentive to producers to establish working relationships with crews, talent and postproduction facilities outside their immediate local/national circle of contract workers and suppliers. The dividend from this practice is a more integrated film/tv production industry, growing gradually more familiar with locating productions in a variety of production centers and locations and developing collaborative networks across the European map. Without territorial conditions at the level they currently exist, producers would have fewer reasons to take risks on utilizing production resources outside their country of establishment. The lack of specific rules for co-productions in the current Cinema Communication may indeed have caused some issues for co-productions and may have made them less efficient (Section 49). We recommend that the future Cinema Communication state the interpretation 8

9 of the territorial conditions criterion for co-productions in order to provide more legal certainty to stakeholders as suggested in Section 46. Section 52 of the Issues Paper asserts that limiting the scope of the Member States to impose territorial conditions to, for example, 100% of the aid amount could ( ) lead to some consolidation in the sector, increasing its sustainability. We consider that these conclusions are erroneous because they stem more from a political objective in respect to how the market should be run rather than an objective study of how our industry works. In summary, the Commission s choice is between allowing a well accepted practice to continue whose stimulating effects on production, development of national and regional infrastructure and skills enhance cultural diversity, or to restrict it in the name of economic theory and be responsible for the resulting decline in film and TV investment across the European Union. We urge the Commission to let common sense prevail over theoretical considerations. 5. Digital technologies (in reference to Sections 53 to 57 of the Issues Paper) In Sections 53 to 57, the Issues Paper questions the film and TV sector s strategy to benefit from the technological developments and meet new consumer expectations. It also highlights that the changes in consumer behavior and expectations have radically altered the music sector over the past 15 years. We would like to recall that the audiovisual industry considers the new forms of digital distribution IP TV, VOD over the Internet, retail/rental over the Internet, mobile TV, etc - as key industrial opportunities. The audiovisual sector has been supporting and involved in numerous emerging business models online by providing its content, and will continue doing so in the future. This is because this is the interest of the film and TV sector as well as the consumers. However, it is our opinion that pursuing digital distribution strategies necessitate a stable and predictable legal and business framework as well as strong intellectual property rules. The copyright system is the corner stone of the way in which creative sectors attract investment, organize the contributions of many creative, financial and business collaborators, and pursue payment for the resulting creative works and a possible return on investments. Hence we oppose the general philosophy reflected in Sections 53 to 57of the Issues Paper, i.e. to correlate public funding with mandatory licences such as Creative Commons Attribution- ShareAlike licences or mandatory deposit in archives and availability of the films for cultural/educational use. This is our position for a number of reasons: First, we would like to recall that public funding takes the form of either subsidies OR loans. Imposing specific conditions on the use of the resulting work which also received private funding/investments could arguably amount to expropriation of private property. On Creative Commons Attribution-ShareAlike licences: It is the interest of European and national decision makers NOT to interfere with the way in which the European film and TV industry is structured. The producer acts as a one-stop-shop aggregating rights and taking the financial and legal risks. He/she is the owner of the production. This approach provides full legal certainty for the entire film exploitation chain at each stage of the production, promotion and distribution of the 9

10 film. Any mandatory licence imposed by public authorities would address the basic principle of the ownership and would consequently challenge the basic legal and economic principles of private property as enscrined in European law. The Issues Paper states that most of the independent filmmakers successfully (used) these alternative approaches are based in the US. We invite the Commission to undertake a deeper reflection on those references. Indeed the trends referred to in the Issues Paper remain extremely marginal in the USA and are in any event the result of the individual and specific decision of the producer. Such trends cannot be considered as new business models that could work in general for film projects, whether they are independent or not. In addition, it is worth recalling that the individual states in the USA share the same language. The reason we do not observe the same trends in Europe does not reflect any conservative approach from European producers, but is the result of a business fact: the linguistically fragmented European market implies high investments for sub-titling films which limit the desirability and/or even financial possibility of adopting the models pursued by producers in larger, national, linguistically homogenous markets around the world. As regards Creative Commons Licences, we would like to recall that even the originators of the Stanford developed system are of the opinion that the CCLs are not well suited to address the requirements of professional licences and that at this moment in time, the system is not intended for professional use. On mandatory deposit and availibility for cultural/educational purposes : In our view, the Issue Paper mixes two questions of importance that should be addressed separately: the preservation of the European film heritage on the one hand and media literacy/access to culture on the other hand. It is worth recalling that many national funding schemes include obligations concerning deposit of a print (or digital material) in the relevant national/regional archives. The challenge for the Cinema Communication is, in our view, to coordinate such national/regional obligations and to ensure that they do not imply useless investments from the producers where for example co-productions are concerned. We support the general objective of media literacy and access to culture to reinforce the link between European citizens in particular the younger generation and the European cinematography. We believe that such a policy should be carried out at the Member State level Access to the national film heritage for use for cultural and educational purposes is best dealt with at national level under the relevant copyright provisions and exceptions. This is already the case and the entire film and television sector participates actively in this work, including by way of voluntary deposit, thus enriching the national film heritage institutions collections. Finally as regards attempts to ensure that a digital master is produced when the production is publicly founded, we stress that the sector is adjusting its operational modalities permanently to technological developments, including the current digital transition. Producers fully support this important development for the entire audiovisual chain and recall that it involves significant additional investments. Hence the existing consensus within the sector to reduce the duration of the transition period to digital as much as possible. Producing a digital master is already a very common practice that will be generalized in the future for commercial and industrial reasons. We do not see any point in including it as an obligation while the market forces are self-operating for a communication starting in 18 months, at a moment in time when the situation in Europe will be different to the current one. As regard to Section 55, we would recommend the Commission to provide in the Cinema Communication as much flexibility as possible for the market to manage the digital transition and to find sustainable business models for online distribution. In the meantime we call on the 10

11 European Union to take appropriate measures to encourage the Member States to adopt measures to address all forms of online copyright infringements. 6. Comments on the Chapter of the Issues Paper entitled The Future We are puzzled by Section 61 which would appear to conclude that additional regulation in the field of the audiovisual sector would maximize the impact of state aid. On the contrary, we consider that contractual freedom should be ensured and promoted to help skilled European professionals from the audiovisual and cinematographic sectors to contribute to developing a robust and sustainable Internet market place capable of meeting European consumers expectations. It is our conviction that right holders contractual freedom and exclusive right to choose the terms of distribution of their work, including the distribution channel and the territorial scope of the rights licensed, is crucial to maximize revenues from audiovisual content. This regime remains vital in many cases of European film-making in order to secure financing prior to the shooting of the actual film. The contractual freedom granted to right holders to license their content the way they choose, does not constitute an obstacle to the launch of innovative services available across borders. There are no legal constraints to negotiating licenses covering several territories, linguistic options or platforms. The Issues Paper refers to digital rights and territorial licensing. At present, commercial demand for pan-european online distribution appears to be nascent or at best negligible. Platforms and aggregators appear to focus on national or regional markets, assessing these to be the pertinent markets, at least at this stage of the market development. Imposing pan- European licensing has the potential of facilitating monopolization of the market by players with greater purchasing power, to the detriment of the many SMEs which constitute the backbone of independent film and TV production in Europe. This is particularly relevant to the audiovisual industries in the smaller Member States and may well lead to the undesirable consequence of weakening cultural diversity in online consumption. Imposing pan-european licensing could therefore have the unintended effect of reducing the availability of less commercially viable content. The acquisition of pan-european rights by companies which do not wish to make the content available in certain markets (because they are not present on all EU markets or due to other economic and cultural realities) could result in content effectively being warehoused. Focus should therefore be on providing national access to national and European content, rather than international access to national content. National services in their local language will be most consumers first choice in obtaining content (be it national, European or international. The Internet and online distribution makes physical distribution across borders possible but they do not create the financing or, indeed, the audience for audiovisual content created for another audience. A full understanding of these relationships is critical to the Commission s development of future policies in this area. We do not share the view which appears to be supporting some current thinking on the distribution of audiovisual content online, i.e. that online distribution is merely a potential future revenue stream for right holders. On the contrary, new distribution channels such as online delivery of film should contribute to the advance financing of films in a manner similar to that already provided by the pre-sale of rights to theatrical, video and television distributors. This is a strategic necessity in order to ensure that the widest possible choice in terms of titles and price points is offered to consumers. The models under which this will 11

12 occur have not yet been fully developed in the marketplace. Incentivizing enterprise and innovation is crucial in this stage of market development, not imposing specific licensing models or practices. The future of the European audiovisual and cinematographic industry will depend not only on individual creativity, innovation and entrepreneurial vision but also on a supportive European legal regime, including reduced VAT rates promoting the distribution of audiovisual works on digital media and online. We call for EU legislation to ensure a level playing field on all distribution platforms which recognizes the specificities of the European audiovisual and cinematographic industry and its crucial financing and distribution requirements. As regards release windows, some European countries apply a system of legislated or mandatory windows governing the time period between the release of an audiovisual work on different media. It is argued that such mandatory windows promote the life span of an audiovisual work throughout the different distribution channels. We support the view taken by the Member States during the last review of Article 7 of the Television Without Frontiers Directive, which leaves media chronology to commercial negotiations between the right holders involved. We note that this principle is repeated in Article 8 of the AVMS Directive. We wish to thank the European Commission for giving our organizations and their members the opportunity to express their views on this important exercise of review of the state aid rules. We remain at the Commission s disposal for any further consultations. Elena Lai CEPI - General Secretary elena.lai@europe-analytica.com Benoît Ginisty FIAPF- Director General b.ginisty@fiapf.org Charlotte Lund Thomsen IVF Director General clthomsen@ivf-video.org 12