2005 Liverpool Audiovisual Conference: A Remake of Birmingham in 1998?
In a few weeks time the UK Presidency is convening the Liverpool conference which aims at debating the future of Europe’s audiovisual policy.
7 years after the Birmingham conference the same EU Presidency is aiming at tackling the very same subject.
What has changed since then? What did Birmingham achieve? What should be Liverpool’s goals?
The Birmingham conference was convened to discuss the new policy directions in response to the challenges and opportunities of the digital age. The buzzwords at the time were “the information superhighways” and “media convergence”.
The basic aims of public policy remained: high quality, diversity, choice for consumers and real competition to avoid market dominance.
1998 was the year of the Full Monty, The English Patient, Train spotting, le 8e Jour, La Haine.
Jacques Santer, then president of the European Commission, addressed the delegates by describing the weaknesses of the cinema market:
- low rate of cross border programme distribution
- inability to attract financial capital in the sector
- fragmentation at production level in national markets
1998 was the year when the TV Without Frontiers directive was revised for the first time since its adoption in 1989. The word “quota” was still a dirty word and a nail in the tumultuous Franco-English relations. Nobody – not even the French or the MPAA lobby - dare to use it again. It is now part of the landscape, neutralised by the sacrosanct subsidiarity principle.
1998 saw the adoption of a new Media proposal for 1996 to 2000 with 310 million ECU (the Euro was yet to be invented!) funding.
The same year a proposal to set up a European guarantee fund for the cinema industry was killed by the unanimity rule in the Council with opposition notably from the British, German and Dutch governments.
It was the year when the High Level group of Audiovisual Experts set up by the European Commission recommended the establishment of a loan securisation scheme to promote financial engineering mechanisms much in use on the other side of the Atlantic. The idea was promoted by Michael Kuhn, the then President of Polygram Filmed Entertainment.
Indeed Europe could count on some ambitious entrepreneurs at the time. The main guest speakers were representing PolyGram, Kirch and Canal Plus. They were the representatives of a Europe with global ambitions.
The late Rt Hon Robin Cook, then UK Foreign Minister, opened the conference setting the scene and the challenges that have remained since then:
“We have the chance to lay the foundations for a European audiovisual industry at the cutting edge of technology and innovation. Digital technology offers hugely expanded opportunities. We want these opportunities to be seized… We must not allow ourselves to fall behind a second time with digital technology.”
Two years later in Lisbon when European heads of state and government pledged to make Europe "the most competitive knowledge-based society in the world" by 2010.
Where do we stand now, 7 years after Birmingham and 5 years after Lisbon?
The regulatory framework is a starting point for a strategy for growth and development.
As in 1998, regulators and professionals need to find the approach that will allow the European cinema industry to survive and possibly to compete (let's be reasonable on the objectives).
Compared to 1998 we have some (rare but) new certitudes:
Europe will not have in the foreseeable future companies that can take on the challenge of the global market place. Gone are the Canal Plus and Polygram ready to commit 1 billion Euros to compete with Hollywood in distribution.
Digital delivery is a process that requires careful management and preparation (the music industry lost 20% of its global turnover for underestimating the changes).
The European audiovisual policy should have a double aim:
Enable producers to carry out their creative visions (without loosing side of the business and market imperatives).
Promote access to the market (in particular the emerging digital market) at non discriminatory terms.
The issue of market access is vital:
The television without frontiers directive is a key regulatory tool to support market access for European productions in particular on new services.
The implementation of competition legislation is a key element in the battle for market access in a sector subject to concentration.
The objective of encouraging the production and distribution of European content remains valid and even vital. It is important to highlight that since the adoption of the first TWF directive in 1989, regulation at national level has evolved considerably – Member States having endorsed by a large majority the principle of investment obligation forcing broadcasters to invest in content and as a result provide a commercial outlet for distribution.
In Birmingham the liberal European commissioner in charge of audiovisual, Mr Marcelino Oreja then made the following sensible proposal:
“Investment in European production should be applied to all audiovisual services marketed in Europe and would guarantee that revenue generated downstream in distribution is re-invested upstream in production. Considering the high demand in local programme the market will not doubt go a long way ensuring this re-investment itself”. Obviously the commissioner had in mind the provision of both “non linear” (essentially on demand) and “linear” ( scheduled ) services.
In Birmingham, Mr Murdoch stated of its plan for BSkyB to invest in 12 film productions a year. Unfortunately he did not hold to his promises preferring to invest in Hollywood movies (393 million GBP in 2004) or in exclusive sport rights (803 million GBP in 2004). We should meditate the fact that it is through the regulator’s pressure that Sky was led to commit 46 million Euros in Italian cinema as a price for the acquisition of local pay TV platform Telepiu/ Stream.
With regard to market access, Rupert Murdoch offered the following comments in Birmingham:
“Pluralism and diversity are growing organically under our very noses while we agonise about their shrinkage …. Pluralism and Diversity are actually endemic in this brave new world”.
In the meantime through consolidation - approved without conditions by the US and EU anti-trust authorities - two record companies (Universal and Sony/BMG) now control 65% of the world market in recorded music.
In parallel the 7 Hollywood majors have increased their control of the global box office. The market share of European films in the US was 3.3% in 2003 – half of its share in the late 90’s. It is remarkable that no new players have been able to challenge the entrenched dominance of a few companies in the music or the film sector.
The fight against collective dominance and abuse of market power is key to enable market access and avoid marginalisation of the European players, which collectively represent more employments and wealth than the media conglomerates taken together.
Foremost European companies deserve a policy that does not distinguish between cultural and industrial: an industrial policy to support the audiovisual sector is cultural policy. The promotion of cultural diversity is about getting European films – whether commercial or cultural – to be seen by the public. US culture is promoted by its vibrant cinema industry. Attempts to discriminate against commercial cinema as part of the EU State Aid policy are counterproductive and put at risk measures aimed at making Europe’s film industry more competitive and less reliant on state aid. An industrial infrastructure is paramount to the cultural goal of sustaining a national or European culture.
The Liverpool conference should focus its mind on the future and its promises:
It should make sure that European companies are in a position to anticipate changes in the market place with the emergence of new digital delivery platforms.
There are already 100 million broadband users in the OECD countries (2004 statistics). VOD penetration rate is above 15% in most developed countries – take up is rising very fast. There are already 44 million films available on the networks with 95 million P2P users in the world.
VOD sales reached 337 million USD in 2004. In comparison digital music distribution is valued for the same year at 310 million USD. The market for film download is already as big as the download music market? 77% of European teenagers are accustomed to download entertainment. The future is already there.
Digital delivery is the opportunity to challenge the market structure and to promote diversity of offer. It enables European films to reach new customers theoretically throughout the world. To make the most of this opportunity this will require the ability of film companies to challenge current business practices and most importantly to license on a one stop shop basis for the European territory.
The challenge of harnessing digital delivery is daunting for an independent film company. Companies lack sufficient capitalisation to consider a technology or a business strategy. Traditional subsidy mechanisms focused on production for theatrical releases may act as a disincentive to adapt business practices.
The distribution rights are scattered around with different distributors in each different country. The scope of the VOD right varies from one country to another.
Few companies have a catalogue large enough to interest a service provider or a digital delivery platform. Independents will be the last in the right acquisition chain. European companies risk being dictated discriminatory licensing terms at international level.
However, acting collectively, European producers may leverage on the strength of their catalogue. The Internet offers promising opportunities for so-called niche or specialist films (this is the theory known as "The Long Tail"). Independent record companies in the US estimate having a 35 % market share in the download market of music in the USA – compared to 20% in traditional distribution.
The challenge is for independents to get organised and work together for a common goal. It is on this basis that 18 prominent producers on the initiative of the European Film Companies Alliance – www.efcasite.org wrote to European Commissioner Ms Reding on 27 May 2005 to congratulate her for the organisation of a European day focused on digital technology at the last film festival in Cannes. The companies expressly indicated their willingness to work together on a collective basis to find solutions.
The conference is also an opportunity to focus our mind on the financial state of the cinema industry.
Let's face it - the Media programme has insufficient resources to have a real impact on the market. It has funded excellent initiatives but the latter cannot grow because of limited resources: European Film Promotion – Cartoon – The European Film Awards – to name but a few.
It is to address the lack of available risk capital in the audiovisual sector that EU member states have mandated - at the Lisbon summit on 23-24 March 2000 - the European Commission and the European Investment Bank to consider financial instruments to help Europe’s content industry to be in a position to benefit from the digital economy as well as ensure the presence of valuable European content on the global networks.
In May 2001 the European Commission and the European Investment Bank announced a joint strategy aimed at providing 1 billion Euro to support investment in the audiovisual sector. The objective of the initiative was - inter alia - to:
enhancing the competitiveness of the European film and audiovisual industry acting as a catalyst for support from the financial and banking sector.
It was announced that the EIB group would improve access to finance for the European and audiovisual industry with a lending capacity that would exceed 500 million Euro. Quite a considerable political achievement! (Mr Kuhn lobbying was after all not completely in vain!).
However in reality – 5 years later - the EIB has so far lent a paltry 83 million Euro to the French film industry through agents Coficine and Cofiloisirs.
The EIB has since made clear to potential bidders that it would lend only to cinematographies in Europe that enjoy a safe environment like in France (state guarantee – guaranteed TV investment in film production – distribution pre-finance). This must be discrimination on the basis of nationality!
The European Investment Fund (EIF) – a branch of the EIB focusing on providing risk capital – activities in audiovisual is even more dismal: the EIF manages a portfolio of 184 funds corresponding to a commitment in excess of 2.5 billion Euro. None of these funds is focusing on audiovisual or creative industries. The EIF focus is on technology almost exclusively.
Conclusions
Audiovisual remains one of the best means to share our European values to the rest of the world: freedom, democracy, equality, justice, solidarity.
Moving image contribute much better to mutual understanding and European integration than speeches.
Liverpool is the opportunity to make EU policy relevant to the needs of the sector. It is about rebuilding confidence in the institutions and asserts their credibility.
Europe is more than only one Market. It is foremost a common cultural heritage that deserves to be promoted in its diversity. The absence of an audiovisual Europe could mean the absence of Europe, or a Europe without soul.
The Liverpool conference should aim at supporting:
- the EIB to do a feasibility study on the role and functioning of a film/ creative industries banking fund
- The European Commission to review the results of the commitments made in 2001 to industry professionals and to adapt the strategy accordingly with a view in particular to promote links between the financial sector and the audiovisual industry,amending the TWF directive to create binding investment obligations in cinema for all type of audiovisual services whether linear or non linear,initiative aimed at making digital delivery a revenue opportunity for European cinema,a resolute fight against collective dominance, fair state aid rules that do not discriminate against commercial cinema or confine audiovisual support to purely cultural objectives.
Philippe Kern is managing director of KEA European Affairs –
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