"PLUS CA CHANGE, PLUS C'EST LA MEME CHOSE": EUROPEAN COPRODUCTION REMAINS VIABLE, FOR NOW

by David M. Given

FromThe Entertainment and Sports Lawyer, Fall 1995.

The international coproduction, despite its complexity, was once thought of as providing the domestic motion picture industry with great opportunity: eligibility for financial support in the forms of loans, government grants and subsidies, and tax benefits; below the line and facilities deals; greater intrinsic value in the motion picture in countries abroad; and the spreading of financial risk, among other things. It was also understood that such arrangements allowed a U.S. based producer to exceed film and television quotas in certain countries, where the project might then qualify as a "local" film. This latter consideration was especially important in Europe, long a lucrative market for the U.S. film industry, and drove many European coproductions with domestic motion picture producers in the late 1970s and 1980s.

The rules appeared to be changing with pending international trade agreements, and the once unassailable assumptions supporting resort to international coproduction were, briefly it seems, in question. Then the European Economic Community (EEC) forced the withdrawal of audiovisuals from the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), enabling the EEC's protectionist audiovisual trade policies to remain intact, indeed to flourish. 1 The U.S. and EEC, in effect, agreed to disagree on major entertainment industry issues.

Without resolution of the audiovisuals dispute, and with GATT ratified by the U.S. Senate, the raison d' etre for international coproduction appears safe,  for now. International funding continues to be available, even as the EEC broadens its trade restrictions, adversely affecting U.S. control over these projects and U.S. access to European markets. The continued viability of European coproduction for the domestic motion picture producer depends, however, in large measure on the willingness of the U.S. to live with several unresolved issues in this area as they pertain to EEC trade policies and GATT, and the EEC's and its member states' actions on audiovisual content and broadcast. 2

 

European Countries and the EEC

Europe, the U.S. film industry's best customer, is an enigma. U.S. produced works currently account for 72 percent of the European film market (while in turn, European works account for only 1 percent of the U.S. market). 3 Already a lucrative export market, Europe appears to present even greater opportunities since the trade barriers between certain European countries have been broken down by the EEC treaty. 4 In addition, various countries' broadcast media have been privatized, leading to increased demand for audiovisual media, both American and otherwise.

Following GATT, U.S. producers continue to address and resolve two levels of exclusionary measures that are presented by both the EEC as a whole and member states individually. The EEC measures relate to the transmission of broadcasts. The individual state measures affect what coproductions may receive in the way of government subsidies and tax breaks. While broadening audiovisual possibilities within the European Community, the EEC has also enacted measures severely limiting U.S. entry into their newly liberalized marketplace. As a result, individual member states have enacted or further restricted non-European entry into their individual marketplaces, even as coproducers. The U.S./EEC film industry conflict stems basically from two European measures (the Broadcasting Directive and the Convention on Transfrontier Broadcasting) and remains unresolved following the Uruguay Round of GATT negotiations, while bickering continues over what TV is: a service or a product.

For Europe, U.S. dominance of the motion picture and television industries has become a cultural nuisance. Although films are shot and produced in Europe, those films are far less widely received around the world than U.S. productions. Further, Europe lacks the level of audiovisual production resources of the U.S. Aside from money, European governments fear that U.S. broadcast and film industries push a homogeneous "American" view of culture and politics onto European viewers.

Thus, during the decades the U.S. has profited from free access to the European film market, Europe has become increasingly dissatisfied. As a result, individual countries as well as the EEC have enacted harsh protective measures. EEC countries must transmit only a certain percentage of foreign programming, and European works must consist of a certain percentage of European investment and service. Worse, individual countries are restricting the amount of coproductions U.S. producers may take part in and still be counted as eligible for subsidies under national standards. 5

The connection between the EEC directive and individual countries' standards is that the EEC has required member states to reconcile their national laws with the directive. As a result, the directive represents only a minimum set of quotas. It is likely that member states will devise even tighter and stricter quotas for outsiders (read: the U.S.) to meet, in the absence of bilateral negotiations regarding the legitimacy of the directive or action under GATT.

 

The Broadcasting Directive

The EEC first enacted the Broadcasting Directive, an extension of the EEC treaty, in 1989. 6 The Broadcasting Directive encourages a free internal flow of European audiovisual products and services among the member states, liberalizing broadcast freedom and competition. While the Broadcasting Directive deals nominally with television, it implicates the U.S. film industry because of the broadcast of films on television.

Article VI of the Broadcasting Directive states: "Member States are to ensure, where practicable, that broadcasters within their jurisdiction reserve a majority proportion of their transmission time (excluding time appointed to news, sports, games, advertisements, and telex services) to European works." 7  For a coproduction, the test of a "European work" is that the work:

  • originates in Europe;
  • is "mainly made by authors and workers residing in Europe;" and,
  • "contribution of coproducers established in one or more states to the total coproduction costs is preponderant and the coproduction is not controlled by one or more producers established outside those states." 8

Works which do not meet this definition are foreign works subject to the quota limits, though works which are mainly made by European residents are exempted from the quota to that degree of contribution. 9

The officially intended and idealistic effect of the transmission quotas is to consolidate European national legal frameworks to allow for European broadcast diversity which remains distinctively European. A coproduced work is not European unless the "contribution of [European] coproducers... is preponderant and the coproduction is not controlled by... producers established outside [member] states," or, mathematically speaking, at least 51 percent of the input into and control over a production must belong to the EEC member states. 10

The Broadcasting Directive ultimately works to weed out outside influences and investments, including those with U.S. origins. Europe is fighting U.S. eminent domain over worldwide television culture (take that, MTV). The European majority requirement limits both the amount of investment and the degree of control which U.S. producers may have in the European audiovisual market. U.S. motion picture interests have labeled the requirement as a "maimed, disabled theory ... alien to the very objective of GATT, which is to reduce trade tension and break down trade barriers. 11

 

The European Convention on Transfrontier Broadcasting

The Council of Europe initiated the Convention on Transfrontier Broadcasting around the same time as the EEC passed the Broadcasting Directive. 12 The requisite number of states ratified the Convention on May 1, 1993. 13 The convention closely mirrors the directive in intent and uses similar if not exactly the same language throughout. Like the directive, the convention imposes quotas on outside input. The difference between the two is that the council is comprised of all twelve EEC member states plus thirteen additional European countries. 14 Therefore, it serves to exclude the U.S. from twice as many potential markets. However, the convention leaves open the possibility for adaptation, and may prove flexible, although it remains to be seen just how flexible.

 

Regulations of Individual European Countries

The Broadcasting Directive seems bad enough but things get worse at the member states level. The directive has charged its member states with bringing their national laws up to par with the directive, with the directive as a minimum quota from which to start. France is the worst example of how individual countries have taken the directive and run with it. France requires 60 percent of its transmissions to be European and 50 percent of its transmissions to be in French. Its definition of a European work is stricter than the directive:

  • the producer must be headquartered in a member state and be controlled by member state citizens;
  • at least 50 percent of the total production cost must be financed by member states or companies headquartered in member states;
  • two-thirds of the total production cost must he incurred in the EEC;
  • two-thirds of the directors, producers, cast, and crew must be EEC residents; and
  • two-thirds of the technical services must be performed in EEC studios and laboratories.

U.S. producers cannot exploit European film resources merely by incorporating a production company in France or Germany; access is severely restricted. 15

 

In Europe, Movies Are Services, Not Products

An intermediate EEC move which concerns the U.S. film industry was the passage of "Council Regulation of 8 June 1993 Concerning Access to Public Contracts for Tenderers from the United States of America. 16 This regulation memorialized the EEC decision to treat the coproduction of a film as a service, not a product, so as to attempt to exclude it from the GATT agreement forbidding trade barriers between the EEC and the U.S.

 

GATT: U.S. vs. EEC at the 1993 Uruguay Round

Article IV of GATT expressly mandates if any participating country "maintains internal quantitative regulations relating to exposed cinematographic films, such regulations shall take the form of screen quotas. 17 Numerous countries possessing more than a de minimis amount of television industry supported this measure. GATT thus allows for the establishment of regulations favoring domestic film productions over foreign film productions.

Article IV further provides that any such quotas imposed by a country may favor only films of "national origin" and must be quantifiable and negotiable. 18Most important, the regulations must not favor one foreign country's films over another's. While the Broadcasting Directive and the Convention on Transfrontier Broadcasting appear to directly conflict with this provision of GATT, an important caveat to Article IV is that a country which is part of a union may favor other countries that are part of that union. Nonetheless, the U.S. has protested nonmember states being given preferential treatment.

Television is treated differently than film in GATT. For the United States, a point of contention is that television was not included in the GATT Article IV regulations dealing with film. The U.S. has maintained that television, like film, is a product. Opponents to this view argue that television is a service and maintenance of their national cultures depends on a cultural exception to GATT. 19 The United States counters that television as a medium is too definitively multicultural to be used to maintain a single culture. 20 The battle continues without resolution.

 

How International Coproductions Work

Coproductions make it possible for two or more countries to contribute to the financing and production of a film or television program. More than just agreements to work together, coproductions enable partners to benefit from the national subsidies and taxbreaks available for film productions in each partner's nation. 21 In practice, a specific coproduction can be one of several different arrangements, with coproducer relations ranging from in name only to all the risk, control, and gain.

The term "coproduction" originally denoted that the coproducers controlled creative and practical aspects of the film production according to their respective financial contributions. 22 Coproduction also connotes a mere co-financing arrangement, where coproducers share the financial burden but not the control. Last, coproduction may refer to an agreement between producers that their "two equivalent national productions should be treated as coproductions, thus qualifying the two films for financial benefits available in both countries." 23 This creative interpretation, foiled by the directive, is also called "twinning."

Because of the politics involved, international coproduction is more complicated than a mere contract dividing responsibilities between parties. The agreement may involve multinational treaties and complicated regulations. Most countries in Europe provide government subsidies for "local" productions. If a U.S. producer wants to take advantage of such subsidies, he or she must jump through the appropriate hoops. Additionally, if the U.S. producer's film does qualify as local, it will not count toward the EEC or country's quota for foreign films. 24

 

Why Coproduce Internationally?

The U.S. stranglehold on film industry is slipping. Because European audiences provide enormous revenues to the U.S. film industry, U.S. film producers' access to this market is crucial. The European market is not just a key film industry moneymaker: Films are a mainstay of U.S. export revenue in general. 25

Coproduction, operating effectively, can provide the U.S. with continued revenues, financial support for its works, and the ability to sell media works to its most important export market. 26 In return, coproductions can provide the European market with works that perpetuate European ideals and cultural representation; enable European competition with the U.S. products; advance European technical proficiencies and opportunities; and provide revenues for the European film community. On its face, coproduction is a winning situation for the parties involved.

Coproduction is not simply a byproduct of increased U.S./EEC cooperation and creativity. For the U.S., coproduction has become a practical necessity. Film production has always been synonymous with uncertainty. The business presents constant risks, beginning with the initial investment of millions of dollars with absolutely no guarantee that film goers will show up. This uncertainty alone provides the motivation for most film producers to want to spread the risk, a desire compounded by the imminent loss of EEC profit potential presented by the EEC directive. Even more influential than the practical uncertainty are production costs. The cost of producing a U.S. blockbuster starts at $30 million. The decline of the U.S. dollar has produced an increasing demand and supply for foreign contributions to U.S. film projects: Such contributions have almost doubled from 20 percent to the 30-40 percent range. 27

U.S. producers often find it costs less to shoot in a foreign location. If that country already possesses the technical equipment and qualified personnel, the cost has already dropped even without the tax benefits and other government subsidies which may exist in that country. Many U.S. producers shoot in England, where there are experienced technical crews capable of creating the effects and structure that a U.S. blockbuster requires.

U.S. film producers must compete not only among themselves but with U.S. television networks as well. The enlargement of media options such as home video, cable, and payperview shrank the film audience and film industry profit while promoting television networks' interests in producing their own films for initial broadcast on television. U.S. film producers now have more national, international and intranational competition than ever before. The need to coproduce works if that is the only way into a markets is clear.

 

The Mechanics of International Coproductions

European film productions have, to a noticeable degree, been successful results of international coproduction agreements. Europe is the center of international coproduction. In fact, about one third of European productions are coproduced with other countries. 28 Just in the last few years, even attention deficit disordered Americans may recall the international coproductions that have become sleeper hits in the U.S. (at least among independent film aficionados): Priscilla, Queen of the Desert; the Academy Award winning The Crying Game, Louis de Malle's Damage, and film fest fave Orlando. 29Ironically, U.S. producers need to get involved in coproductions with Europe more than ever before, just as the EEC is closing its banks' doors to coproductions with outsiders.

European and British Empire countries have typically organized their international coproductions through coproduction treaties. For EEC Member States, those treaties are supplemented and may be eclipsed by the EEC Directives. If a U.S. producer has a hold of a foreign coproducer, he or she should examine the particular country's and the EEC's requirements in order to exploit any national finance resources. Aside from the EEC Directive regulations, each country typically has its own rules for giving grants, subsidies, and tax breaks. Some nonmember European countries with more depressed economies than ours welcome location shoots with financial rewards because the shoots bring jobs for their citizens.

The major EEC funding sources are: Eurimages in France, the European Coproduction Fund, MEDIA Programme, and the European Script Fund all in London. These groups all offer enticing grants, but be aware: the member state coproducer must typically be the main contributor, up to 70 percent in some cases. (Helpful descriptions of these funding sources as well as their addresses are available in a pamphlet entitled Sources of European Feature Film Funding by Brown Cooper Solicitors.) 30

When two countries have a coproduction treaty, the film is eligible for funding from both countries as if they were a separate production of each country. If a U.S. filmmaker wants to attempt to qualify her film for multiple foreign funding with a foreign coproducer, that could mean twice as many quotas to meet or half as many contributions and decisions the U.S. producer has to or can make.

If a U.S. filmmaker does not already have a foreign/E.E.C. coproducer and wants to pursue that angle, there are a number of European production-distribution companies who are available to be coproduction partners. They range from the familiar Merchant Ivory to the obscure (for Americans) UGC in France. 31

 

Conclusion

That European coproduction with U.S. film industry interests survives in an environment that is, by definition, hostile to it is a measure of its resilience. Ultimately, large motion picture projects benefit from the funding opportunities and the ability to spread risk that coproduction affords. Whether U.S. interests decide to take on the European quota system remains to be seen. In the meantime, domestic producers should continue to explore the funding available for coproduction projects, ever mindful that the rules are difficult, complex, and subject to change.

 

David M. Given practices law in San Francisco, and is the editor of the Entertainment and Sports Lawyer. Mr. Given wishes to thank Melanie Jones and Karen Mandel for their research and editorial assistance.

 

Notes

  1. Lisa L. Garrett, Commerce Versus Culture: The Battle Between the United Stares and the European Union Over Audiovisual Trade Policies, 19 N.C.J. INT'L & COM. REG. 553 (Summer 1994).  
  2. Id.  
  3. Howard M. Endelman, Regulating Culture: The Audiovisual Controversy in the GATT Accord, 18 B.C. INT'L & COMP. L. REV. 443, 445 (1995).  
  4. Anne Moebes,  Structuring Media Joint Ventures in the European Community, 14 HASTINGS COMM/ENT L.J. 1, 2 (1991). Member countries are: Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, and the United Kingdom.  
  5. Charles Moore & David St. John White, European Television in the 1990s: Tuning out American Producers?, ENT. & SPORTS LAW., Fall 1990), page 8. 
  6. Council Directive of October 2, 1989), on the Coordination of Certain Provisions Laid down by Law. Regulation or Administrative Action in Member States Concerning the Pursuit of Television Broadcasting Activities, 89/552, 1989 O.J. (L 2C98) 23 [hereinafter Broadcasting Directive].  
  7. Broadcasting Directive, supra note 6, Art. 4.  
  8. Id., Art. 6.  
  9. Id.  
  10. Id.  
  11. Review of the Uruguay Round. Commitments to Open Foreign Markets: Hearings before the Senate Comm. on Finance, 102d Cong., 1st Sess. 150 (1991) (statement of Jack Valenti, President of the Motion Picture Association of America). 
  12. Jon Filipek,  "Culture Quotas": The Trade Controversy over the European Community's Broadcasting Directive , 28 STAN. J. INT'L L. 323, 324 (1992), citing COUNCIL OF EUROPE, EXPLANATORY CONVENTION ON TRANSFRONTIER TELEVISION (1990).  
  13. Commission of the European Communities, Report on Application of Directive 89/552/EEC (1995)  
  14. Filipek, supra note 12, at 324.  
  15. Moore, ct al., supra note 5, at 12 (citing JOURNAL OFFICIEL DE LA REPUBLIQUE FRANCAISE of January 18, 1990, 757.).  
  16. Council Regulation 1461/93, 1993 O.J (L. 146) 1.  
  17. General Agreement on Tariffs and Trade, Oct. 30, 1947, 55 U.N.T.S. 187, art. IV (Special Provisions Relating to Cinema Films)  
  18. Id.  
  19. Filipek, supra note 12, at 333  
  20. Id.  
  21. Margaret Moore, International Film CoProduction Tax and Subsidy Mechanisms, 16 HASTINGS COMM/ENT L.J. 287, 289 (1994).  
  22. Id.  
  23. Id.  
  24. John W. Cones, 43 WAYS TO FINANCE YOUR FEATURE FILM: A COMPREHENSIVE ANALYSIS OF FILM FINANCE (1995)  
  25. Endelman, supra note 3, at 445.  
  26. Id.  
  27. Review of the Uruguay Round, supra, at 149.  
  28. Moore, supra note 21, at 289.  
  29. Moore, supra note 212.  
  30. 7 Southampton Place, London WC1A 2DR England.  
  31. See Sources of European Feature Film Funding, supra text, for names and addresses.