The European Commission (EC) has ruled that Spain must recover the €265m public funding granted by the Valencia Regional Government in 2000 to the Ciudad de la Luz (City of Light) studio complex in Alicante.

Following an in-depth investigation begun in 2008 into the financing of the studio, the EC has now concluded that no private investor would have accepted to invest on the same terms and that the public funding massively distorts competition between major European film studios.

Commenting on the decision, Joaquin Almunia [pictured], EC Vice President in charge of competition policy, said: “Spain’s cinema sector is dynamic and competitive. Not only is there no need to spend public money to finance a new operator, but, above all, this penalises the existing players and potential new entrants who have to operate without state funding. In the current economic climate, the consequences can be disastrous.”

The studio complex opened for business in August 2005 after its original business plan from 2000 said that it was aiming to be come the studio with the second largest capacity in Europe and to attract Spanish as well as several international film productions each year.

As the EC pointed out in its communiqué, “in practice, the national and international targets have not materialised. Out of 33 films shot in Ciudad de la Luz between 2005 and 2009, 28 were Spanish and 5 EU co-productions. As a result, the commercial operation of Ciudad de la Luz has been increasingly loss-making to date.”

The Commission had opened its investigation in 2008 after receiving complaints from a major European film studio who asked for its identity not to be made public at the time (some claim this was Pinewood Studios) and from another unrelated, but also anonymous major player in the European film sector who had been considering entering the market for film studios itself.

Complainant A, for example, considered in its submission to the EC that the alleged State aid effectively allowed Ciudad de la Luz to undercut efficient private sector competitors on price and believed that there was a serious risk that this aid would undermine both its own commercial viability and that of other providers, particularly in the long term.

In the short term, according to Complainant A, the loss of even a small number of major film productions to Ciudad de la Luz might have a significant impact on its existing competitors, including Complainant A – with some private sector operators leaving the market altogether.

Meanwhile, Complainant B alleged at the time that the State aid from which the Alicante complex was benefitting allowed it to set itself apart from the competitive market, particularly by offering tariffs approximately 25% below those of its competitors who do not benefit from such State aid.

Moreover, the Commission had „serious doubts“ that a decision to invest in a greenfield project away from the big centres of audiovisual activity such as Madrid or Barcelona could result from commercial considerations and was supported in this view by reasctions to its call for comments on the measure.

This decision on the public funding of the Alicante studio complex comes against the background of Brussels’ ongoing public consultation about the state aid criteria being proposed to assess member states’ film aid schemes in the future.

EU member states, private individuals, audiovisual professionals as well as national, regional and local film institutes have until 14 June, 2012 to send their opinion of the draft Cinema Communication to

The final Communication is set to be adopted by the EC in the second half of 2012 since the current state aid assessment criteria are due to expire by 31 December 2012 at the latest.