February 5th 2003 - Berlin


Stewart Till
Chairman & CEO, UIP

I am sure I have primarily been chosen to deliver the keynote speech today because, over the last three years, I have had the luxury of four different perspectives of the European film industry.

Once as President of International at PolyGram Filmed Entertainment, the company that probably came closest to the European dream of creating a worldwide production and distribution company - a mini-major.

Secondly, as CEO of the independent producer and distributor Signpost Films, a start up-that failed, I believe, because of the current exceptionally difficult pre-sales market and the even more problematic equity and venture capital markets.

Thirdly as Deputy Chairman of the U.K. Film Council, a Government-funded body, whose mandate is to help create a sustainable British film industry.

And now as Chairman and CEO at UIP, a company with offices in 17 different European countries and distribution arrangements in 18 more.

I must stress that the views you are about to hear are mine and not of any of the above organisations.

So; the future of European cinema.

Well, in my opinion, to paraphrase Charles Dickens in his Tale of Two Cities, cleverly located, by the way, to access both French and British subsidy funding, 'it will be the best of times, the worst of times and the most confusing of times'.

Or to put it another way, I don't have one vision for you. I have lots of predictions, some encouraging, some worrying and some all over the place. Overall, I have a dozen prognoses.

First some bad news. What does the future have in store for the independent producer, working with the independent sales sector' I believe this area of the business is so far down the toilet, even Ewan McGregor in Trainspotting would not have found it.

In many countries, notably Italy, Germany and Spain there are, at best, one or two well funded, active buyers of non-local product. The collapse of the Neuer Markt companies, Leo Kirch, Film 4, the enforced retirement of Cecchi Gori, the tactical retreat of Studio Canal's theatrical distribution; all mean that vast swathes of European buying power have disappeared overnight.

There are huge repercussions.

Sales companies, with so few customers, are struggling to produce sales estimates to raise funds, to sell films, to earn commissions. Summit's takeover of Intermedia's sales function, is indicative of the lack of product to sell and the lack of customers to sell to. Independent producers can't get their estimates backed, because they are so low and the remaining independent buyers, unless they have a Newline deal - you can spot them, as they are the ones clutching box office results muttering 'my precious, my precious', don't have the on going revenue streams, can't find appropriate product, without which they wither, as the release schedule disappears.

In effect the whole independent producer, sales agent, independent distribution food chain is collapsing.

Secondly, some good news:

In 2001 the European consumer spent $15bn according to PWC on filmed entertainment. By 2006 it is forecasted that spend will grow to $20.7bn - a 38% increase.

The European box office is expanding in some countries, like the U.K. with a 13% increase in admissions last year - and France (with a 50% increase since 1992) leading the way, and some countries , such as Germany and Spain dragging their heels with a 2% drop in admissions last year. (although even then there was an increase in Euros revenues).

But the real driver of the overall growth is the phenomenal explosion of DVD, the fastest growing home entertainment product in history. 28 million European DVD homes in 2001, growing by 2006 to 128 million homes according to Screen Digest. Let's say that again, 28 million increasing to 128 million homes in the next five years.

In 2001 the European consumer spent $8bn on video (VHS and DVD). By 2006, Screen Digest predicts, that will grow to Euros 19bn. Ignoring the switch of currency, that is a 150% increase.

In my opinion, that is a very conservative estimate. In France, for example, there has been a 45% increase in just the last 2 years!

The European markets also have Video on Demand waiting around the corner. This new medium produced revenue in Europe in 2001 of $1m. By 2007 it is estimated by the Informa Media Group, that VOD - a medium without manufacturing or shipping costs - will create revenue in Europe of over $1bn, mainly non-cannibalistic (that is not to the detriment of theatrical or sell-through) incremental revenue.

As far as Pay television, I predict short-term pain as various pay channels merge, as per last week's deal between Via Digital and Sogecable.

For the next two years, as the channels integrate in Spain and separately in Italy, they will cut back their programming costs and the independent sellers will suffer. But in the medium and long term, as the merged entity drives up pay subscriptions to BSkyB levels, they will then be able to afford to pay fair and appropriate licence fees for the hit films.

So, with the hoped for upswing in the fortunes of the European broadcaster, the opportunity to generate revenue in Europe will be very significantly enhanced and probably unprecedented.

Thirdly, more good news. Production of Hollywood films continues to move out of Hollywood. Where the next big budget blockbuster will be shot is up for grabs but it will not be in the U.S. In 1990, 71% of U.S. developed films were shot in America. By 1998, according to the U.S Department of Commerce, it was 63%. I bet by the end of 2003, certainly by value, it will be way below 50%.

Europe can compete, as evidenced last year in Britain, where Euros 400m of Inward investment was spent, a figure more than four times the amount spent in 1992.

Certainly Europe has the skill base. It can be value for money. Maybe it is a patchwork of production in Romania and post-production in Germany or in the U.K., but it must be to the benefit of Europe and to the detriment of Sydney and Toronto. Public and private sector forces have to work together to make Europe the destination of production choice for American producers.

Fourthly, looking forward, I predict it will be harder to define what characterises the European film industry. It is already part of a worldwide fragmented industry - dynamic, shifting fluctuating relationships and alliances.

Is French-owned Universal part of the European film industry' How about German-owned Intermedia ' Is Working Title; French, British or American' Is Die Another Day a British film' Is Harry Potter'

Is Cold Mountain, shot in Romania with a British director and leading man, but financed by Miramax, seen as a European film' Probably not, because of Miramax's involvement; but what does that make the nationality of the TFI Miramax joint distribution venture in France'

And in the U.K. everyone is delighted by the recent emergence of a number of British independent distributors, including Australian-owned Icon. Canadian-owned Momentum and German-owned (for the moment) Helkon SK.

Is Rupert Murdoch's film pay channel in Italy; American or Italian' If the latter, what does that make CNN's channel in Italy'

The message is stop worrying about out of date, geographical parameters. Stop worrying abut the nationality of money. We are all operating in a worldwide marketplace and the successful European companies and individuals will be the ones who act locally and think globally.

If we define the future as the next fifteen years (after that who knows) - over that period in terms of consumer expenditure, the European film industry will be worth Euros 420bn.

Audiences will grow, encouraged and ensnared by more and more aggressive and clever marketing. The days of a campaign just consisting of placing the Hollywood originated poster, trailer, TV spot; and finding a good date are long gone. It's now also often about adapting U.S. produced materials, using the internet and being smart promotionally. But, worryingly, the only numbers that will increase as exponentially as consumer expenditure on films, will be the marketing spend. Better news for European advertising space than film distributors in Europe.

Distribution will also get smarter.

One small prediction is every territory will open on a Thursday, creating a four day opening weekend.

Distribution sanity must prevail. The industry must realise that too wide a release with too many prints is a curse and not a panacea. 1,000 print releases in France, for example, will be acknowledged as detrimental to the industry, It increases costs, limits the theatrical life of a film in the cinema, and in the U.K. drives down the distributors' share of the box office.

Next - exhibition will go digital. But savings on print costs won't go back into profit but into marketing.

But digital will widen the diversity of distribution and provide more choice and Cinema will try to schedule less like exhibitors and more like broadcasters. Sometimes distributors will fight it, but there will be more fragmentation of programming by time and by day.

Digital distribution will also help smaller, niche films escape the burden of print costs, breathing new life, in some countries, into the arthouse sector.

Talking of exhibition. I anticipate pass cards will disappear, but there will be more and more price reductions, some constructive and some price war destructive.

Although the single market will produce some conformity across Europe, I believe, for the foreseeable future, there will still be strong, local variations by country involving cinema ticket price, distributors' share of the box office, retail price of DVD and VHS (both rental and sell-though) and by licence fees paid by broadcasters. Although I do expect more simultaneous, across Europe, theatrical release dates.

That notwithstanding, the differences in Europe, as with the rest of the world, between hits and misses will, like other entertainment forms widen, and a gap will become an abyss. Box office records will be broken. The numbers set by Titantic, Taxi, Asterix And Cleopatra, Pinocchio and Manitou's Shoe will be overtaken, but there will also be spectacular write-offs.

Programming choice will widen in response to demand for films, appealing to different demographics, as the audience stays with cinema as they get older.

There won't be any multi-territory European distributors.

PolyGram tried to do it organically and failed - just.

Canal Plus / Vivendi tried to do it through acquisitions - and they failed too. I'm not sure it will be possible for a European company to successfully set up worldwide, or even regional, distribution.

But the European, independent distributor faces a conundrum. It is perilous being a single-territory distributor, putting all of your eggs in the basket of one country. Yet with some honourable exceptions such as Pathe, few have managed to set up distribution outside their home market. I don't believe that will change and distributors looking for economies of scale, will continue to find it in exhibition and broadcasting and not in multi-territory expansion.

I think European production will flourish but I think the financing, distribution and ownership of the productions will become more complicated and less singular.

For example, Italian produced films will be financed with British equity funds and distributed by an American - French distribution partnership. As I said earlier, there will be co-operation across boundaries, across territorial boundaries and across the Atlantic.

Producer power in Europe will reside with individuals like Tim Bevan, Eric Fellner and Luc Besson, who make films for an audience, whilst retaining their European sensibility. Producers who don't try to clone Hollywood product, but also produce with a worldwide audience in mind.

The top producers will align with distributors, to ensure that outside their local territory, where they have the advantage of playing at home, they can harness the marketing and distribution expertise of the big distributors. I would hope that UIP could be one of those distributors, expanding the reach and impact of European films, across the whole of Europe.

The keyword in Europe will become training, as everyone realises, somewhat belatedly, that we are an industry whose primary asset is its people.

Additional resources will be allocated to better and more focused film education and training. Individuals will be encouraged to travel across the Continent, to receive their training and to get a pan-European perspective.

It will ensure the brightest and the best of the next generation will be attracted to the industry, because they will believe their film education will be recognised as relevant and useful and that they can enter an industry that will provide the training that will allow them to grow and progress.

What else ' Well, Finally, I predict working within the European film industry will bring profound satisfaction, happiness, misery, heartache, wealth, financial ruin, cause for celebration, despair, hysterics and pleasure.

Or to paraphrase again that rather fine British scriptwriter, Charles Dickens, again from a Tale of Two Cities' :

'It will be the season of Light, it will be the season of Darkness, it will be the spring of hope, it will be the winter of despair, we have everything before us, we have nothing before us, we are all going direct to box office Heaven, and we are all going direct the other way'.