Film makers welcome funding scenario

Date: 26/09/1996

By Chris Johnstone

EUROPE'S film companies have been given a mixture of good and bad news in a report by the European Investment Fund (EIF) on the formation of a guarantee fund to back the struggling EU industry.

Industry sources say the report, which was produced in response to demands from EU finance ministers, concludes that the guarantee fund could fulfil one of the key criteria by being self-financing for at least seven years.

It warns, however, that banks and other financial institutions are reluctant to play a starring role in the fund.

European Commission officials said this week it was premature to comment on the report's findings.

Banks were given the role of day-to-day fund managers when the script for the guarantee fund was originally written. Under the plan, they would also be expected to finance most of the film - or slate of films - selected by them, with the guarantee fund agreeing to cover up to 20&percent; of production costs. The fund would thereby reduce some of the risks involved in bankrolling films.

However, the banks are understood to be dissatisfied with the proposed structure giving overall control of the fund to the EIF, and would prefer to take charge themselves.

European film companies are enthusiastically backing the fund as a means of acquiring cheaper loans than normally found on the financial markets, which are extremely cautious when it comes to investing in such a hit-and-miss business.

The guarantee fund itself is expected to be self-financing through commissions levied on the companies taking part, compensating for the cash paid out to the banks if a project flopped.

The fund would have capital of about 200 million ecu, of which 90 million ecu would come from the EU and the remainder from public and private financial institutions.

The EIF report is due to be discussed by European culture and audio-visual ministers at a meeting in Brussels on 7 November.

EU ministers must give their unanimous backing if the fund is to go ahead. Germany is still holding out against its creation, but industry sources say other early doubters - the UK and the Netherlands - appear to have been won round.

The European Film Companies Alliance, which is made up of European companies Bertelsmann-UFA, Pathe, Rank, RCS and Polygram, is lobbying heavily for the fund in the run-up to the November meeting.

The alliance says the direct involvement of banks will help Europe's film companies concentrate their efforts on making popular hits rather than critical successes. Past funding by national governments alone has often resulted in high-brow films being shown to small audiences or, in some cases, never being shown at all.

The guarantee fund would also help to counteract the EU's heavy annual trade deficit with the US on films. European companies spent about 1.3 billion ecu on Hollywood productions in 1995, contributing to the EU's annual 4-billion-ecu trade deficit with the US.

Meanwhile, Anglo-Dutch film company Polygram has won the backing of the European Commission in a separate dispute with the Canadian government over film distribution.

Polygram is protesting against Canadian rules, which came into force in 1987, which demand that Polygram uses a local film distribution company if - as is often the case - it does not own world-wide rights to a particular film.

Using a local distributor cuts deeply into Polygram's profits and the company claims it is almost the only firm hit by the Canadian law. The 1987 legislation was originally designed to curb the inroads made by big US distributors, and yet bizarrely, the US companies were excluded from the outset.

Polygram's case for its own exemption is backed by Ottawa's trade ministry, but opposed by its powerful heritage ministry.