07-05-2010

European Audiovisual Observatory publishes new report on state aid for digital cinema

    The last twelve months have seen successive Hollywood 3D blockbusters (Avatar, Up, Alice in Wonderland) taking cinema fairly and squarely into the digital age. While there is no doubt that these films have been largely responsible for an upswing in the number of digital cinemas in Europe, their success has also heightened concern among smaller cinema operators, for whom the costs of digital conversion may be prohibitive. Linked to this issue is the fear that European films will be "squeezed out" of many cinemas by a tide of US 3D blockbusters. Faced with this development, public bodies at the European, national, regional and local levels are trying to come up with solutions to support the transition, with varying degrees of success. But as with state aid of any sort, these champions of cultural diversity must run the gauntlet of competition law. The European Audiovisual Observatory, part of the Council of Europe, has just published a new IRIS plus report entitled Digital Cinema which focuses on these issues. The author of the leading article of this brand new report, Francisco Cabrera, will be present at the Cannes film market. During the Observatory's "Digital cinema tango" conference on the 16th of May, Cabrera will make a presentation on the subject of this report.

    The lead article of this new report deals with public aid for digital cinema. Cabrera, the Observatory's legal analyst, kicks off by explaining the economic model for many of the European financing systems - the Virtual Print Fee (VPF). This system originated in the US and involves a third party investor (private or the state) paying for the digital projection equipment in advance and then recouping investment through payments made by exhibitors and distributors.
    Moving on to look at state aid for the digitization of cinemas, the report examines three national state aid schemes in order to demonstrate various different funding models: France, Germany and Norway. The French "fonds de mutualisation" managed by the CNC has been heavily criticized by France's national competition authority, with the result that alternative models such as direct aid to cinema operators are currently under consideration In Germany, a legal dispute opposes cinema operators and the German Federal Film board, the former claiming that their compulsory contributions to the state film fund are anti-constitutional. The situation has reached a stalemate. The Norwegian example is unique in the sense that the Norwegian exhibitors organisation Film & Kino has negotiated a VPF financing model directly with Hollywood studios, producers, distributors and exhibitors.
    The report then outlines the EU rules on state aid applicable to any national funding system. Cabrera also analyses several examples of state aid schemes approved by the Commission (such as those in the UK, and Finland) before focusing on the Commission's formal investigation into the Italian Tax Incentives Scheme. The main concerns of the Commission towards the proposed scheme are linked to the fact that the proposed aid is not directed towards the smaller Italian cinemas facing closure when distributors switch from analogue to digital prints. Under the envisaged scheme state aid would go to undertakings, which can afford the necessary investment or which would be able to obtain digital projection equipment through alternative commercial business models.
    A subsequent chapter looks at current and future EU actions regarding the digitization of European cinemas, mentioning the Commission's public consultation on digital cinema, the results of which have yet to be published, as well as the MEDIA Programme's Europa Cinemas funding initiative. The author explains that plans for a further MEDIA funding programme for digital roll-out for cinemas screening European non-national films are currently in the pipeline. Cabrera explains that this new digitization scheme could take into account parameters such as ticket price, number of admissions per screen and per inhabitant and the market share for European non-national films.
    In conclusion, the report indicates that it would be a mistake to try and predict the direction of the Commission's future policy on digital cinema as the results of the public consultation are not yet known. It does however seem fair to conclude that "without the variety of cinema theatres [..] throughout Europe the multiplicity of visions offered by European cinema can no longer be safeguarded."
    This publication also features a collection of short articles related to the theme of digital cinema. Subjects covered include the Commission's consultation and the stumbling blocks encountered by various national support schemes. A final zoom section provides valuable market data on digital cinema such as the rate of roll-out in Europe for the period 2004 - 2009 and the number of digital screens by resolution.
    A brand new, must-read report providing the European overview on the legal and market aspects of digital roll-out and its financing.

    Journalists, for a free press copy of this publication, please contact:
    Alison Hindhaugh, Information and Press Officer
    Tel.: +33 (0) 3 90 21 60 10 - E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

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