Commission prolongs film support rules until end 2012 – briefing

The European Commission has today adopted a Communication extending the validity of the state aid assessment criteria for the production of films and audiovisual works until 31 December 2012. These criteria, laid down in a Commission Communication of 2001, are used by the Commission to approve Europe’s national, regional and local film support schemes under the EU’s state aid rules. The new Commission Communication also identifies a number of trends which are likely to have to be addressed by a future Cinema Communication. Across the EU, around EUR 1.6 bn is spent on national film support each year.

Today’s Communication extends the assessment criteria that allow national, regional and local film and audiovisual support schemes to be exempted from EU state aid rules. These criteria, set out in the 2001 Cinema Communication, will be extended until 31 December 2012. They would otherwise have expired on 31 December 2009.

EU state aid rules maintain a Single Market where companies from all EU countries can compete and trade evenly and without barriers by preventing Member States from promoting companies to the detriment of competitors within the EU. In general, all forms of aid provided by states or by state bodies to particular companies or industries are forbidden under EU law.

However, there is an important exception to this principle: Member States can provide favourable treatment for the cultural sector, as set out in Article 87(3d) of the EC Treaty. In its 2001 Cinema Communication, the Commission set out how it applies this exception to national support to audiovisual and film sectors.

Under the 2001 Cinema Communication, national schemes cannot discriminate on the grounds of nationality, and must comply with the internal market freedoms. They also have to comply with specific compatibility criteria:

• support must benefit cultural products and cannot focus on specific activities linked to film-making (like post-production)
• certain ceilings regarding territorial spending obligations and aid intensity must be respected.

The Commission will undertake a review of the current situation to take account of recent developments identified in the text and the contributions made to the consultation that closed on 12 December 2008.

Given the complexity of the issues involved, and to allow all interested parties to contribute to the debate, the Commission would expect a review of the Cinema Communication to go through a full consultation process. This would include an impact assessment, multilateral meetings with the Member States, and public consultations with all interested parties like film agencies, film creators, producers, distributors, exhibitors and viewers. It is difficult to predict how long this would take but extending the current criteria until 31 December 2012 should allow enough time.

The Cinema Communication requires that the aid is directed towards a cultural product. In accordance with the subsidiarity principle, each Member State must ensure that this is done on the basis of clear national criteria.

In recent years, there has been increasing global competition between countries to attract large (generally US or US-financed) film productions. This development, echoed in the public consultation, could turn into a subsidy war between Member States, which would not be compatible with the EC competition rules.

The Cinema Communication was tailored to European film support schemes with a primary focus on supporting national and European culture(s). It is therefore fundamental that national subsidies comply with the cultural conditions established in the Cinema Communication and do not lead to subsidy wars to attract foreign movies unrelated to national and European culture(s), as this could be highly detrimental to the entire European film sector. In fact, the only winners of such wars would be the US majors, and the greatest losers the national film industries across Europe.

A basic principle of Europe’s internal market is the free movement of goods, capital, people and services. Territorial conditions, which require film producers to spend a certain proportion of the total film budget (or aid granted) in the Member State that grants the aid, may constitute a limitation of this principle. This limitation is however justified by the specific circumstances of European film production activities. The Commission needs to review such potential limitations regularly, taking into account their cultural impact and the evolution of markets.

Although the 2001 Cinema Communication referred to regional culture, its State aid assessment criteria do not make any distinction between national and regional culture. For example, the cultural criterion refers only to ‘verifiable national criteria’ and the territorial criterion only insists on the freedom of film producers to spend part of their production budget in other Member States. At the same time, the decision-making practice of the Commission has shown that the current Communication allows the operation of both national and regional funds, as witnessed by the recent trend towards creating more regional film support schemes.