Methodology, Skills and Professional Benefits Participants Participants' Comments MEDICI Head of Training «The 12 Labours of Hercules» Report of the Reports – Workshops 1 to 4

Reports Previous Workshops

Second Workshop Report – 7 to 9 November, 2012 – Retz (Austria)

Module 4 – National Funds / Regional funds – Friends or Competitors?

An increasing number of regional funds feature budgets that - in some countries - compete with those of national funds. Although the objectives and missions of national versus regional funds are not the same they are often called upon to finance the same projects.

Or, in other words:

• Are national and regional funds so different in terms of fund management?
• How do they combine their funding schemes?
• What about the regional expenditure requirement?
• Is there any shared financing challenge?
• What about national and regional recoupment strategies?

1. The management of the funds: are the two so different?

Please also see Philippe Reynaert (Wallimage/Belgium) and Emmanuel Roland (Audiovisual and Cinema Center/Belgium)'s presentation “National vs Regional (a belgian story!)" (PDF)

Regional and national film funds have more in common than not when it comes to managing their funds.

Similarities

• Both sorts have selective schemes.
• Both sorts assess scripts (the artistic element of a project).
• Both sorts evaluate a project's impact (economic, cultural, skills development…) and look for a project's potential in terms of audiences and festivals.
• Both sorts have different types of funding tools, like grants, equity or soft loans.
• Both sorts support live action feature films and, sometimes, documentaries, shorts and animation.

Differences

• Regional funds are less interested in a director's land of origin, which can be another country. When it comes to national funds, however, 80% of the allocated amounts go to national directors.
• For some regional funds, projects do not have to be coproduced under Official Coproduction Treaties.
• For regional funds, economic impact (local spending) can be a priority decision criterion (see below).

2. Combining different funding schemes

The combination of regional and national funding schemes has to be possible and is unavoidable. How do funds deal with their different funding schemes?

• Swedish Film Institute: We take projects where usually there is a regional fund involved, and we have no problems with competition.
• The Film Fund Luxembourg: In Luxembourg we just demand balanced co-productions. We want to get back what we put into a project. Some people work both in Luxembourg and Wallonia. If a technician from Wallonia, for example, is involved in three films over a three-year period of time, he is eligible to apply to Luxembourg’s fund. Luxembourg is a small country, and in this way we are trying to increase our pool of talent. Then, too, it is always easier to collaborate with neighboring countries whose cultural and linguistic background you share.
• Wallimage: The major independent production companies are in France and Germany. Therefore, Belgium needs new solutions in order to survive and attract projects. Belgium is a good lab at the moment. Private money has been coming to cinema for eight years now, thanks to the Belgian tax shelter system. The positive thing is that all the financing schemes in Belgium are complementary, regional, national and tax shelter (see CCA/Wallimage presentation). The only problem of such a strategy emerges when a private investor becomes the one to decide which films should be made.
  In Wallonia, minority co-productions generate more regional spend. In the case of Wallimage, 60% of supported films are majority coproductions and 40% are minority ones. We prefer majority coproductions¹ so that we can employ more Belgian staff members. There is a balance between the two lines – majority and minority. In the case of majority co-productions, we are always together with CCA (the national fund of the Wallonia-Brussels Federation). It is not always so with minorities, because CCA allocates money to only a limited number of minority coproductions per year (between 6 and 8).
• Film I Vast: In Scandinavia, regional funds sometimes compete. With Germany we have some reciprocity deals and, in the main, this works out well. Although we function under unfavorable terms when it comes to producing with the Swedish national fund, as well as with those of Denmark, Norway, and so forth, we do manage to work together. For producers it is absolutely necessary that we can collaborate on the financing. We have to understand each other’s terms and conditions better. We are trying to become more flexible.
• Filmförderung Hamburg Schleswig-Holstein: When it comes to a contract, we try to have a single shared contract per project. We are currently negotiating with the UK Film Council. They have tough conditions, but we have to be pragmatic and make sure that all the demands we set at the end of the day seem realistic. The most important thing is that the project gets carried out in the end, and in the best possible way.
• CCA: National funds’ money targets cultural impact, script quality and promoting the national cast and crew. Regional funds’ money, on the other hand, targets employment. How to allot the money coming from the both types of funds is a tricky matter.
• Rhone-Alpes Cinema: Regional funds have tried to cooperate with the European Commission with an eye to enhancing their collaboration with the regions. However, they say that they work only with the national funds, which is a simplification of the real situation, since some regions can be bigger than some states. However, despite different goals and objectives between regional and national funds, we have to work together.
• CineRegio: We should take a look at the financing plans throughout Europe in order to get a critical overview of the overall situation, to learn from practical examples, and to come up with new possible solutions for combining different funds.
• Rhone-Alpes Cinema: Budget, subject, language, and location are the main factors motivating producers to look for regional funds. Producers also look at the way we finance, and what we have to offer (tax incentives, private investments, collaboration with other public funds…). Our intention is to meet all the criteria.
  When we try to work together, it is much easier when we share the same language, and when we are governed by similar rules. However, if we do not share common rules, we have to find a way to make our investments in film more efficient and avoid political obstacles. The language area is very important: that is where you have more collaboration. For French people it is difficult to be involved in other territories, even financially. This is due to cultural differences. Why did we create a CineRegio? To gain more harmony and collaboration between different regional funds we need to conciliate cultural and economic objectives. We have to define our goals clearly. We want to invest in a project and become involved in that project.

¹ The definition of a Belgian majority coproduction is based on the nationality and residency of the director as well as on that of some of the leading roles and key technicians.

3. Regional spending requirements

Regional funds are characterized by their regional spending requirements; for some, these can represent one of their priorities in their decision making. How does this work?

• Wallimage: We officially demand 100% regional expenditure: that is the maximum that we are authorized to demand according to the law. However, our money is 40% loan and 60% investment (equity). Producers do not like loans because they have to be reimbursed. Therefore, we have introduced a regional incentive: if a producer can guarantee that he will spend 5% more in the region, his loan will be decreased by 1%. As a result, in many films regional spending comes to over 300%.
  We turn over half of the amount when the contract is signed, and the rest when we receive proof of regional expenditure.
• Nordmedia Fonds GmbH: We have seven regional funds in seven regions in Germany, and we often finance projects together. We approve coproductions among the regions. And when several film funds (for example four) invest in the same film, you cannot ask for regional spending above and beyond 100%.
  If somebody makes an offer of a regional expenditure that comes to 200%, and then at the end of the production they make only 110%, we will not cut the budget, but allow it to continue with 110%.
• Filmforderung Hamburg Schleswig-Holstein: Our spending requirement is 150%, but we are trying to establish a balance. Therefore, we have a lot of documentaries whose regional spending comes to only 50% of the amount we give them, while others spend 300%. When we have two projects of exceptionally fine quality, with one offering 200% regional expenditure and another 120%, the selection committee will choose the one promising 200%. This is because all regional funds should really strengthen the industry in this or that region. That is logical. However, we demand honesty of the producers, and ask them to avoid submitting fake applications. Fake applications really create a lot of unnecessary stress in the end, forcing us to decrease our investment in accordance with the contract signed. But if a producer comes with a quality project that promises only 110% of regional spending, we will select it.
• Rhone-Alpes Cinema: Our spending requirement is 100%, but we also have the recoupment requirement.
• Swedish Film Institute: The money we give as a national fund to a project, once that project has fulfilled all our selection criteria, can be spent anywhere.
• Eurimages: Eurimages’ money can be spent anywhere. For example, where it is necessary to fulfill 200% regional spending requirement.
• CineRegio: National funds have a lower spending requirement, but that is because they give money mostly to national projects (80%). Regional funds allocate money to foreign directors very often, which is why the regional spending requirement is higher. This explains why we have to collaborate.

4. Financing challenge

The challenge that regional and national funds will have to face comes from the decrease of TV and theatrical markets money. Can private investors serve as an alternative to compensate this lack of money?

• Private funds can invest 15 to 20% in a project. The more public money you attract, the more you reduce the risk for private money.
• Public funds should be the first to invest in films, taking on the risk and proving to private investors that such a risk is worth taking. Recoupment on the part of the public funds should not be an obstacle to private investment. It is not an impediment or obstacle for private money to recoup if a public fund wants to recoup pro rata pari passu.
• Public and private money should join forces but private investors should in no case seek to take over the producer's role.

5. Recoupment strategies

There are three ways to profit from a film:

• Recoupment (which is attractive to private investors).
• Territorialization (which is an economic benefit).
• Investment impact (cultural funds).

What are the different recoupment strategies applied by the funds?

• A recoupment scheme is sometimes stipulated by the law. Recouped money should remain in the funding system, to be invested in new films.
• Regional should recoup more; territorialization and impact should be shouldered by the national funds.
• Public money only reduces the risk of private investors, they should all share the risk.
• The net deal model (producer’s recoupment after P&A, MGs and private equity) is the most disadvantageous for producers.
• Lack of recoupment comes from producers unwilling to read and apply the distribution deals. For example, in the off-the-top model, P&A is taken off the top. P&A are pre-agreed in distribution agreements. There are thresholds to be respected if the producer says that 20'000 EUR is the maximum amount and the distributor wants to recoup more, the producer should be able to block it.
• Producers sometimes cannot monitor the revenue stream because they are busy making the film. It can be controlled through collection agency². A collection agency knows exactly how the revenues are to be shared. P&A and MGs thus cannot be confused, and it would be possible to recoup even on big MGs.
• Does a bigger budget mean a bigger recoupment?

² requested by Eurimages for production budget over 3,5 mio EUR

6. Additional subject

The “Cinema Communication” by European Commission

CineRegio has asked that the participants be updated on the latest news coming from the European Commission (EC) concerning State aid for films and other audiovisual works ("Cinema Communication"):

• EC accepts that the film is a cultural product.
• From the regional point of view, they also accept regional cultures and diversity.
• They will keep up aid and incentives.
• The producers will be free to spend at least 20% of the film budget in the other member states.

The problems are

• Under the new coproduction scheme, state aid can no longer be80%, but is reduced to 50% (excl. amounts received from Eurimages and MEDIA). It remains unclear whether they refer to the global budget or to the budget of the member states.
• Tax incentives will be limited to 25% of the production budget. These new rules when combined and applied in reality can be detrimental to co-productions. It is particularly unfavorable for small territories that are more dependent on coproductions and public money.
• Individual states will have to control the aids and incentives - a task that, in reality, promises to be difficult to achieve.

⇒ Funds should continue to fight to keep the total of state aid up to 80%, and to extend the limitation of % of tax credit

• Module 1 — The Role of Public Film Funds
• Module 2 — Coproduction, Minority and Agreements
• Module 3 — Financing Tools
• Module 4 — National Funds / Regional funds – Friends or Competitors?
• Module 5 — A diversity of voices… a real challenge
• Open Space Module
• List of Participants (PDF)
• MEDICI Second Workshop Full Report (PDF)

Illustrations by Rudi Klein, photos by Nora Friedel

Schedules Previous Workshops Partners Contact