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» Report 2008
Part Two - ONCE UPON A TIME THERE WAS CELLULOID
WHICH ACTIVITIES AND RESOURCES
Chapter 3 - Regarding supply
The Investments
The Italian investors who gather the primary resources – usually from bank loans – are, essentially, of two types: private and public. The former category includes effective cinema entrepreneurs, or the shareholders of film studios, in turn distinguishable as direct producers, those who directly manage the realization of films, and as indirect producers or co-producers (Italian or foreign) who sustain the financial obligations of the enterprise, the management of which, however, is substantially under the control of another partner in the initiative.
To the public category, on the other hand, belong institutions, entities and public organizations which supply the production companies with financial contributions (in capital accounts, that is free grants, or interest accounts which require total or partial repayment) aimed at the production of determinate cinema projects. The first resource supplier in this sense is the Italian state through MIBAC (Ministry of Cultural Heritage and Activity), with a specific capital called ‘FUS’ (Unique Fund of the Performing Arts), part of which is reserved specifically for the cinema. In parallel, for a number of years, Italian regions have started to play a role with structures going under the name of ‘film commissions’ , similarly the European Union, with funds destined principally for the promotion of single productions in the area of Media programmes and Euroimages.1
A further, highly relevant, category consists of public capital companies which act as operational instruments such as Rai Cinema of the Italian public television (Radio Televisione Italiana). Rai has a formal, private legal character in so far as it is a ‘spa’ (società per azioni or joint stock company similar to a Public Limited Company in the United Kingdom), however, it is almost entirely in the possession of the Ministry of Finance and Economics (99.9%), and Cinecittà Holding is also under the charge of the Treasury, though under the control and vigilance of MIBAC which exercises the rights of the shareholders. Rai produces by itself but to a greater degree acts as a buyer in independent cases; Cinecittà Holding works directly through the ‘Istituto Luce’ – manager, also, of the national film archives – and is active in industrial aspects (development laboratories, printing) and services (studies of manufacturing, equipment and systems, scene preparation, overseas promotion).

On the margins of this synopsis of national production there is the need, however, to add a quota of foreign capital that enters into the investment of Italian films. In actual fact the investment results so little that those – few – financed and set up by filial-companies belonging to international groups with sites in Italy are, therefore, considered of national origin, and those – more numerous and clearly of greater weight – realized in co-productions, that is, in cooperation with national film studios and foreign operators.



Source: “Il cinema italiano in numeri” (Italian Cinema in Numbers) (from 2002 to 2008) by the ‘Ufficio Studi/Ced Anica (National Association of Cinema, Audio-visual and Multimedia industries).

As can be seen, the quota of public funds in comparison to private investment in 100% Italian productions has followed, over the years, a vacillating trend. From little less than a third in 2002 they passed to almost half in the following two years, then falling to less than a sixth and little more than a fifth respectively in 2005 and in 2006, then again they began increasing to a little less than 20% in 2007 and 2008. What emerges is the relative convergence of the two trends: in correspondence with the decreases and increases of state financing also private investment reveals highs and lows, changing or inverting their tendency curves. The incidence of FUS contributions to the co-productions, however, is inferior, with a fundamentally uninfluential trend in terms of the variance on the movement of resources of private Italian producers.
The global entity of investment for Italian co-produced films results, on the other hand, clearly superior to the total budget for national cinema projects. The time series of average investment reveals the constancy of Italian investment, which assigns to the co-productions resources more or less the same, in quantity, as those intended for entirely domestic productions..



Source: “Il cinema italiano in numeri” (Italian Cinema in Numbers) (from 2000 to 2008) by Ufficio Studi/Ced Anica (Associazione nazionale industrie cinematografiche audiovisive e multimediali) - * By film production is meant films which have obtained a motion picture rating in the year referred to. Films of an explicitly pornographic nature are not included. By Italian films is meant all films produced with 100% Italian capital.


PRIVATE CAPITAL

From the moment that they generate 78.5% of all the resources used, private investors have fundamentally been responsible for Italian film productions. This generally refers to invested capital, as stated, of the very same companies that then directly produce films, managing the realization of the product. In respect to the titles effectively put on the market – around 120 a year – and the data expressed in the statistics – there are 6,410 film companies registered by the Italian Chamber of Commerce – such a figure appears somewhat excessive, even taking into consideration the so-called technical and executive companies of pre and post-production, printing and reproduction and studios. In actual fact, as is clearly seen in chapter five, limited companies amount to 3,064 and, of these, the companies which can be described, to a certain point, as operational amount to 1,124 almost equitably subdivided by class of sales revenue: the so-called minor companies, of small or very small size amount to 652; the larger companies, from average to large size, on the other hand, amount to 472.
A partial verification of this is provided by the “Elenchi delle imprese cinematografiche” (‘List of Cinema Sector Companies’) created by the general direction of the cinema of MIBAC – Ministry of Cultural Heritage and Activity – with legislative decree number 28 of 22nd January 2004, with which the laws which regulate the concession of state contributions through FUS (Unique Fund for the Performing Arts) have largely been reformed. Registration on these lists (along with that of all film projects registered with PRC – the public film register managed by SIAE which, from 1938 to the present includes over 10,000 films and 22,000 short films), despite being of a formal nature and referring only to vital statistics, constitutes a preliminary condition for the presentation of incentive requests and the eventual assignment of contributions. The latest available results signal – out of a total of 2,323 company titles – the presence of 529 companies in the production sector: 424 exclusively in production and 105 companies also active in film distribution. Of these, 504 are limited companies, 352 founded in the last fifteen years, a mere 69 with a dependent staff of over 15, and 238 with a staff of less than 15 (the remaining 197 do not give information regarding their staff turnover).
In substance, we can conclude that among the film studios, understood in the restricted sense as a nucleus of 100 companies – as illustrated in detail in chapter 7 – show themselves to be operative in a stable and fully continuous sense, the other 370 – due to the limited number of Italian films annually put on the market – are involved in the development of single projects that, within a period of one or two years, produce films and that, in rotation complete the national film market supply, whereas another one hundred companies have only managed, from their foundation to the present, to put on the market a single title without ever again reappearing on the national distribution market.2



Data of the period 1990-1998 from the research “Il cinema tra arte e box office: reputazione e relazioni” by A.Usai, F.Montanari and G.Delmestri (Artwork and Network, edizione Egea, Milan 2001) and for the period 1999-2007 by the corresponding edition of “Annuario del cinema italiano & audiovisivi” (edizione Centro studi di cultura promozione e diffusione del cinema, Roma). - * The calculated total of productions and co-productions under consideration results, for the period 1990-1998 equal to 804 productions, and for the period 1999-2007 equal to 1,316 total films.

Over the years the resources that national cinema entrepreneurship offers have always, nevertheless, been of a small scale. This is the case not only in respect to the “rich” cinema industry of the United States, which has the highest average investment in the world for around 600 annual productions (590 in 2007) nine times higher than that of Italy; but also compared to other European nations:. Within the last ten years, for instance, Italian investment corresponds to around 23.5% of that registered in the United Kingdom (national titles for 2007 amounting to 46), furthermore, to 32.5% of German investment (78 motion pictures), to 39.0% in France (133) and is 11% less than the average Spanish budget (for 115 films) – here we are dealing with the four other large European markets – whereas the total for the European Union in general reveals an average index 2.2 times higher. Also Japan and Australia have higher average investment in this sector, 59.5% and 15.5% respectively for their domestic productions, 407 and 24 in 2007. The only country inferior to Italy in this sense is India with over a thousand films produced each year (1,091 in 2007), thanks also to the modest investment of initial capital, on average equal to around 1.2 million euros.3


PUBLIC FINANCING

Public funding has always been a cause for much controversy due to the objective difficulties in managing such concessions with absolute equilibrium and attention as well as to the full satisfaction – something still more difficult and complicated – of all applicants, especially those applicants whose requests are ignored. In actual fact, up until the normative reforms of 2004 the concession of financing has been the target of much criticism: of the 327 films financed in the nine years preceding the reform only 6% managed to obtain box office results at least equal to the received contributions; 11% of the projects were not even completed; 85% of assigned contributions have never been recuperated, transforming themselves, principally, into lost funds.
In spite of the inevitable doubts and controversy it is, nevertheless, necessary to highlight the extreme transparency of such a system of incentives regulated in terms of legislature and entrusted to the general direction of the cinema of MIBAC as regards the FUS – Unique fund for the performing arts. The judicial contents examining the requests for finance have become, over time, continually more detailed with mechanisms attributing evaluation points which do not seem to leave much to discretion; the settlement of applications is subject to continuous revision, even for the updates brought about by decree or on the request of the constitutional court or the national audit office (Corte dei conti); the reports on the allocation of finances are made public (a circumstance rarely verifiable within the vast panorama of state contributions placed in favour of other industrial, agricultural or commercial sectors) and indicate in great detail the decisions adopted by the commissions that assess, according to the numerous costs, the presented documentation; all of the deliberated amounts are reported (the pages dedicated to the cinema are, in total, more than 200 out of a total of 550).
The support interventions of the national cinema industry – within the field of policies favouring audio-visual systems - are, moreover, found in almost all the nations of Europe in a countless number of ways. For example, the support interventions for audio-visual activities is valued inside the European Union as equal to 22.35 billion euro, corresponding to around a third of contributions (66.72 billion) conceded to other sectors, obviously excluding all those of general interest regarding primary services (such as railways, transport, energy, infrastructure etc.,). It is enough to state that the budget of the French minister of culture has assigned in support of the cinema and audio-visual industry – through CNC, Centre national de la cinématographie – 540,6 million euros, 279,6 of which are directly destined to the production, screening, and export of national films. In particular, Italy – which also depends on a public network such as that of the RAI - a figure which results in tenth place in terms of expenses of Italian nationals in support of the audio-visual system. 4
In contrast to the majority of European Community members Italy has never acted in favour of the influx of investments for the production of new national films and this gap has only recently been closed. In 2009 an innovative regime of tax breaks, specifically for the cinema industry, came into effect, operating for a three year period, with measures consisting of two forms of assistance: tax credits and tax shelter. These benefits refer to investment in Italian films, even if the extension into technical industries (for example pre and post-production, development and publication, dubbing) employed in the production of foreign films, can be foreseen. Of particular interest is the introduction of so-called external tax credits, or rather the recognition of tax incentives for companies outside the cinema sector which contribute to the investments destined for film productions.5
Such measures are largely in expectation, primarily intended to reinforce the influx of investment resources, on the part of, for example, banks, mutual savings banks and financial groups which, in virtue of the eventual capital contributions to production (susceptible, in turn, to further positive economic returns) can avoid the gains tax resulting from their principle activity. Outside of Italy the use of tax levers for financing film production is far more widespread and established. The most advanced nation, on this front, is the United Kingdom with a tax exemption of 100% and a tax offset of 25% for every film which has a budget of less than 29 million euros and a tax allowance of 80% with a tax offset of 20% for all of the others. In France private companies which decide to invest in the national cinema industry deposit their resources in the Société de financement pour le cinéma et l’audiovisuel thereby enjoying a 100% deductibility within a 25% taxable income limit and a tax offset corresponding to 20% on admissible expenses arriving at a level of 1 million euros.6



Taken from data of Sicoge (Servizio informativo contabilità gestionale) by the Ministry of Economics and Finance – Source: “Relazione sull’utillizzazione del Fondo unico per lo spettacolo – 2007” edited by Osservatorio dello spettacolo of MIBAC – Ministry for Cultural Heritage and Activity.

Lt should be pointed out, however, that the intervention of the state in the performing arts is not solely in terms of resources originating from FUS-MIBAC, in as much as such contributions can also be assigned by the President of the Republic, from the Cabinet and from other ministers (such as the Foreign Office and the Communications Office). Further indirect forms of support are implemented in favour of single, specific activities through financial incentives – however, the total amount is not known – and which, until the end of 2008, did not involve the cinema industry.
As far as the specific sector of production is concerned there are two types of assignment: contributions of quality for film projects, also defined as indirect financing of production, and quality premiums on the film’s earnings. In terms of management profile, however, only the former can be considered technically the same as investment capital and this refers to four diverse types: feature films judged as being of cultural interest (initialized as IC); primary and secondary works – defined as such on the basis of the professional curriculum of the authors – of quality (OPS); original screenplays of a particular value (with the acronym SSO), short films of cultural interest (CO). In the following table the principle referents are shown by title, considering, moreover, that generally the recognition time and that of material supply of contributions do not cover the same calendar year and therefore certain inconsistencies may be seen among the figures.
.



Source: “Relazione sull’utilizzazione del Fondo unico per lo spettacolo – 2007” edited by the Osservatorio dell spettacolo of MIBAC – Ministry for Cultural Heritage and Activities and “Il cinema italiano in numeri – Anno solare 2008” edited by the Ufficio Studi/CED (National Association of Cinema, Audiovisual and Multimedia Industries).

The importance of state contributions supplied by FUS principally derives from the possibility of film makers, as creators of artistic projects, to ensure added investments which often permit the principle financers, such as film studios, to impose an estimated budget which is compatible with the prospective economic returns, inducing them, as a consequence, to define an investment plan (primarily through the credit system, starting with the Banca Nazionale del Lavoro which has a department for cinema credits, in consolidation with that operational branch of programs of intervention and state incentives) and thereby to begin production.
An example of this point of view is offered in the following table of allocation, by film company, of the indirect contributions to production organized in 2007 by FUS.
State contributions, in every case, represent only a part of public financing for culture and the performing arts, including cinema. According to the latest study, state contributions amount to only 30%, in respect to 26% from the Italian regions and 44% from the municipalities.7
Throughout local institutions can be found the constitution of the so-called Film Commission, an organization for the development of cinema activity in Italy, initially promoting the offer of a location for work in progress, the organization of reviews and festivals and the location of companies. Within a short time, however, such organizations principally established at the regional level, have, with a specific intensity, dedicated themselves also to directly sustaining the production of new motion pictures.8



Source: General Direction for the cinema of MIBAC (from “Relazione sull’utilizzazione del Fondo unico per lo spettacolo – 2007” of the Osservatorio dello spettacolo.

The region of Campania (a growth area within the tertiary sector and the promotion of tourism) has, for instance, in 2007 allocated a fund of 1.35 billion euros for the participation and co-production and, of the 148 requests of the audiovisual sector has declared admissible 59 and directly financed 30 – among which “Il Divo” produced by Indigo – for an amount of 1.154 million euros (8 out of 15 musicals for 108 thousand euros and 10 out of 30 theatrical shows for 162 thousand euros.
Within this programme of film funding the Apulia Film Commission of the Apulia region in southern Italy has, in turn, allocated 11 contributions in 2007 for seven films, three short films and a documentary for 258 thousand euros and in 2008 another 30 for ten films and 20 for short films and documentaries for 463,2 thousand euros, amounting to a total investment of 721,1 thousand euros. Fuori Film Fund has, furthermore, paid out funds amounting to 960 thousand euros to television films of the state broadcasting company RAI “Pane e libertà-Giuseppe Di Vittorio” and 30 thousand to “Il grande sogno” by Michele Placido.
The Torino and Piemonte Film Commission, the first established in 2000, financed within its first seven years of activity a total of 87 films with an average of 70 thousand euro per title, and has recently signed an agreement with the American producers Endgame Entertainment for the establishment of a new investment company with a capital of 14 million euros and prepared to operate at both the levels of finance and production as well as being a guarantee fund for projects addressed to the international market. 20% of the endowment will have to be used within the Piedmont borders and the intervention for each film cannot exceed a maximum of 4 million euros nor 25% of the total budget.
The region of Sardinia has, on the other hand, allocated 7.5 million euros for the three year period 2008-2010; the Friuli Venezia Giulia Film Commission has granted, through the same Film Fund up to 140 thousand euros of contributions to productions which intend to film scenes on regional territory; the Lazio Film Commission, in operation only since 2007 has made available a budget of 7 thousand euros for ten interventions; even the province of Milan has begun a support programme for local productions with an announcement arranged by the departments of culture and innovation offering 700 thousand euros for documentaries and short films.
These are only a few examples to demonstrate a far more extended realm, but, nevertheless, they are not entirely clear as regards the activity, the institutional configuration and administrative organization which characterize such, still rather informal, structures.9

1 Every year numerous contributions of individual, regional, local and national administrations can also be counted. These directly subsidize the production of works of public interest to various titles, particularly under the promotional profile of their activity or their area of competence.
2 They are reported with the indicative title – and without any value of statistical classification – the records, emerging in the course of research, relative to the works nominally participated in and signed (albeit through various companies) by the most actively engaged entrepreneurial producers (with more than 5 productions) during the nine years taken into consideration: Riccardo Tozzi with 39 database films; Domenico Procacci, Marco Chimenz and Giovanni Stabilini 37; Gianluca Arcopinto 24; Marco Valsania 19; Donatella Botti 18; …………………..Gherardo Taglieri 6.
3 Reference data treated by “Focus 2008 – World film market trends” of the EAO – European Audiovisual Observatory of the European Union, edited by Martin Kanzler, analyst of the Information on Markets and Financing Department of the same European observatory.
4 “Analyse comparative du financement du secteur audiovisual public” edited by Andre Lange, head of the ‘information sur les merchés et les financements’ department of European Audiovisual Observatory. (July 2008).
5
The normative dispositions are contained in article 1 of the law number 244 of 24th December 2007 (financial law for 2008) to paragraphs 325 – 327 in reference to the tax credits and to paragraphs 338-341 for the abolition of utility taxes. A profound analysis of the new measures is contained in “Agevolazioni fiscali per il cinema. Studio in materia di credito d’imposta per l’industria cinematografica italiana” by Gian Marco Committeri and Mario La Torre December 2008.
6 An expositoin of the system of tax breaks in use in other countries is contained in “Il mercante e l’artista-Per un nuovo sostegno pubblico al cinema: la via italiana al tax shelter” edited by Angelo Zaccone Teodosi, President of SICULT (Istituto italiano per l’industria culturale) and by Bruno Zambardino and Alberto Pasquale (Spirali Editore), in which the proponents of the new measures Gabriella Carlucci and Wilmer Bordon trace the evolution of normatives in Italy in terms of financing and maintenance of cinema production.
7 Estimate of ISICULT – Italian Institute for the Culture Industry (convention “Una legislatura innovative per lo spettacolo italiano”, Rome 9th April 2008).
8 Un as yet incomplete list for the progressive institution of such structures can include: Abruzzo Film Commission; Alberbello Puglia Film Commission; Afc – Apulia Film Commission della Regione Puglia; Basilicata Film Commission; Bologna Film Commission; Calabria Film Commission; Campania Film Commission; Capri Film Commission; Catania Film Commission; Città di Palermo Film Commission; Emilia-Romagna Film Commission…………………………… ……………………………………Veneto Film Commissionn.
9 A film commission can be either a board, an agency, or a service supplied by a local institution on a non-profit basis. Generally it has the scope of attracting cinema and audiovisual productions in a determinate territory and offers production a series of free services, also as a form of incentive, with the objective of creating opportunities and economic fall backs for the territory – also in the sense of employment opportunities – and for the activities of local companies. The majority of film commissions in Italy are associated with Italian Film Commissions and are promoted and subsidized by public administrations of the Regions, Provinces and Municipalities as well as, in many cases, the chamber of commerce. In the absence of a normative outline these structures are customarily managed in terms of auto-regulation, taking as an example the regulations of AFCI – the international film commission. The financial endowment of the film commissions refers to diverse local authorities, which manage their direct interests for them – those bodies with a judicial personality – also the preparation of the relative administrative acts. As an agency of territorial attraction of a public character they seem to re-enter into the administrative and managerial nest which disciplines the so-called public role in territorial marketing. Aside from film commissions there also exists the less complicated Film Office, generally adopted by municipal territories with a high rate of production (such as New York) which intend to carry out activity primarily in the form of managing of permits and the offer of information. This type of choice has also been made by the City of Rome, which also belongs to the regional film commission..

 

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