1. Financing and Distributing European Films in the Digital Era: Challenges and Opportunities A joint presentation by FIAPF, IVF and IFTA Licenses for Europe - WG 1 - AV sub-group

2. Who are we? FIAPF: Film producers associations worldwide - 30 national producers organisations from 27 countries across the globe from Europe, Africa, Asia, Pacific, North America, and Latin America. IVF: publishers of film and audiovisual content on digital media and online. IFTA: independent film and television industry world wide - 150 companies and sales agents from 23 countries, EuropaCorp, Gaumont, K5 International, Nordisk Film A/S, Pathé Distribution, Svensk Filmindustri AB, StudioCanal, Telepool GMBH, TF1 International, among many others.

3. Short competitive shelf life Introduction Film is a high-risk investment … No price differentiation No standardisation – each film is a prototype and has its own business model Very high non-recoverable costs and unit production costs Very high marketing costs

4. What is the business landscape like? EU linguistic and cultural fragmentation – as well as highly differentiated market conditions and financing requirements – drives rights licensing activities EU AV/cinema sector is complex network of large, medium and small-scale enterprises each specialized in individual parts of the industry (production, marketing, publishing/distribution) – reflects nature of EU as culturally and linguistically diverse Given the level of financial investment required for film, there is a need to share or outsource the financial risk involved in development, production, marketing and distribution, and/or publishing

5. Cinema release often essential but very poor returns due to high costs and competition for audience Relative stagnation of films presence on linear TV except for blockbuster titles – implications for financing of EU films Long tail effect in online VoD has yet to materialize – concentration on few titles – EU films need targeted promotion in online world to ensure visibility and discoverability The market for EU films is highly competitive and changing rapidly…

6. Pre-sales of rights strategic to financing EU films Pre-sales to future distributors/publishers by platform, language and/or territory to entities specialized in each platform, market and type of films – local marketing/distributions efforts Pre-sales build in circulation in multiple territories at project financing stage Elaborate form of peer review: investment partners are attracted by creative credentials and commercial potential of the project Before actual production of the film as evidenced by our case studies

7. Pre-sales of film – national and international - make it possible to finance EU films...... and enable and stimulate their distribution across national boundaries

8. A Royal Affair A Denmark/Sweden/Czech Republic co-production Winner Best Screenplay and Best Actor Award, Berlinale 2012 Nominated Oscar/Academy Award Best Foreign Language Film 2013

9. Producers/Private Investors DK/Sweden/Czech + private Investors + tax break Pre-sales Various platforms and linguistic versions and/or territories Subsidy Arrangements DK/Sweden/Czech Eurimages Total Finance Plan 23% 1,474,772 Financing A Royal Affair - Financing Overview 37% 2,382,284 40% 2,555,116 6,412,172

10. Carnage A France/Germany/Spain/Poland co-production Nominated Golden Globe and European Film Awards

11. Producers/Private Investors Deferred fees, producers cash, broadcaster equity Pre-sales Distributors MGs in co-prod countries and other countries + TV licenses Subsidy Arrangements France/Germany/Spain/Poland Eurimages Total Finance Plan 6% 1,080,000 Financing Carnage - Financing Overview 66% 11,880,000 28% 5,040,000 18,000,000

12. Kon Tiki A Norway/Sweden/Denmark co-production Nominated Oscar/Academy Award Best Foreign Film 2012

13. Producers/Private Investors Nordisk Film Prod + pan- Scandi publisher Pre-sales To all-rights distributors for all Nordic and German-speaking territories + advance on rest of the world Subsidy Arrangements Norway/Sweden/Denmark + Eurimages Total Finance Plan 33% 3,960,000 Financing Kon Tiki - Financing Overview 37.5% 4,500,000 29.5% 3,540,000 12,000,000

14. Amour A France/Austria/Germany co-production Palme dOr, Cannes Film Festival, 2012 Winner Oscar/Academy Award Best Foreign Language Film 2013

15. Producers/Private Investors Pre-sales Subsidy Arrangements Total Finance Plan 34.85% 2,835,051 Financing Amour - Financing Overview 31.80% 2,586,933 33.35% 2,713,026 8,135,012

16. What do the case studies tell us? Pre-sale of rights to future distributors/publishers in each country makes it possible to finance European films and ensure their best possible promotion to the future audience EUs strength is mosaic of cultures and varying market conditions: films do not cross cultural borders just because they are made available - each film needs separate signalling investment for each cultural market – this means active marketing and distribution efforts on all platforms Because of these cultural factors, EU films rely on a network of national distributors/publishers with considerable expertise of how to make films cross cultural borders, to make them relevant to a foreign audience

17. What are film producers/publishers doing to improve cross border access and portability? Producers are open for business licensing content in multiple ways, including for multiple territories Our case studies demonstrate readiness to pre-sell/license rights across borders to raise production finance and to increase cross-border distribution opportunities and availability of films Commercial (platform) and consumer demand for content across borders is limited at this stage – online businesses tend to focus on growing strong nationally and then consider further geographical expansion

18. Film producers and publishers contribution to increased cross- border availability lies in making and distributing high quality content with wide appeal – we build cross-border circulation into our very project financing and future distribution plans TV thriller dramas Spirals or The Killing, or films by renowned film- makers (Loach, Ozon, Amenabar, Haneke, Sorrentino, Garrone, Akin, etc) are examples of such dynamic EU business partnerships The economic returns on rights is dependent on bespoke distribution campaigns and efforts in each market. Mere availability does NOT create consumer demand – the long tail is not an online reality for most non-national EU films... What are film producers/publishers doing to improve cross border access - continued

19. Which issues/problems to cross border access do film producers /publishers see? Online platforms are still at a pioneering stage – business models are formative, competition is stiff and access to venture capital is tough – future production of EU film and AV content depends on platforms participating in financing of production Economic quandary: few platforms have the scale and cash-flow to be present in several territories. It is vital not to encourage excessive market concentration detrimental to EU competiveness and cultural diversity Emergent VoD platforms with ambitions to be present in several territories find they need to conceive marketing campaigns in each culture in which their brand exists

20. Ensure contractual freedom to pursue best possible solution for each individual film in terms of financing, promotion, distribution and publishing Focus should be on providing national access to European content, rather than European access to national content (subtitling/dubbing; title-specific MEDIA funding?) National platforms/services in the local language will be most consumers first choice in accessing content (be it national, European or international content) Possible solutions to improve the situation?

21. Conclusion The market is experimenting and developing flexible options supporting the continued development, financing, marketing and distribution/publishing of European films Multiple models and solutions mirror the notion that each individual film is a prototype and requires its own tailor-made business model Availability of many films\AV content in multiple territories is built into the very business model for developing, financing and producing new projects Online distribution must NOT be seen as potential future revenue source only – platform/online service participation in economic risk of development and production is vital for the future of a competitive, sustainable and diverse EU film industry

22. Thank You Disclaimer: some of the financial data included in this presentation (film case studies) are based on the films financing plans, which do not necessarily always reflect with absolute accuracy the actual production spend, owing to changes occurring between project planning and the production process