MEDICI — The Film Funding Journey

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Seventh Workshop – 27 to 29 September 2017 – Finstadjordet, Norway

Module 6 – Distribution and Promotion Schemes

Introduction

This module is dedicated to sharing information about various support programmes for distribution and promotion already in place or those that funds only wish to implement.

Or, in other words,

How to support the distribution and promotion of works?
How to take into account new forms of distribution?

Case study 1 / The CNC’s distribution and promotion schemes

Axel Scoffier, Head of Finance - Financial and Legal Department
www.cnc.fr
See also Axel Scoffier’s presentation (PDF)

Why promote distribution and promotion?

In the past years, distribution was the most fragile point in the entire chain.

Too many films are being produced every year. More than 300 films were produced in France in 2016 (including minority co-productions). These films need to find a way to reach market and attract audience.
We need to ensure a certain diversity among the films. In France, there are around 50 distribution companies. It may seem too much, but that is the only way to maintain diversity, feed the fragmented landscape, and handle the huge amount of films produced in France every year. It is a bit schizophrenic. Most of them are based in Paris, with only very few outside Paris – just like the entire French film and TV industry.
The French national market is over-crowded with non-French films as well. In 2016, there were around 700 releases (more than 12 new films per week). This means that the films cannot stay long in theaters because the competition is tough. If we include the releases of heritage and other films, there are as many as 7000 new releases every year.
Internationally speaking, successful years usually happen only thanks to the success of a single film. At the international market, we had a very good year in 2015 (115 million sold tickets), but it was because of the very successful Luc Besson film “Lucy”. In 2016, the number was much lower (34 million tickets).
We are also facing the problem of the ever-changing market - like everybody else in Europe. There are new players who disrupt the traditional distribution model and create a fragile ecosystem for independent distributors.
The competition is getting tougher. Distributors of big films want all the screens. At the same time even small, local exhibitors are asking for more and more investments into promotional material (trailers, etc.).

The CNC’s promotion and distribution schemes

About CNC

We support all phases of the value chain (development, production, distribution, export, heritage).
We are independent from the state budget, which means that we only collect taxes levied on companies profiting from the distribution of audiovisual works.
- theaters (10.72% of cinema ticket)
- television (5.5% of their sales)
- distributors of television services and internet providers (0.5-3.5% of their sales)
- physical and on-demand video services (2% of the sale price)
The CNC total budget is around 765.2 million Euro split between:
- Cinema: 335.2 million Euro,
- Television 289.1 million Euro,
- Digital cinema: 26.5 million Euro and
- transversal support receives 117.1 million Euro.
CNC conducts both cultural and economic policy by supporting at the same time distribution companies and art house films.

Distribution & Promotion schemes

One third of the CNC budget is allocated to the support for distribution, exhibition and promotion of French films in France and abroad. We provide direct and indirect support for distribution and promotion

on national level
on international level
through our promotion agencies that are also a sort of distributor
through experimental schemes.

We need to support our sales agencies more, find the way to increase the domestic market share and aim at more works that would reach new markets both in France and abroad.

Support schemes for the distribution of films in France

The two main support schemes for distributors are:

Automatic support: about 34 million Euro in 2017. Support is based on previous success of the distributor. It is meant only for French films but for any distribution company based in France (either French or the local branch of a foreign company). Distributors can invest the money in MG (Minimum Guarantee) and P&A (Press & Advertising)
Selective support: about 15 million Euro in 2017. It is targeted at independent distributors who traditionally have success with their films. The support criteria are diverse. They mostly deal with the quality of the film and the quality of the distribution company. Selected distributors can use the grant for P&A for theatrical release. The scheme is meant only for French distribution companies, but for any film (including slates of foreign films). We define two categories of distributors
- High-profile independent distributors - the grant includes support for slates of 4-9 films (P&A) or a support that will enable the company to scale up. The support amounts to 33,000 euro per year/per company. The amount is decided at the beginning of the year based on predictability of the company’s activities for that year.
- Small distributors - the support is allocated on the film-by-film basis. There are also specific support categories for heritage films; films for children, etc.

In addition to support for distribution companies, we also have support schemes for:

The networks of art house theaters so that they can maintain showing art-house films. We introduced this scheme also due to quotas applicable to TV and VoD platforms saying that 60% of the shown content must be European and 40% French speaking (but it is tricky to demand this from Netflix).
French broadcasters: they are obliged to pre-buy and coproduce French films
VoD platforms: we want to ensure that there is VoD infrastructure and that the platforms can buy and promote our films.

There are also two dedicated bodies that indirectly support French distributors and art-house cinemas:

AFCAE (Association for Art-house Cinema): They is a link between distributors and art-house cinemas. They organize screenings of art-house films in France for small theaters and publish promotional documents.
ADRC (Association for the Regional Development of Cinema): They support circulation of art-house films in small towns. They pay a part of the VPF to the local theaters.

Support schemes for French films abroad:

The CNC has three schemes for international promotion dedicated to fostering distribution and promotion of the French works abroad:

Support scheme for international promotion of cinematographic and audiovisual works: It used to be a selective scheme, but recently it has transformed into an automatic scheme.
Aide aux cinemas du monde (ACM)/ distribution: dedicated to international promotion of cinematographic works that received support from Aide aux cinemas du monde.
Digitization scheme for theaters abroad: that are part of French cultural centers and organize festivals of French cinema and similar events.

1. Selective support scheme for international promotion of audiovisual works

It is for production companies and sales agents that have exploitation rights.
The allocated grant can be spent on promotion of audiovisual works abroad (French works and European and international co-productions with France).
The list of eligible costs includes: dubbing and subtitling, script translation, production and dissemination of production tools, the costs incurred for a press agent, minimum guarantees, etc.
In 2016, we supported 541 audiovisual programmers and 284 films through this scheme. In 2017, this scheme was reformed and increased. We have made it more automatic and the support is based on the success abroad.

2. Aide aux cinémas du monde (ACM) / distribution

The scheme has 500,000 Euro per year and is partly funded by MEDIA programme as well.
It targets distribution and circulation of French co-productions with non-European countries.
The strategy for the sales agents who are applying must be innovative. We want to challenge sales agents and make them more creative with distribution strategies.
It is also open for all right-holders (sales agents, distributors, producers) based in Europe who want to coordinate an innovative distribution strategy (VoD, festivals, theaters, TV, special marketing campaign) in at least three countries worldwide.
Eligible costs are technical costs, (subtitling, encoding, digitization, making of DCP copies) and promotional costs (marketing and advertising campaigns, organizations of events, etc.).
The selection committee that meets twice a year selects the projects.
The financial parameters are the following:
- The scheme budget for 2017 is 540,000 Euro and it can be spent on 4 to 12 projects (2 to 6 per call).
- Subsidy is capped at 50% of eligible costs (80% for low-budget films). There is no maximum subsidy amount per project, but the average amount we allocate is 42,000 Euro. The smallest grant we have given so far has been 25,000 Euro, and the biggest one has been 81,000 Euro. So far there have been three calls and 15 films in total have been supported. Thanks to these grants, those films have been released in 92 extra countries. So far these films have got over 70,000 admissions in cinemas and 4000 views on VoD platforms in those countries. First-time directors make 10% of these films.
The examples of films supported through this scheme include: “As I Open My Eyes” (Tunisia) released in 8 extra countries, “Ixcanul” (Guatemala) released in 4 extra countries, “Clash” (Egypt) released in 17 extra countries, “AN” (Japan) released in 4 extra countries, “Neruda” (Chile) released in 6 extra countries, “Cemetery of Splendour” (Thailand) released in 3 extra countries and “Kalo Pathi” (Nepal) released in 8 extra countries.
Since December 2017, the support scheme has been modified to also include any co-production between a MEDIA and a non-MEDIA country. MEDIA co-producers must have between 25% and 70% of share in fiction and animation films, and between 20% and 75% in documentaries. Those co-productions do not have to be part of the ACM catalogue.

Support schemes for national agencies

CNC is also a co-financer of different audiovisual agencies:

UNIFRANCE, mostly subsidized by the CNC with a budget of 9 million Euro, accompanies French films on the international film markets, from their sale to their distribution. It organizes also specific events dedicated to French cinema: in New York and Tokyo, Rendez vous d’Unifrance (meeting of talents in Paris), MyFrenchFilmFestival online, etc.
TV France International (TVFI) mostly subsidized by the CNC with its budget of 4 million Euro is mostly, accompanies sales agents and producers to TV markets and has developed Screenopsis – an online platform for buyers.
IFCIC (Institut pour le financement du cinema et des industries culturelles): is a credit institution in France for the financing of cultural industries¹. It provides loan guarantees or direct loans to French producers and sales agents. For sales agents², loans are available for slate projects (both French and foreign) and cover the costs of acquisition of rights, promotion and prospecting. The loan is repayable within 2 years. But up to 25% does not have to be reimbursed depending on the project. Selection committee consists of bankers, sales agents, producers, etc. This scheme functions because some banks in France are willing and specialized in giving loans to the film industry. It is not the case in many other European countries.

1 including cinema and audiovisual, video game, performing Arts, fashion, music, press, library, literary publishing, Art Galeries, design, artistic careers, theater, museums, heritage, plastic and digital arts
2 Called the FARAP fund

Innovative actions:

In 2017, the CNC has launched an exportation plan in order to improve the presence of French films in foreign markets. It consists of a new experimental automatic support scheme with a budget of 8.5 million Euro per year for sales agents based on previous success. It will cover the costs of MG and P&A and be monitored on yearly basis. The purpose of the scheme is increasing the influence of sales agent over producer and making the producer also interested in the success of his film abroad by granting him a bonus on his/her automatic support.
We decided to keep this scheme for three years with yearly evaluations, but it will actually take 5 years see the full impact of the new films.
We are also planning to increase the support for TV. TVFI gets an experimental plan to build promotional events on the markets on French TV series.
The scheme for audiovisual works remains selective but its total funding has been doubled (from 1.7 million Euro to 3.4 million Euro) because the market gets more fragmented and needs more investment from small producers and sales agents (more traveling, more dubbing and subtitling, etc.).

Conclusions

The CNC policy gives results. We have the best domestic market share in Europe. It is always around 35%, whereas the average market share for the EU is 25%.
France also has the highest market share for non-American foreign films (between 10% and 15%), whereas in the EU this number is 3%.

But,

We still have to experiment with new ways of conducting more efficient reforms in these times of budgetary uncertainty. We can do on the basis of proper evaluations and adaptability to both new market trends and budgetary constraints.
The problem with automatic scheme is that it is still based only on the box office in the cinemas, because it is difficult to obtain full and transparent data about TV and VoD audience. In the future we have to push the entire sector to engage more in finding a solution.
Another problem is that film policies are ambiguous. All these schemes should be primarily cultural and their purpose is promoting the French culture, French talents and French arts. The CNC covers all these costs because the French cinema is supposed to be top-class. The embassies and other posts of the French Ministry of Foreign Affairs are very eager to get Unifrance as a partner in promoting films and culture. But the CNC is also trying to be more business-like and more industry-oriented. It is a dichotomy that is specific to France.

Questions from the audience

How do you manage to tax Netflix and other companies?: We passed the law obliging them to pay the tax. They have to do that when declaring the revenues that they made in France. We simply check the number of subscribers and calculate the tax on that basis. But it is still difficult with some other platforms. For example, how do you control revenues on Youtube videos.
You said you pay to producers and sales agents to travel to film festivals. How do you validate that type of support? In Chile we support that, but it is difficult to monitor what they do with the money. They do not provide numbers, they jut give us letters of intent and pre-agreements with people they met on festivals, but I never see an actual contract. On the other hand, we have producers who never get public funding, still make blockbusters and sell their films without traveling: Part of their job is to promote and make parties. So you cannot blame them if they do not bring contracts.
Do you give this money only to sales?: We give money to anybody who holds the rights. It does not have to be a sales agent.
How can producers apply to a distribution scheme?: We sometimes have producers who decide to be distributors and then they apply for distribution funding, but it is not the same job. It often does not work. We also have cases when distributors decide to become producers as well. They want to own the rights and get more money back having a status of co-producer.
How do French VoD platforms cope with Netflix?: The problem with French VoD platforms is that they do not have exclusive, original content, but only the old content that follows the release chronology. So there is a question if some films should have the first release on VoD. Would it make the French VoD platforms more competitive?

Case study 2/ Proposal for a Directive of the European Parliament and of the Council concerning the provision of audiovisual media services in view of changing market realities in Europe

Presented by Michal Hradicky, Ministry of Culture of the Slovak Republic

What does this new legislation bring in terms of promotion and distribution?

Part of my job is to sit in the European Commission in Brussels and attend discussion on the legislation regarding the European audiovisual sector. In 2017, there was also discussion on how much Netflix and other VoD platforms contribute or do not contribute to individual European countries. And this issue is addressed in the mentioned piece of legislation. I will present Article 13 of the proposed document that is relevant for the film funds and can affect their work.

The proposal suggests creating more pressure on VoD services and enabling the EU member states to collect some revenues from VoD platforms. The Commission considered establishing 30% quota of the European content on VoD platforms, but if platforms show the content they produced themselves in Europe, that content also counts as European. The quota would apply to all VoD platforms active in Europe, and all the EU member states must adopt this piece of legislation. Quotas on VoD services are not new for some countries like France and Germany, but for many European countries, it will be a huge change.
In addition to the quota, Article 13 also stipulates the obligation on the part of VoD platforms to promote the European content. The modes of giving prominence to the European content can be achieved through various means such as a dedicated section for European works that is accessible from the service homepage, possibility to search for European works in the search tool available as part of the service, the use of European works in campaigns of the service or a minimum percentage of European works promoted from the catalogue e.g. by using banners or similar tools.
Many pieces of legislation are based on the country of origin principles. It means that if you as a company are based in one country, you pay tax only in that country, even though your content is shown in other markets. All the other countries have no control over the platforms even though their citizens watch the content on those platforms. This proposal brings a big shift. The taxes will be levied on the basis of the country of destination approach when it comes to VoD services. It will enable the EU countries to calculate the tax in accordance with the number of subscriptions to every VoD platform. France and Germany have already pushed this agenda in the past couple of years. The challenge here is how to get data on revenues and number of subscribers. One solution is introducing VAT on every subscription to be paid in the country of destination. It should be paid everywhere where people spend the money on watching the content. Therefore, the tax authorities will keep track of the data and have an insight into the revenues.
There will be also compulsory exemptions from this transnational levy. It will apply to small VoD providers showing small films for limited audiences and making modest revenues. However, we need a definition of low-turnover and limited-audience services in order to discuss the exemption clauses further. It will be defined afterwards, when the document is ready. The European Parliament is asking for even a wider specter of exceptions. In addition to small companies who would be killed by the transnational levy, they also suggest exemption for “thematic services”, which is still not the part of the text provided by the Commission and the European Council.

Questions from the audience

What is the definition of the European content?: This document does not provide that definition. We will probably use the definition from the Directive on TV quota that is already in place.
What is new in the discussion on Digital Single Market (DSM)?: There are several aspects in the DSM relevant for the public film funds, such as the AVDMS Directive and the copyright laws. Many aspects of the DSM are still under discussion in the EU institutions. Everything should be agreed until the end of the current mandate of the commission (1.5-2 years left). (Axel: In the French system they would have to do both. Whenever you invest, you also have to pay a tax).
Netflix is an ardent proponent of a digital single market in Europe, because they don’t like the idea of fragmented Europe where each country has different requirements and some countries, like France, require that the platforms pay taxes even when they invest into local content.
What is the timeline regarding this legislation?: The proposal was made in May 2017 and we should be able to finish the final document until the end of this year or beginning of the next year, but it depends on the dynamics of approval of the documents by different institutions and bureaucrats within the EU administration. After that, the national states will have to transpose it into their national laws, which will happen within the obligatory period of 18 months. By the end of 2019 all member states shall have the 30% quota.

Outcomes of group discussions

Distributors are spoilt: When distributors have an unsuccessful film, they replace it immediately with a new one. Whenever they receive support from a public fund, they work only until that money is gone. They avoid risks and avoid taking chances. Therefore, many films stay in cinema only for a couple of weeks.
Distributors’ revenues are drying up. Distributors have bad times in many European countries. Some go bankrupt. The DVD is gone and VoD revenues cannot compensate for the loss, because they are taken over by either big platforms or public broadcasters. Also, production companies in many countries decide to do self-distribution. Funds sometimes support those production companies that come up with an alternative release strategy (when they have a specific subject, clear audience strategy, etc.).
Distributors are too conservative. Giving the money to distributors is only one way of supporting them. Distributors need to be re-educated in order to adapt to the new reality. They are still the most conservative players in the film industry. It is the same people as 20 years ago and the same business models that ensure little promotion and innovation. In the production sector, funds are always nurturing new talents. So the funds should provide also distributors with opportunities to think in new ways. That is why the funds have to make sure that distributors know what is going on in the game industry, for example, which successfully went through the same disruptive experiences.
Distribution schemes or not?: The Polish Film Institute has no distribution scheme and domestic market share is still 18-25%. They will keep the non-distribution support policy. The problem in Poland, though, is that many Polish minority co-productions never get released in Poland or Polish co-producers try to release them themselves.
VoD premiere: Some countries already have support schemes for films to be released only on VoD Platforms. In Norway it is acceptable, if it is transaction-based VoD releases. If producers have a clear release plan, there can be an exemption from the cinema release requirement in many European countries.
Cinema law amendments necessary: Maybe funds should redefine “what cinema is” and include this new definition in the cinema laws. Most of the laws in Europe are old-fashioned and recognize only theatrical release.
Distributors need more training: Some countries organized workshops and training programmes for distributors (for example, the Swedish Film Institute), but there was no interest. They can also apply to workshops like “South by SouthWest”, but they do not apply.
Can distribution be a hobby?: In many European countries, the large distribution players are focused on big blockbusters and consider national films only as an occasional ‘hobby’. Distributors should get involved in the earliest stage of the project.
Is Netflix taking over?: Netflix has just announced that they would invest 500 million dollars in the creation of original content in Canada. The Canadian Federal Government revealed that Netflix is opening their first official office outside the US and it will be in Canada. But no one knows how the Government will tax anything related to the production of this content, because negotiations between Netflix and the Government are apparently not public. Will the government exempt Netflix from paying tax if they invest in the content? How will it affect the national distributors and platforms?

The Role of Public Film Funds in the Future

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