Annexes to COM(2010)487 - Opportunities and challenges for European cinema in the digital era - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2010)487 - Opportunities and challenges for European cinema in the digital era. |
|---|---|
| document | COM(2010)487  |
| date | September 24, 2010 |
The idea behind the model is that the first time a distributor shows a digital film in a cinema equipped through a VPF agreement, the distributor pays a fee (the VPF) to the integrator in order to reimburse its initial investment.
The current commercial financing models rely primarily on VPF payments. Distribution agreements have been signed by all the US Majors; others are now beginning to sign agreements. The VPF model may not provide a sufficient revenue stream for smaller and arthouse cinemas offering European programming. This may have an impact on the type of films that are programmed.
5.2. Public intervention at national, regional or local level
Since the VPF financing model is based on the traditional distribution model, the profile of cinemas which have traditionally been second-, third- or fourth-run cinemas could therefore be inappropriate for the VPF model, which is based on the average turn rate of first-run films.
Cinemas play an important social and cultural role in municipalities and rural areas since they are often the only venues providing access to culture for the community. Many European cinemas (in particular single-screen cinemas) are owned by municipalities.
European Union Structural Funds could be called upon by Member States/regions to co-finance digitisation projects and training initiatives as factors of innovation as well as of cultural diversity and of regional development, provided these projects and initiatives are in line with the State aid rules. In this context, funding could be provided under several types of projects including a cultural dimension and linked with local attractiveness: urban regeneration, rural diversification, cultural tourism, innovative activities, information society and human capital[10]. As these Structural Funds are managed by Member States/regions, it is for them to identify digitisation as a possible funding area in their National Strategic Reference Frameworks and operational programmes [11] . To be successful, digitisation projects must be mainstreamed into integrated development strategies, at regional or city level, in partnership with authorities representing different policy areas and relevant representatives from the civil society.
In Poland the region of Malopolska has already used European Structural Funds to digitise a small network of municipally-owned arthouse cinemas in order to increase the "tourist attractiveness" of the region. In Portugal an interregional scheme for digitisation of (mainly municipal) cinemas in the North, Centre and Alentejo regions is close to completion, having obtained funding from the ERDF[12] under the general heading of ‘Cultural Facilities’. The German Land of Niedersachsen and some French regions also intend to use ERDF resources for the digitisation of cinemas.
In EEA States a variety of political, social and economic conditions prevail. Therefore different approaches to digitisation have been considered in different countries, including collective conversion schemes for example in France and Germany that have not been followed through:
- Pilot projects: The first country to launch a pilot scheme was the UK with the Digital Screen Network (240 screens for "specialised" films). Similar pilot schemes have been run in Ireland (Cultural Cinema Consortium) and Sweden (through the Swedish Film Institute);
- Targeted national schemes: Finland; Poland, the Czech Republic and Slovakia focus mainly on municipal cinemas;
- Tax and credit facilities: Spain (soft loans) and Italy (tax credit)[13];
- Other schemes: Norway (ongoing) and the Netherlands (in works).
Complementarity
In the territories where market solutions/VPF deals are available, they can be accessed by a number of cinemas (multiplexes, cinema chains, multi-screen cinemas with a high turn rate of first-run films). Subject to compliance with EU competition rules, smaller cinemas with a lower turn rate who want to acquire digital equipment could in some cases group together and "mutualise" their costs to access VPF deals (or European regional funds). National solidarity funds are also an option.
Complementarity is all the more necessary as, according to some interpretations, public support could actually affect the value of the VPF paid to reimburse the exhibitor's equipment.
Although some countries favour nationwide digital roll-outs, so that equal access to cinema is guaranteed and the transition is quicker, some consider that public support should actually prioritise cinemas that have no access to market solutions or solidarity funds and cannot therefore afford the equipment without public intervention: one-screen cinemas, part-time cinemas, travelling cinemas… Another possible approach is to support the digitisation of cinemas in exchange for European programming commitments.
Compatibility with European Union State aid and competition law
Under the current European Commission policy on State aid for the digitisation of cinemas, subsidies to cinemas showing a certain share of European or arthouse films have been approved under Article 107(3)(d)[14] TFEU and State aid to small cinemas and cinemas in remote areas has been approved under Article 107(3)(c)[15] TFEU. Smaller amounts of public funding meeting the conditions of the de minimis regulation [16] are not considered to have a potential effect on competition and trade between Member States, so that the measure does not need to be notified to the Commission in advance.
The current exemptions do not cover aid to bigger cinemas/multiplexes that do not show a minimum level of European/arthouse films and which exceeds the de minimis threshold.
The Commission would need to assess the compatibility of State aid for digital cinema under either Article 107.3(c) TFEU or under the cultural derogation of Article 107.3(d) TFEU. Both require the Commission to consider the necessity, proportionality and adequacy of the aid.
The Commission notes that 3D digital screenings make investment in digital projectors commercially viable. So it would appear that State aid for such costs is not necessary.In addition, public support schemes for digital projection equipment:
- should not accelerate the closure of cinemas with a high proportion of arthouse programming;
- should follow the principle of technological neutrality, i.e.:
- any aid should be available to finance digital projection equipment which the exhibitor considers to be suitable for its auditorium and for its audience; and
- the supported equipment should be capable of showing content from a variety of digital sources.
The Commission will always acknowledge the dual (cultural and economic) nature of the film sector, in line with the guiding principles of the UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions.
When developing support schemes for digital projection equipment, Member States should avoid models which could raise competition issues, for example those which involve collective agreements between a majority of distributors. The Commission will ensure that the transition from analogue to digital cinema complies with European Union competition law rules, in particular regarding a prohibition of restrictive agreements contained in Article 101 of the TFEU.
6. PUBLIC INTERVENTION AT EUROPEAN LEVEL
If the transition to digital projection causes cinemas to close down, this could clearly jeopardise cultural diversity. The European Union is committed to preserving and promoting cultural diversity in accordance with the following provisions:
- Article 167(4) of the TFEU stipulates that the Union is to take cultural aspects into account in its action under other provisions of the Treaty, in particular in order to respect and to promote the diversity of its cultures;
- The UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions emphasises the distinctive dual (cultural and economic) nature of cultural goods and services[17] (which include notably audiovisual works).
The objective of the European Commission action plan is to create a favourable environment for the digital exhibition of European films. Different initiatives have been and will be launched to support the take-up of and the investment in new digital technologies. With the help of the European Structural Funds and the new MEDIA scheme, the ultimate objective of the Commission is also to promote European citizens' access to digital cinema.
MEDIA 2007 Programme
The digital revolution is a challenge to MEDIA's global objectives of cultural diversity, increased circulation of European works and strengthened competitiveness of the audiovisual sector[18].
The MEDIA 2007 Programme has committed itself to supporting European cinemas in the digital age. One of its main objectives is: "to preserve and enhance the European cultural and linguistic diversity and (…), guarantee its accessibility to the public…" .
Firstly, digital transition needs to be accompanied by training for professionals. In this context Article 3 (1)(c) of the MEDIA 2007 decision foresees training on the inclusion upstream of digital technologies for production, post-production, distribution, marketing and archiving of European audiovisual programmes. Training initiatives have therefore been supported, including on 3D production and for exhibitors[19]. Secondly, Article 5 of the MEDIA 2007 Decision foresees the following objectives in the field of distribution and dissemination:
"(d) to encourage the digitisation of European audiovisual works and the development of a competitive digital market place;
(e) to encourage cinemas to exploit the possibilities offered by digital distribution."
Under (d) The MEDIA programme has contributed to the digitisation of European content through pilot projects such as Europe's Finest[20] (digitisation of European classics) and D-Platform[21] (common tool facilitating the digital mastering and distribution of European films). Through the VOD scheme, MEDIA also indirectly supports the digitisation of European programmes.
Under (e) The Commission has already supported a number of initiatives through the various MEDIA schemes: pilot projects on new technologies (such as CinemaNet Europe, a network of digitally equipped cinemas dedicated to screening documentaries), co-funding of digital costs for the distribution of European films and a specific support scheme for digital screenings of European films managed by Europa Cinemas.
The next step is now to design a new MEDIA scheme to support the digital transition of European cinemas. In line with the principle of subsidiarity and the Programme's objectives the support will focus on cinemas screening a majority of recent European films. This will comprise the basic award criterion for the applicant cinemas.
The same criterion has already been used to establish the Europa Cinemas network, which plays a crucial role in screening European films[22] and which the MEDIA Programme has supported for 15 years. The network has now grown to 770 cinemas totalling 1,945 screens in 443 cities of MEDIA participating countries.
The new digitisation scheme will grant support directly to cinemas and co-finance a clearly identified set of digital equipment costs in the form of flat-rate financing. MEDIA support can be cumulated with national support; however, priority will go to cinemas/countries that cannot benefit from VPF deals or from national support schemes for digitisation. The cinemas based in those countries will be given particular attention, in line with the priorities of the MEDIA 2007 Programme[23].
To be able to grant support in the form of flat-rate financing a study on digital equipment costs has been commissioned to determine a sliding scale of unit costs. The scheme will be finalised and launched at the end of 2010, on the basis of the findings from this study.
Another option to be explored is to facilitate the access of exhibitors to credit or to support their financing costs. In a period of credit crunch, such a measure could be the adequate response for some cinemas as it is not very costly, it has a high multiplying factor, lessens dependence on distributors/studios and is much less likely to distort the market. The possibility of opening the MEDIA Production Guarantee Fund to exhibitors and/or of creating a new i2i scheme for them is therefore being considered.
The European Investment Bank (EIB) could also play a role in the digital transition by helping national funds/digitisation plans access commercial loans. In the meantime the EIB participated in the € 100 million credit facility awarded to the integrator XDC for the roll-out of digital cinema in Europe.
7. CONCLUSIONS
The European Commission is aware that the transition to digital projection has a number of inherent risks that have to be tackled to enable European cinemas to benefit from its opportunities. To reach that objective it is necessary to ensure:
- flexibility and transparency in the standardisation process, so that digital cinema projection standards can meet the diverse needs of European cinemas;
- legal security in the field of State aid for the digitisation of cinemas, in the form of clear assessment criteria enabling Member States to design their schemes accordingly;
- EU financial support for the digital transition of cinemas showing European films or having an impact on regional development.
The Commission therefore intends to put into place the following elements of an action plan for the transition to digital cinema projection for European cinemas:
ACTION | TIMETABLE |
The Commission will prepare a progress report on the adoption of digital cinema projection standards to ensure that this reflects the needs of European cinemas and that alternatives are explored for European cinemas that do not need or cannot access 2k equipment. | 2010 |
The Commission will launch a study on the costs of digital equipment to provide important data from across the EU. | 2010 |
The Commission will launch a new MEDIA support scheme for the digitisation of cinemas screening a significant percentage of European (non-national) films. | 2010 |
The Commission will examine the possibility of extending the MEDIA Production Guarantee Fund to exhibitors or find a similar way to facilitate their access to credit. | 2011 |
The Commission will adopt a Recommendation on promoting digitisation of European cinema. | 2011 |
The Commission will monitor the digital transition and review all its different aspects in the whole audiovisual chain (training, digital masters, programming…). | 2012 |
The Commission will develop appropriate criteria to assess State aid support for digital projection in the Cinema Communication. | 2012 |
[1] See http://ec.europa.eu/eu2020/index_en.htm
[2] See Communication COM(2010) 245, 19.5.2010, at http://ec.europa.eu/information_society/digital-agenda/index_en.htm, in particular p. 31-32.
[3] See Communication COM(2010) 183, 27.4.2010, athttp://ec.europa.eu/culture/our-policy-development/doc2577_en.htm
[4] See http://ec.europa.eu/culture/portal/action/diversity/unesco_en.htm
[5] See the background document to the Public consultation:http://ec.europa.eu/culture/media/programme/overview/consultations/docs/background_digital_cinema_en.pdf
[6] In 2007 (source: Media Salles).
[7] European Audiovisual Observatory, Yearbook 2008, volume 3, p. 18.
[8] Around € 60,000 (projector and server) per screen + installation costs + associated costs (cabin adaptation, cable extraction, air conditioning, lamps…) + maintenance costs (higher than for 35 mm).
[9] Only four are active in more than one European country: Arts Alliance Media, XDC, Ymagis and Sony for 4k equipment.
[10] Out of the € 347 billion that the Cohesion Policy will invest in regions over 2007-2013, € 5.9 billion will be dedicated to culture, € 10 billion to urban and rural regeneration projects and € 15.2 billion to the development of digital infrastructures. For cultural projects supported by Structural Funds, see: http://ec.europa.eu/regional_policy/themes/culture/index_en.htm
[11] The detailed management of programmes which receive support from the Structural Funds is the responsibility of the Member States. For every programme, they designate a managing authority (at national, regional or another level) which will inform potential beneficiaries, select the projects and generally monitor implementation. To find the responsible authority see:http://ec.europa.eu/regional_policy/manage/authority/authority_en.cfm
[12] European Regional Development Fund.
[13] State aid investigation opened by the Commission in July 2009.
[14] State aid N 477/04 – United Kingdom, UK Film Council Distribution and Exhibition Initiatives - Digital Screen Network: Article 107(3)(d) refers to "aid to promote culture and heritage conservation, where such aid does not affect competition and trading conditions to an extent contrary to the common interest". In the case of the UK Digital Screen Network, aid under this exemption was approved for cinemas showing a high proportion of "specialised" films using the digital projection equipment being (fully) financed.
[15] State aid NN 70/2006 - Aid scheme to cinema in Finland: Article 107(3)(c) refers to "aid to facilitate the development of certain economic activities or certain economic areas, where such aid does not adversely affect trading conditions contrary to the common interest". The Commission has approved the support to cinemas under the aid scheme to cinema in Finland on this basis. The support was intended as partial funding for the procurement of equipment and modernisation in (arthouse and 1-3 screen) cinemas operating primarily in small or medium-sized localities. Multiplexes and cinemas which were part of a larger chain in the capital area were excluded from the aid (idem in medium-sized municipalities, except in limited economic circumstances).
[16] To benefit from the de minimis rule, aid has to satisfy the following criteria:- The ceiling for the aid covered by the de minimis rule is in general € 200,000 (cash grant equivalent) over any rolling three fiscal year period to any single recipient undertaking. The relevant period of three years has a mobile character, so that for each new grant of de minimis, the total amount of de minimis aid granted during three consecutive fiscal years (including the then current fiscal year) needs to be determined;- The ceiling applies to the total of all public assistance to any single recipient undertaking, which is considered to be de minimis aid. It will not affect the possibility of the recipient obtaining other State aid under schemes approved by the Commission;- The ceiling applies to aid of all kinds, irrespective of the form it takes or the objective pursued. The only type of aid which is excluded from the benefit of the de minimis rule is export aid;- The regulation only applies to “transparent" forms of aid which means aid for which it is possible to determine the gross grant equivalent in advance without needing to undertake a risk assessment. This implies a certain number of restrictions on certain forms of aid like, for example, guarantees;- In view of the current economic situation, the Commission will, for a temporary period, consider State aid of up to € 500,000 per undertaking to be compatible, provided that certain conditions are fulfilled. The possibility of a loan guarantee of up to € 1.5 million can also be regarded as de minimis.
[17] See in particular the 18th recital in the Preamble and Article 1(g).
[18] Article 1(2) of the MEDIA 2007 Decision sets the global objectives of the programme:(a) preserve and enhance European cultural and linguistic diversity and its cinematographic and audiovisual heritage, guarantee its accessibility to the public and promote intercultural dialogue;(b) increase the circulation and viewership of European audiovisual works inside and outside the European Union, including through greater cooperation between players;(c) strengthen the competitiveness of the European audiovisual sector in the framework of an open and competitive European market favourable to employment, including by promoting links between audiovisual professionals.
[19] See "Where to be trained in Europe" (2010 Edition, in particular pages 59-71): http://ec.europa.eu/culture/media/programme/training/guide/docs/guide2010v2_en.pdf
[20] http://www.finest-film.com/en/index.html
[21] Now called European Digital Cinema Library (EDCL). See http://www.cnfilms.fr/soutien.html
[22] 36% of screenings and 34% of admissions were for European non-national films in 2009, compared to less than 10% on average within the European Union.
[23] In its Article 1.4.c), the MEDIA 2007 Decision sets out as one of its priorities "reducing the imbalances in the European audiovisual market between high audiovisual production capacity countries and countries or regions with low audiovisual production capacity and/or a restricted geographic and linguistic area".