The international film industry has now seen a year in which high expectations of a buoyant film market have fallen flat. Not enough to be a bona fide crisis, but enough to create the flap of butterfly wings that might yet cause a hurricane in the future.
The 2008 European Film Market in Berlin has been better than most with some strong deals done. But that unequivocal sense of forward momentum for the independent industry is still missing. However, beyond the walls of the Martin Gropius Bau this year there were signs of highly significant change, particularly for Europe.
That change is partly driven by a set of problems that have been undermining the independent sector for some time. While not definitive, these issues have crystallised into a consensus:
- The influx of US product, pumped up by hedge-fund billions;
- The challenge of convergence and particularly piracy and digital distribution;
- The erosion of clear revenue from television and DVD;
- The lack of progress on digital cinema.
But most of the change is being driven by business deciding to tackle the issues head on. In the last week, we have seen announcements of new European distribution and production plans from Tarak Ben Ammar's Quinta Communications, Universal Pictures International and Nordisk Films.
And Wild Bunch is plotting its own pan-European future, appropriately enough this year in its hut away from the main market building, surrounded by the images and paraphernalia of Che Guevara's Cuba.
A distribution revolution is happening in Europe that only becomes obvious when standing back and looking at the number of businesses involved. What is really striking about all the companies above is a sense of optimism and a bullish belief in the future of theatrical.
That runs rather against the grain of much analysis and perhaps counter to some of the fears of exhibitors themselves. Total box-office admissions in European Union countries, after all, fell 2.2% in 2007 compared to 2006, according to new figures from the European Audiovisual Observatory.
But there is no contradiction here between belief in the box office and the hopes for new-media platforms. People like Ben Ammar have a history of working with other media and, for them, convergence is already a fact of life.
'Globalisation of media, the explosion of television networks, and of course the internet has pushed us to think of alternative ways of finance,' he told Screen International's European Film Finance Summit in Berlin.
There is no reason why theatrical should not thrive in a world of new media growth - after all it prospered as DVD got bigger. What is more, the social, public element of most entertainment businesses has been doing rather well in recent years despite the attractions of armchair viewing: live music and live sport have seen huge turnarounds. There is a clear sense that what counts is servicing an identifiable customer and it is they who will decide how they want to watch films.
Reaching a fragmented market
From a theatrical perspective, there is a strong sense that the potential for European box office success is far greater than the raw historical box-office data suggests. A frequently quoted inspiration was the extraordinary success of Florian Henckel von Donnersmarck's The Lives Of Others, which took $65.4m in international markets and $11.3m in the US.
The crisis lies not in talent but in distribution, where a fragmented market makes efficient business all but impossible.
'Our desire is to be an independent European distributor that offers the same quality as the majors,' said Ben Ammar. His network, backed with Goldman Sachs' money, already includes the UK (Momentum), Aurum (Spain), Eagle (Italy) and now potentially Scanbox for Scandinavia and an unnamed French distributor.
The plan is to take a portfolio of around 20 films to market, which can assure a level of distribution that looks realistic to financiers. This can be coupled with the economies of scale in production; the French post-production houses have been bought by Ben Ammar - whose seriousness can be gauged by his previous partnerships with Rupert Murdoch, Silvio Berlusconi and Saudi Arabia's Prince Alwaleed. It will operate as a one-stop shop for independent producers.
The five European partners, possibly working in tandem with Alliance Atlantis (acquired by Goldman Sachs for which Ben Ammar is the strategic European investor) would 'pre-buy, co-finance or co-produce' films which it would then distribute in its territories.
The same sense that it is crucial to break out of the limitations of national borders is motivating others, with Nordisk's acquisition of 50% of Zentropa last week offering a perfect example. The issue is money. All of the negative factors affecting independent cinema outlined above come down to finding routes to market.
With television and video slipping and audience numbers remaining relatively flat in cinemas, there are obvious pressures on budgets. As a result, Europe effectively has an over-production problem.
The continent's film production levels are out of kilter with what can be released, and even more with box office.
Accentuating the positive
Only the amount of tax incentives and other soft money available is keeping choice from the top of the agenda. The response to over-production can be negative: to cut production numbers by reducing incentives and hammer down budgets to match available finance.
Or it can be positive: to increase the distribution window by embracing new technology or to change the economics by finding new business models that maximise efficiency.
It is the positive opportunities that have been motivating the companies mentioned here. 'We really like the idea of creating a decentralised studio where we have different creative environments where different sorts of projects can develop,' says Michael Ritto, managing director of Nordisk Film.
Zentropa is already setting up outposts across Europe. Having established a presence in Berlin, it is to set up Zentropa Amsterdam and is also looking for a base in Eastern Europe. With Nordisk as a partner, Zentropa is likely to expand further abroad.
Levelling the playing fields with the US studios is a major part of the thinking, but now the studios are themselves making imaginative moves.
At Berlin, Universal Pictures International (UPI) gave more details of its future plans for international production and distribution. The studio is involved in a kind of reverse engineering, working back to customer demand and then creating a business model to fit. Christian Grass, president of the UPI production arm says the maxim is 'think local, act global'.
He wants to work out from distinct local demand but without being tied by the limitations of national borders: 'There is no such thing as the international market or even Europe, just different markets,' he says.
While Europe may be an artificial barrier for international business, it remains a political, legal and cultural reality. And there is a strong sense that Europe will have to come to terms with huge structural problems. For example, the jumble of rights and licensing, the variation in broadband access and speed, and endless arguments about business models are holding back digital distribution.
Plugging the funding holes
Meanwhile, previously secure forms of funding are falling away. Tim Haslam, chief executive of HanWay, puts television at the heart of the problem.
'I think the independent film industry is evolving through a time of crisis right now and we are all having to respond to an economic malaise in the broadcasting sector which is reflected through the free and pay-TV stations not paying the money they used to pay for films,' he says.
The profits have shifted away from film towards cheaper and more profitable programming, such as reality shows, cookery and sports. 'If a distributor can't pre-sell the free and pay-TV rights any more, then his whole economic model has disappeared and he now sits on a much bigger risk,' says Haslam.
Increasing distribution through partnerships seems the obvious response. What is troubling the wider independent business now is what happens when a small number of ambitious European studios are distributing 100 or so films a year across multiple territories.
Questions that were once a whisper are now being shouted at events such as Berlin. What happens to the smaller distributor or sales agent' How do the small exhibitors fit in with this new world' Will European distributors become more risk-averse, putting out more conservative, commercial films for a bigger multinational audience.
There are no easy responses but there is a feeling the smaller player can still win with good taste and an insight into customer demand.
Arthouse specialists Robert Beeson and Pam Engel were in Berlin to launch a new UK distribution company called New Wave Films. During his time at Artificial Eye, Beeson showed an uncanny knack for pre-buying major festival winners. His pick-ups in the latter part of his time at Artificial Eye included Cristian Mungiu's 4 Months, 3 Weeks And 2 Days, Michael Haneke's Hidden and Jacques Audiard's The Beat That My Heart Skipped.
The first deal for the new company is with the Dardennes brothers for The Silence Of Lorna. The nimble may well exist comfortably alongside the bigger players, exploiting gaps.
Many may put their efforts into online activity, but the message from Berlin is the distribution revolution will change the business everywhere.