8: Financial Assistance to European Film Production

A basic characteristic of film production industries in Europe is the direct involvement of national governments which are aiding them financially. The extent of assistance is such that without it film production in Europe would hardly be solvent and the various industries would lead a most precarious existence.

Unlike most industrial enterprises, film production involves a mixture of business and art. The business dimension exists inasmuch as films are a commodity which can be manufactured, publicized, and sold for profit. In the artistic dimension, films are vehicles for creative expression, permitting the producer to give audiences his impressions of the world and its life. But the continued existence of film as a medium of expression depends upon the financial resources available for production. In turn, the availability of production funds depends upon the willingness of people to invest. Their decisions to invest can be based upon the past successes of a film maker or star and on their belief that the planned production is likely to be sufficiently successful for the original investment to be returned with an adequate profit.

The power of a film to attract revenue is related to the size of the market available to it and the market’s revenue potential. By virtue of elements inherent in production styles, film scripts, acting ability, and technical craftmanship—and the tastes and wants of audiences—films can have limitations built into them which restrict the market in which they are likely to be successful. In fact, some films are consciously made with specific audiences in mind, and are geared to exploitation over a limited geographic area. In economic terms, the ability of a film to recoup its investment and to yield a profit depends upon its acceptance by audiences with sufficient money at their disposal to make production solvent. When acceptance falls, due either to qualities inherent in the films themselves or to external forces restricting the circulation of films, then subsequent production is likely to be revised commensurate with revenue. The external forces can include the availability of competitive entertainment media, business policies and the output of foreign motion picture producers, and certain economic patterns within countries which manifest themselves in box office receipts.

If films were considered solely within a business framework, then simple demand would be enough to dictate how many and what type should be produced and made available to what people. Generally, this is the rule which governs film production in the United States. When film is viewed as a medium of expression, then the context for judging its purpose changes from one of profit to one of communication, which should be encouraged for its expressive potentials. Considered in broad terms, film is a conveyor of a society’s values and beliefs. It is a medium through which artists, allied with their culture and their own perception, can provide the public with views of life and its problems.

As history shows us, the arts have drifted away from being the objects of royal patronage, to become susceptible to the whims of the populace and the market place; and the support and perpetuation of them have become linked with other commodities in the economic dimension of modern life. Their continued existence, then, has come to depend upon their attractiveness to the multitude and to their ability to pay their own way. In relation to film and its development as a twentieth century expressive medium, one finds that in capitalist oriented societies the vehicle immediately found its way into the industrial complex because of its possibilities for commercial exploitation, its technological nature, and the scientific contributions which preceded its birth. Once in this complex, its purpose for existing became predominantly profit, and secondarily expressiveness. If in generating profit the film also could expand the dimensions of human feeling and intellect, then so much the better.

That a government is or is not involved financially in film is a reflection of the basic assumptions underlying that government’s existence. In the United States, among the main assumptions forming the foundations of government is the belief that the government’s powers should be few and the individual retain a maximum amount of freedom. These tenets are manifest in the separation which exists between government on the one hand and industry and art on the other. Government involvement or lack of involvement in the film industry also reflects the attitudes of the industry and the solvency of production. When governmental assistance does not exist (as has been the case) and there is no prevailing feeling within the industry that it is needed, then it can be assumed that production is economically healthy or that the industry has turned to private sources during periods of business difficulty.

In Europe, the relationships between government, industry, and art have been guided by different assumptions about the role of the state. There has been the belief which holds the state responsible for the maintenance and perpetuation of national heritage and culture. The authority of the state gives it the mission to preserve and encourage art and culture, for it is the only institution representative of its people and their traditions. In execution of this obligation, the state is empowered to assist morally and financially all types of art for their qualities of national expression and creativity.

Running parallel is another doctrine declaring that the state has a mandate to oversee and direct policies in the economic sphere. The principle assumes that industry can function for the common welfare only if coordinated with national objectives and programs as a whole. Robert Heilbroner, in discussing the growth in Europe “of public control over and intervention into private economic life,” writes that this “is the metamorphosis of a system of laissez-faire into one of mild national economic collectivism.”¹ He states that the development of intervention and planning “must be understood as constituting a protective device for capitalism” by which this capitalism has “sought to guard against its growing vulnerability to economic crisis.”²

The obligation of the state to preserve and encourage art, and the growth of public control over economic matters, have provided the rationale enabling European governments to become involved in their domestic film industries.³ Moral and financial assistance is justified and necessary because film is a medium for expression and a commodity produced by business enterprises. If left to follow their own interests, these enterprises might deem film production largely unprofitable and this channel for creative potentialities might be obstructed and unable to function in the best interests of sociey.⁴

In the film industry, production has been the segment upon which financial assistance has been most concentrated. There are, however, some cases of aid to distribution and exhibition. In France there is an automatic subsidy equal to one percent of the gross receipts given to companies which distribute a short film of distinctive quality on the same program with a long film. This short film can come from any member of the Common Market. Aid to exhibition is best typified by Italy. According to the 1965 film law, exhibitors can receive a percentage rebate from the entertainment tax for showing certain types of films. A rebate of 2 percent is given for showing newsreels, 50 percent for feature films produced especially for youth, and 50 percent for programs composed entirely of short films. Similar rebates are available for exhibition of quality films.

Nevertheless, the overwhelming weight of assistance has fallen to producers, for it is with them that films originate and are then fed through distributors to theatres. Stability and solvency in production, it is believed, eventually will spread to other levels of the industry. Financial aid made available to European film production by governments, or government-approved agencies, includes prizes, loans, and subsidies—each unique in purpose and extent.

A government or public commission can reward and encourage quality through the granting of prizes to outstanding pictures. These awards are not made automatically but depend upon the decision of special juries which judge films on the basis of artistic criteria and confer financial prizes according to the extent films meet them. There is no uniform pattern in Europe concerning when the prizes are awarded or, indeed, the exact size of the prize.

The Swedish Film Institute is authorized to grant prizes to quality feature and short films. The fund for this purpose, derived from a 10 percent levy on theatre tickets, varies with admissions in any given year. When the program started in 1963, the Institute anticipated more than $400,000 being available annually for feature film prizes. The awards are made after films are reviewed by a special seven-member jury. The intent of the system is to avoid making grants to projects which might seem worthwhile on paper, based on names and subject matter. Instead, the jury takes into account only the finished product. To qualify for a financial prize, a film must receive a minimum number of points from the jury. The awards fund is then divided among all films receiving at least this minimum, in proportion to each eligible film’s total points. According to the Institute, it is entirely possible for an excellent film to have at least half of its production costs returned through the quality prize.

A different system has existed in Norway. There, the government has aided production when films have been deemed artistic, cultural, or as fulfilling a special interest. To qualify for assistance, a film producer must submit his plans to the Ministry of Church and Education before production is started. These plans include the complete script, a talent list, an estimated budget, and information about sources of production money for the film. If the project is judged meritorious, the Ministry can make an outright gift of money to the producer. The advantage of this system, of course, is that it provides financing which permits production to start. In this way, it would be possible to shoot a film for which sufficient commercial capital is not available.

The question of awards before or after production has been resolved in Denmark. A special commission may judge a film’s artistic and cultural value before production is started or after the film is completed. If the commission decides favorably, a percentage of the film’s gross box office receipts can be paid to the producer. Other prizes are available for actors, directors, and technical personnel.

The amounts of money available for prizes vary considerably from country to country. In Italy, a quality feature film can receive a maximum of about $64,000, with twenty films each year being so entitled.⁵ Prizes for short films range from almost $9,000 to about $16,000. A portion of Italian funds available for quality prizes to short films has been earmarked for films of the Common Market countries. In West Germany, the 1967 budget of the Ministry of the Interior set aside some $175,000 as prizes for German films, about $165,000 for cultural films, and approximately $350,000 as quality bonuses for feature-length films and scenarios.

For the producer, the prize can be an effective means of assistance because it does not have to be repaid. On the other hand, the prize system has a basic drawback in that not all films are eligible for receipt of this gift. The method cannot fulfil a mission of stabilizing production because some films, due to their quality, content, or treatment, may not be judged worthwhile to receive a grant. While the pursuit of excellence is commendable, the prize system encourages production only of films which meet certain criteria, whatever these happen to be. In this case, the integrity of the jury is crucial.

A second method through which the state can assist film production concentrates on loans and credits. The plan generally involves the establishment by the government of a film bank which makes capital available to producers. The basic idea of the film bank, however, has been modified according to the needs of various European countries. The value of a film bank, nonetheless, is that it lends money specifically for motion pictures. Commercial banks, on the other hand, may reject loan applications from producers, believing their investments have a better chance of being repaid in other industrial activities.

The film bank of Great Britain, the National Film Finance Corporation (NFFC), is a public agency similar to the British Broadcasting Corporation. The NFFC is technically under government control because it was established by Parliament and its directors are appointed by the Board of Trade, but in practice it acts with as much autonomy as the BBC. The NFFC operates with a commercial mandate and is not necessarily in business to support or encourage the production of artistic or quality pictures. If in carrying out its obligation to assist the financial backing of British films it also can facilitate production of artistic pictures, then a double purpose is served.

The function of the NFFC, and the general idea of film banks, can be clarified by first understanding how motion pictures usually are financed. The total investment in a production is considered in two parts: front money and end money. Front money, the largest portion of the total backing, is generally around 70 percent and normally is guaranteed or advanced by the distributor to the producer on the basis of the producer’s plans, script, stars, etc. The distributor agrees to supply the front money in exchange for distribution rights of the film. The remaining 30 percent, the end money, must be found by the producer. In Great Britain, he might turn to the NFFC which could agree to finance all or part of the 30 percent after reviewing the producer’s plans. Normally, the NFFC would supply 25 percent of the total investment, with the final five percent coming from the producer’s own resources or from other arrangements he had made.

The distinction between front money and end money also is apparent in the way these loans are repaid. The front money is repaid out of the initial earnings of the film. Once this loan is cancelled, then the producer can begin repaying the end money, most of which is due to the NFFC. The loan from the NFFC “is not normally guaranteed and therefore depends for recovery on the commercial results of the film, except to the extent that the producer may be able to offer other assets (e.g., the profits from other films) as collateral security.”⁶ Thus the NFFC stands to lose money if the film cannot recoup all its costs.

Between 1950 and 1967, the NFFC advanced $70,000,000 to 694 feature films and 164 short films of which only $43,300,000 was repaid.⁷ In October, 1966, the lending function of the Corporation was halted because, owing to “prevailing economic circumstances,” it was unable to borrow from nongovernment sources more than $2,100,000 of the $5,600,000 authorized under law. Ten months later, the NFFC resumed making production loans but on “an extremely selective basis.”⁸ The problem the Corporation faces was described in its 1963 annual report:

… the Corporation has since its inception been permitted to lend only to persons who in its judgment have reasonable expectations of being able to arrange for the production or distribution of cinematograph films on a commercially successful basis. Thus the Corporation is statutorily obliged to refuse to lend where it considers that the film in question is likely to prove a commercial failure.

The Corporation has found this mandate extremely difficult to apply to individual projects because no reliable estimate of the public’s reaction to a particular film can be made before the public sees it, still less before production has begun.⁹

Over the years, the NFFC has played an important role in financing British films. In 1952, the high point, it assisted seven out of every ten British quota films shown on the major theatre circuits. Throughout the 1950’s, the Corporation, on the average, assisted more than half of the quota films so shown. During the 1960’s however, a different trend set in, with its most marked manifestation in 1965 when the NFFC backed only seventeen percent of the British first and cofeatures exhibited on the two major circuits. The Corporation officially recognized this matter in its 1965 annual report.

Over the past few years there has emerged a new pattern of film financing which has also had an effect on the Corporation’s policy. Talented film-makers are now increasingly able to obtain the finance they need from a single investor, usually the United Kingdom subsidiary of a major U. S. distributor. Though welcome within limits, this growing involvement in the financing of British films by the U. S. distributors, if allowed to expand unchecked, represents a threat to the continuance of a truly British film production industry.¹⁰

The role American companies play in financing British production has reached an impressive magnitude. While the Corporation backed 24 percent of British first and cofeatures shown on the major circuits in 1966, American companies financed 71 percent. In fact, for the years 1962 to 1966 inclusive, American companies financed almost two and a half times as many British films as the National Film Finance Corporation.¹¹

Does this mean the NFFC has outlived its usefulness? The Corporation argues that a British industry relying upon American financing hardly could be termed independent and that the maintenance of a British film industry, reflecting British culture, is in the national interest. The Corporation has noted, in addition, that American financing of British production results in some loss of money to Britain due to the distribution commission and finance charge payable to the American distributor. When international markets are concerned, it “follows that a high price in terms of export earnings has to be paid whenever a U.S. distributor is involved in the financing of a British film.” The Corporation feels reliance upon American finance might lull the British industry into a false sense of security which could be painfully shattered were American film production “to return to Hollywood, or to go elsewhere.”¹²

The future role of the NFFC will be one of the major points considered when the government reviews film legislation upon its expiration. The Film Production Association of Great Britain (a merger of the British Film Producers Association and the Federation of British Film Makers) has recommended the continuation of the NFFC. In the same way, the Corporation itself states that a reorganized and re-funded NFFC is essential for providing “financial backing for British film production independent of external sources….” It sees its future task as being that of encouraging “groups of talented film-makers to form the nucleus of a viable independent British film production industry.”¹³ It would seem that such a valuable national source of aid to production should not be restricted. Its maintenance appears even more pressing due to the extensive American hold on British production.

Modifications of the film bank plan are found in other European countries. In Spain, under the 1965 film law, a producer may receive a government loan of up to 50 percent of the anticipated Spanish share of a film’s cost. In special cases, the loan may be as high as 70 percent. In addition, the National Cinematography Institute can make advances of about $17,000 to a producer, repayable over a three year period without interest.

The production of feature films in the Netherlands has been assisted by a special fund set up in 1956 under the aegis of the Nederlandsche Bioscoop-Bond. It is fed by a sum withheld from dues paid to the organization and by a state grant from the Ministry of Education. An advance, averaging about $28,000, can be allotted to a producer of a Dutch film on condition that it be repaid out of the film’s profits. The fund, renewable each year, has about $250,000 in it.

No unified system of guarantees exists in West Germany due to the states’ autonomy in cultural affairs. However, the states of Bavaria, Hamburg, and Lower Saxony, along with West Berlin, have inaugurated plans of their own. In these cases, local governments can underwrite bank loans to producers varying between 20 and 50 percent of the production costs. In West Berlin, the guarantee has extended to 85 percent of the total budget, and films produced there are eligible for a special subsidy of about $12,500.

A similar guarantee system has operated in Norway. There, the government has guaranteed regular bank loans made to films deemed to be of artistic, cultural, or special interest. The maximum guarantee is about $40,000. The government collects no fee for offering its guarantee but stands to lose money if the production is not profitable.

In Italy, two types of loans have been available to production. The first, ordinary credit, has been available up to 60 percent of the total production cost. The fund has been fed principally by the state, but about a third of its resources have come from a state-sanctioned bank. The second type of loan, special credit, has been available for long term uses at an interest rate of 4 percent. The special credit fund has been fed by a tax formerly applied to films brought into Italy and dubbed into Italian. It will be recalled from an earlier chapter that the Andreotti Act initiated a system of dubbing certificates. A distributor of a film dubbed into Italian had to deposit with the Banca Nazionale del Lavoro a sum of lire which went into the special fund. After ten years, according to the original plan, the distributor could redeem his dubbing certificate and receive the amount he deposited with the Banca but without interest. As it actually happened however, American companies redeemed their certificates before the ten-year period expired, and instead of the original value of the certificates, they received approximately 17 percent through redemption of one lot and 25 percent through redemption of a second lot.¹⁴

Under the 1965 Italian film law, the production credit fund of the Banca Nazionale del Lavoro is augmented by state contributions totalling more than $1,000,000 over a three-year period. Producers can borrow from the fund up to 30 percent of the cost of production with repayment at 3 percent interest. In addition, the endowment of the Cinema Credit Section of the Banca has been enlarged from slightly more than half a million dollars to almost $5,500,000, the increase coming over a three-year period.¹⁵ State-approved credit in Italy has assumed an important place in film financing. From 1960 through 1965, more than four hundred films benefitted from assistance totalling more than $146,000,000. This represents about a third of Italian films made (including coproductions) and about a third of production costs.

It should be kept in mind that the film bank method of assistance is little more than a government, or government-guaranteed, loan to film production. When a loan is under consideration by the responsible authority, there obviously is attention given to the film’s commercial possibilities because continuous failure, due either to films’ content or producers’ ineptness, would soon drain treasuries and negate the purpose of film banks. While state agencies may be more willing to take chances than commercial banks, they cannot make loans freely to all applicants regardless of their ability or chances of success. But the film bank can absorb losses which might otherwise destroy commercial lenders. One could say that the state has been willing to move into an economic area from which business has moved out.

A third type of assistance available to production is the subsidy. Of the three methods of encouraging production, the subsidy is perhaps the most efficient. Although its exact size and mode of operation vary from country to country, its general purpose is the same. Essentially, money equal to a certain proportion of the box office receipts or of the tax paid on the price of admission is returned to the producer by a state or public agency. In effect, this increases the producer’s share of the receipts without reducing the share going to the exhibitor.

The subsidy extends beyond the scope of prizes and film banks. The prize can be awarded to certain films but the subsidy is directed to all national productions even though some may not meet quality criteria. Loans from film banks, while making production funds available, have to be repaid but the subsidy does not, and films receive it even though they may have limited commercial potential. The accomplishment of the subsidy is that it treats all national films equally, regardless of their point of view, content, or chances of success. Even the cost of production is not a factor because a very popular low-budget film can have a rebate equal to or greater than that of a mediocre high-budget film. The marketplace decides the actual magnitude of the subsidy. Considered in these terms, this form of assistance may be the fairest, as its application does not depend upon the decision of a viewing commission or upon the educated guess of an authority charged with advancing production money.”¹⁶

The subsidy does have drawbacks, though. It does not necessarily stimulate production of artistic or cultural films, because it rewards most those producers who have made pictures which are big box office attractions. Furthermore, the subsidy has been charged with introducing false economies into the film business by encouraging producers to think in terms of an increment of revenue not directly derived from admissions. It is also said that the subsidy has generated a number of “Active coproductions” designed solely to tap subsidy funds of two nations rather than one. Some observers feel the subsidy is “lost money” in contrast to prizes which encourage quality, and loans which have a chance of repayment. Finally, in more impassioned terms, the subsidy creates “irresistible outside pressures” and can “wither the freedom of individual thought.”¹⁷ But this charge also can be levelled at bank financing, production codes, and censorship, as well as at the marketplace itself. Strange, but the most progressive, avant-garde, and original artistic work in the postwar cinema has come, not from subsidy-free Hollywood, but from the subsidized industries of France, Italy, Britain, and Sweden!

Before discussing the operation of the subsidy system in the more important film-producing countries of Europe, one ought to examine this form of assistance as it has functioned in a smaller market.

The text of the 1963 Belgian film aid law is presented in Appendix A because it indicates in clear and concise terms the basic elements of the system. For our purposes, its most important part is that dealing with the subsidization of feature films. The Minister of Economic Affairs is authorized to distribute to the producer of a Belgian film a rebate of 70, 75, or 80 percent of the tax paid on admissions for the picture, the exact percentage being determined by a thirteen-member Film Commission. The Belgian subsidy also works in conjunction with film quality, a novel feature not found in legislation of other countries. The admission tax in Belgium is about 18 percent of the ticket price and a subsidy figured on 80 percent of this tax corresponds to approximately 14.4 percent of the gross receipts. On the low end of the scale, a 70 percent subsidy would be equal to about 12.6 percent of the gross receipts. This is quite congruent with the 13 percent subsidy in Italy and France, other Common Market countries with assisted film production.

A “Belgian” film is defined as one in which at least half of the salaries and costs of the picture are paid to Belgian nationals. The film also must have been produced by Belgians, or a Belgian company not under the control of a foreign company. A foreigner who has the status of an official Belgian resident can receive a subsidy, providing reciprocity exists between Belgium and the foreigner’s country of origin. (Films made under an international coproduction agreement also qualify for Belgian nationality.) The law decrees that the film must be shot in Belgium, although exceptions are made for exteriors required by the plot and those made necessary due to climatic reasons (Belgium is rather wet). The film must be processed in Belgian laboratories, but an exemption is provided for those processes which cannot be accomplished in the country’s labs.

In the case of Belgium, the national market is extremely small, and little foreign investment has been made in its film production industry. A foreign producer who makes a film there and has it recognized as “Belgian” can recover only as much as 80 percent of the admission tax for his film. With approximately one thousand theatres in the country and an average seat price of about $.45, the economic incentive is not very great for a foreign producer. Moreover, the box office power of a Belgian film outside the country is limited. Thus, few financial advantages are to be gained by an American producer who shoots a film in Belgium (or a similar small country) with local talent and technicians. These factors, the magnitude of the subsidy and the size of the market, become increasingly clear as production in the larger markets is surveyed.

Assistance to the British industry is a function of the British Film Production Fund, popularly known as the “Eady levy” after Sir Wilfred Eady, who generally is given credit for formulating the plan. According to the British Film Producers Association, “the film production industry in [Britain] is not subsidised by the Government” and the “levy is not a subsidy.”¹⁸ This opinion is grounded on the fact that funds available for assisting production do not come from the state treasury but originate in the money audiences pay to see films. On the other hand, one could point to the government legislation which was necessary for the Production Fund to begin operating, and to the fact that the British Film Fund Agency, which administers the Production Fund, was organized by the Board of Trade through powers conferred upon it by Parliament. Essentially, one is faced with a public agency operating independently of the government but carrying out government policy. Whether a payment from the Production Fund constitutes a subsidy is a moot question which will not be debated here. However, in this discussion of the British industry, payments will be referred to as subsidies, because they constitute an additional increment of revenue available to producers, are made automatically regardless of a film’s artistic or cultural value, and do not have to be repaid by producers.

The Production Fund operates in the following way. According to the price of each ticket, the exhibitor sets aside a portion of the entrance fee and turns it over to the Film Fund Agency which puts the revenues into the Production Fund. The maker of a British film then applies to the Agency for a payment from the Fund based upon the distributor’s gross of his film. (The distributor’s gross is that portion of the box office receipts remaining after deductions are made for entertainment tax [when it was in force] and the exhibitor’s share. The distributor’s gross includes his own and the producer’s share of the film’s earnings.) The Fund is fed from admissions paid for all films but payments are made only to makers of “British” pictures.

The Production Fund, started as a one-year and voluntary measure in September, 1950, was part of a larger plan which included adjustment of the entertainment tax and the raising of certain admission prices. It was voluntary to the extent that exhibitors were not penalized if they did not join the scheme. The following year, it was recognized that “although the first Eady plan went a long way towards solving the industry’s financial problems it did not close the gap between the producers’ costs and their receipts….”¹⁹ It was believed the effectiveness of the subsidy could be felt only over a long period. As a result, the Production Fund was extended first until 1954 and subsequently until 1957.

One study of the British film industry has observed

… that the only means of survival for a British production industry might be through permanent Government support. There can be no denying that however indirect it may be the [1951 to 1954] Fund is a form of subvention, but it is not permanent. Nevertheless it does offer producers a security which they lacked previously….²⁰

Responding to demands from the film industry, the government made the Production Fund statutory in 1957 and thereby officially recognized the industry’s need for a compulsory and long-term form of assistance. The act made it public policy to subsidize production of “British” films on a continuous basis.

The eligibility of films to receive payment has been a problem raised numerous times within the British industry because subsidiaries of American companies produce films legally defined as “British,” therefore qualifying for the subsidy. In 1956 for example, John Davis, then president of the British Film Producers Association, commented on this problem.

The British Film Production Fund was established in 1950 on the initiative of the Government for the purpose of providing British producers with a supplementary revenue over and above receipts from cinema box-offices in this country. Although it was agreed at the time that the distribution of the Fund should, generally speaking, be for the benefit of British quota films, it is obvious that the scheme would not have been put forward by the Government or accepted by the industry on the ground that the levy recoverable from the box office takings was required to support films made in this country by American subsidiaries.²¹

At the center of this issue is the definition of a “British” film. The 1960 Films Act states which criteria must be met for declaring a film to be “British quota” because only films so labelled can receive the subsidy. According to the Act, a film can be declared “British” providing

(a) that the maker of the film was, throughout the time during which the film was being made, either a British subject or a citizen of the Republic of Ireland, or a company to which this paragraph applies; and

(b) that the studio, if any, used in making the film was in a Commonwealth country or the Republic of Ireland; and

(c) that not less than the requisite amount of labour costs represents payments paid or payable in respect of the labour or services of British subjects or citizens of the Republic of Ireland or persons ordinarily resident in a Commonwealth country or the Republic of Ireland

Paragraph (a) … of this section applies to a company if, and only if,—

(a) it is incorporated under the laws of any Commonwealth country or of the Republic of Ireland; and

(b) its directors, or the majority of its directors, are British subjects or citizens of the Republic of Ireland.²²

“The maker of the film” is construed as meaning the company which handles arrangements for the production of the picture, and does not refer to the company which actually does the shooting, although the two often are identical. The 1965 coproduction agreement between the United Kingdom and France stipulates that films made in accordance with its terms also are eligible for “British” nationality.

The actual average rate of subsidy in Great Britain is somewhat higher than in Belgium, France, or Italy. A claim for payment is made on the total distributor’s earnings of the film. An amount based on a percentage of these earnings is then paid as the subsidy. This percentage has fluctuated between a low of 39.6 percent (year ending October, 1963) and a high of 51.0 percent (year ending October, 1966). During the first nine years of the statutory Fund, the average payment has been 44.3 percent of the distributor’s share of the film’s earnings.

For the purpose of computation, if one takes as a guide that the distributor’s share is about 37 percent of the gross,²³ then 44.3 percent of the distributor’s share is equivalent to slightly more than 16 percent of the gross receipts of the film. This compares with 13 percent of the gross in France and Italy and about 12 to 14 percent in Belgium. This 16 percent subsidy (based on the gross) is only an average over a nine-year period, however, and is somewhat lower than the actual current rate. The Fund paid at the rate of 51.0 percent of the distributor’s share in the year ending October, 1966. Again, assuming the distributor’s share as 37 percent of the gross (rather low for extravagant films), then it appears that the present average subsidy rate is more on the order of almost 19 percent of the gross receipts for a picture. Considered on this basis, it is not surprising that “at almost any given time of the year, British studios are dominated by American-sponsored production.”²⁴ The subsidy in Great Britain means that for every dollar paid to see a “British” film, the Production Fund pays the producer about $.19 over and above the producer’s normal share of the admission price.²⁵

Aside from the large share of the subsidy taken by American companies (as the next chapter will reveal), the Production Fund has provided over the years much-needed support for film production in Britain. In its nine years of statutory operation to October, 1966, the Fund paid more than $97,000,000 in subsidies to British film production. As an authoritative source in Great Britain told this author, “film production here would collapse without the Fund.”

The manner of assisting French film production is somewhat different from that in Great Britain. The subsidy (French producers do not argue against the use of this word) is paid directly by a government agency to a producer toward the cost of his next film, thus encouraging further production (over-production, some say). The subsidy comes from a fund fed by a tax on the admission price (yielding from $13,000,000 to $14,000,000 annually) and a release tax calculated on the length of a film sent into distribution (yielding about $1,000,000 annually).

To be eligible to generate a subsidy (payable for the next film), a picture must be declared “French” by the Centre National de la Cinématographic under criteria in Articles 13 and 14 of Law 59-1512 (as amended) of December, 1959, or be “produced in international co-production conforming to dispositions of a governmental co-production agreement.” “French” films must meet these criteria:

Article 13

. . .

1. Be made by French producers in an original version recorded in the French language using French authors, technicians, production personnel, as well as principal actors.

Concerning the application of these conditions, foreigners having the quality of resident or privileged resident can be considered as French citizens;

2. Considering paragraph 1 above, be made with labor corresponding to conditions cited in the decree of April 23, 1933 fixing the proportion of foreign workers able to be employed by entertainment establishments;

3. Be shot in recognized studios situated in metropolitan France or in overseas departments and territories, or in places not necessitating set construction;

4. Be developed, edited, and printed in recognized laboratories situated in metropolitan France or in overseas departments and territories.
The criteria which films of international co-production must meet are fixed by the governmental agreements concluded to this effect….

Article 14

Authorized production companies of French nationality benefit from financial support. The presidents, general directors, directors, and managers as well as the majority of administrators must be of French nationality.

Foreigners satisfying the quality of resident or privileged resident and practicing the cinematographic profession in France for more than five years can be considered as French citizens for the application of the present article.²⁶

Several modifications have been made in the French subsidy plan, the more recent ones being of primary interest.²⁷ In 1963, the scheme was changed and based entirely on earnings in metropolitan France and in French overseas territories. The producer was awarded a sum equal to 14 percent of the film’s gross receipts. A subsequent modification provided for a 13 percent payment for all films shown publicly for the first time after July 1, 1964. The present system is an automatic subsidy to production calculated at the rate of 13 percent of the gross receipts earned during five years from exhibitions in metropolitan France and in French overseas territories.²⁸

Perhaps the rationale for modification of the French subsidy program existed in the drive for consistency among those members of the European Economic Community which subsidized production at that time. Paralleling French changes, Italy revised its own scheme from a flat 16 percent of a film’s earnings to 14 percent. More recently, the 1965 Italian film law reduced this to 13 percent. Currently, Italian production subsidies are automatic and are paid at the rate of 13 percent of the gross receipts made in Italy during a period of five years. The standardization of the French and Italian programs mean, then, that payments are based only on receipts accruing to films in their home markets and are computed by the same percentage.

At least brief reference should be made to details of the Italian subsidy which, unlike those in Britain and France, is part of the state budget and not susceptible to box office fluctuations. The subsidy is granted only to films declared “Italian” and to official Italian coproductions. The film law of November, 1965, established criteria for Italian nationality. The film, either fiction or documentary, must be at least 1,600 meters long, and at least 70 percent of the interior scenes must be shot in Italian studios with sound recorded at the time of shooting. Among other criteria which must be met are those noted in Title II, Article 4 of the film law:

Declared national are long films produced in original Italian version which have been produced predominantly in Italy by companies belonging to Italian citizens, or by companies having a legal office in Italy, with Italian administrators who carry on in Italy the greatest part of their activity, and which fulfil the following conditions:

a) that the scenario comes from an Italian author or is revised or adapted by an Italian author;

b) that the director, and the majority of script writers, must be Italian;

c) that at least two-thirds of the principal roles, and at least three-fourths of the secondary roles must be given to Italian actors. Foreign actors can be admitted in a greater percentage than is authorized if they have official Italian residence for more than three years and in cases where they are required for special roles;

d) that at least three-quarters of the following must be Italian: musicians, set designer, costume designer, director of photography, cameraman, editor, sound engineer, production assistant, production director, production supervisor, production secretary, and make-up man;

e) that all remaining technical, executive, and production personnel must be Italian.²⁹

The 1965 film law slightly revised the definition of an “Italian” film and this is pertinent to American investment in Italian production, covered in the following chapter.

Of the Common Market countries, only Luxemburg produces no films. The Netherlands, with little feature film production, has no formal subsidization system, although Dutch films do benefit from indirect measures. Belgium, also a small producer of features, does have a subsidization program, similar to those of France and Italy. But what of West Germany with its economically faltering and artistically thin film industry? And equally important, has the Bonn government financially assisted production in keeping with the general mandate to manage the national economy and to encourage and perpetuate artistic media?

January 1, 1968, may well become the turning point for the postwar German film industry, for on that date a subsidization plan went into effect. After more than a decade of government resistance, coupled with deadly antagonism between producers and exhibitors, a film aid law finally was approved in December, 1967. Its significance can be estimated on a number of scales, not the least of which is that each major film-producing nation in the Common Market now has a subsidization plan.

The new program (its effectiveness still to be evaluated) will allocate about $37,000 to each German film grossing over $125,000 in Germany, measured over a two-year period. The sum must be reinvested by the producer in his next film. In exceptional cases, the producer can be allowed to use the subsidy to pay for the cost of the original film if it loses money at the box office. Moreover, and this is a novel feature, the producer of an assisted film must sell its television rights for five years to the Film Aid Institute for about $25,000, whether or not the Institute uses these rights.³⁰ Similarly, this sum must be reinvested by the producer within a two-year period. Films eligible for the subsidy include “German” national films and those made under international coproduction agreements, with at least a 40 percent German participation. Furthermore, the assisted film has to be rented to threatres for a “normal” fee, and its exhibition cannot be restricted.

The law established the Film Aid Institute, whose missions are developing the quality of German films, supporting coproduction, assisting the economic status of the entire film industry, reviewing cooperation between the industry and television, publicizing German films at home and abroad, and, significantly, advising the federal government on the harmonization of aid systems within the European Economic Community.

The aid fund is fed from a portion of the admission price, about three cents per ticket, paid for performances comprising at least one feature film. It is expected to be worth about $6,250,000 annually, compared to about three times that figure for the French aid fund. Money will be dispensed to production and exhibition on a ratio of two to one. The right of an exhibitor to financial assistance depends upon his business turnover; the greater it is, the smaller his aid.

Ultimate passage of the aid law was delayed for years because of industry in-fighting. Exhibitors demanded better competitive conditions with television (notably reservation of television rights to new films), no aid to production without aid to theatres, the fixing of rental terms for subsidized films, and the subsidization of “good entertainment films” as the basis for government intervention in the film industry. The West German government, it is said, was inclined to defer passage of film legislation until the industry settled its own internal difficulties.

Another factor which hindered passage was the distribution of legislative power within West Germany. The federal constitution relegated cultural matters to state governments, each one having complete autonomy over such affairs within its domain. This worked against inauguration of any unified system of production aid in Germany. Significantly, the federal film aid law was approved under the tide of economic action, by-passing and implicitly ignoring film as a cultural entity.³¹

Certainly, additional pressure against a subsidy in West Germany came from the federal government’s adherence to the free enterprise philosophy and the belief that business could be run through competition and private incentive. It is no secret, of course, that these tenets are carry-overs from the occupation days and result from the direction in which the West German economy was pushed by the High Commission. The change of policy is somewhat embarrassing, for it is an implicit admission that free enterprise has not been able to achieve the goal of a healthy economy operating in the general welfare. If the lack of subsidization seemed out of tune with the “Social Market Economy” enunciated by Ludwig Erhard, then one has to conclude that the government had closed its eyes to film industry problems or that it was laboring under the illusion that German film production would right itself after painful growing years. Sources in West Germany have been frank in admitting that film production there is a sick industry and not likely to recover without some form of continuous, effective aid.

West Germany’s position was even more striking when considered within the framework of the Common Market. Its objective, to unify and standardize economic matters—and implicitly to develop a uniform attitude toward film production aid—thus bore greatly on the policies adopted by France, Italy, and West Germany. France and Italy already were subsidizing film production and both had modified their programs to make them identical. On the other hand, to repeat, West Germany had had no subsidy.

It would be an understatement to say that this was a major discussion topic whenever European film industry authorities met to consider how the various industries could be matched, let alone integrated. (Efforts to standardize film industry matters actually preceded by several years the official beginning of the Common Market itself.) France and Italy consistently took the position that subsidization was the rock stabilizing their film industries, and urged West Germany to build on the same foundation. Before France and Italy had identical systems their position against West Germany was not as strong. There were always hints, for example, that one of the two would stop subsidization and join West Germany’s position. However, with the matching of the French and Italian aid schemes, the policy of subsidization was reaffirmed. The governments acknowledged that production subsidies are indispensable and they waited for the Bonn government to come to the same realization. Now this has happened.

In terms of the EEC’s mechanisms, subsidization of film production has posed a problem and has had to be reconciled with provisions of the Treaty of Rome condemning subsidization which distorts competition. The European Commission has observed that members’ film industries, like maritime construction, are worthy of special consideration because they are “important industries going through structural difficulties.”³² In addition, the European Community film industries are faced competitively by an American industry which not only controls distribution on a worldwide basis but has dominant positions in non-Community markets and a strong position within the Community itself. This has put EEC films at a disadvantage. When coupled with the cultural aspects of film, it has been recognized that some form of aid must exist if film industries are to remain solvent. The crucial question now facing the Community is not whether to subsidize production, but what form the subsidization will take.

The solution can be seen in two phases. The first is harmonization of national subsidy systems, apparent in the similarity of the French and Italian plans. The Belgian program, although operating on somewhat different criteria, yields about the same results. West Germany’s scheme has some identity with the others but does not involve a percentage payment. Harmonization would mean, of course, as many plans as there are members subsidizing production. They would be administered domestically by each country after the basic concepts were approved by the European Commission. This is essentially the approach being taken now within the Community. For example, in 1964 the French government notified the European Commission of the reduction of the subsidy rate from 14 to 13 percent. When the Italian film law was considered in 1965, the Commission also was notified, and examined a draft version. In both cases, the Commission raised no objections to the final form of the legislation; thus an implicit opinion became obvious that the plans were justified and did not give one industry an advantage over others. In this connection, it is important to note that in January, 1965, the first meeting under Community auspices was held to study the framework for film aid within the EEC. This meeting in Brussels produced the opinion that the first step should be alignment of existing national legislation on financial assistance. Moreover, it was recognized that maintaining film production on a sound basis in the Community was in the common interest.

The second step, admittedly in the future, is a Community system of subsidization which would treat the six member nations as one domestic market for the computation of the subsidy payment. As national subsidy legislation becomes similar, the various plans could be merged under the aegis of the EEC with one organization administering payment from one central fund. Precedents for integration of film industries and standardization of policy already exist in the First and Second Directives (and the proposed Third Directive) pertaining to film matters of the EEC Council. Significantly, the First Directive defines a “Community” film—without, however, calling it that in so many words.³³ The French and Italian definitions for their national films parallel the Community definition, while that of a “German” film is identical with it. In this respect, harmonization of subsidy legislation can be the first step toward complete integration of financial aid.

Automatic subsidization of production is economically important and, in many ways, necessary for European film industries. While prizes and loans do perform essential functions of rewarding excellence and making production financing available,³⁴ only the subsidy provides a consistent increment of revenue above normal box office receipts. Almost all European countries have adopted the subsidy to make film production economically feasible and artistically and culturally possible.³⁵

Progress is being made toward resolving the subsidization problem in the Community, especially in view of West Germany’s recent action. Moreover, two prospective Community members, Spain and the United Kingdom, have subsidized production. The current work of aligning various financial schemes proceeds as the lessons of experience unfold. But while this matter seems to be more or less in hand, another one is becoming increasingly important—that of third party (American) investment in Community film production.