Co-Production Development Fund launched between Germany and Italy; growing concern about future of German incentive DFFF

Germany and Italy have established a Co-Production Development Fund to support the joint development of German-Italian co-productions from 2015.

The Germany Federal Film Board (FFA) and Italy’s Ministry for Culture and Tourism (MiBACT) are each providing $63,350 (€50,000) for the Fund’s annual budget, and funding of up to $38,000 (€30,000) each will be awarded to ¨projects which are interesting for the German and Italian cinema audiences, but also for the global film market.¨

Apart from encouraging more collaboration by producers on joint projects, the initiative also aims to foster the creation of networks between film-makers from bost countries.

This is the fifth co-development fund to be launched by German funders with opposite numbers elsewhere in Europe over the past 10 years.

In 2005, Medienboard Berlin-Brandenburg (MBB) and Leipzig-based MDM joined forces with the Polish Film Institute to establish the German-Polish Co-Development Fund, and this was followed in spring 2011 by the German-Turkish Co-Production Development Fund as a joint initiative between MBB, Film Fund Hamburg Schleswig-Holstein (FFHSH), Turkey’s Ministry of Culture and Istanbul Film Festival’s ¨Meetings On The Bridge.¨

And last month saw FFHSH sign an agreement with the Danish Film Institute for a German-Danish Co-Production Development Initiative to support the joint development of up to three fiction feature projects per year from 2015.

However, the German-Russian Co-Development Fund, which had been unveiled in June 2011 by the FFA, MBB and MDM with the Russian Cinema Fund, was terminated by the Russian Federation’s Ministry of Culture at the end of 2013 as part of the reorganisation of its film funding activities.

Government plans for DFFF incentive

A study commissioned by German producers from Roland Berger Strategy Consultants has pointed up the potentially negative effects of the German coalition government’s plans to reduce the annual budget of the DFFF incentive from $ 76m (€ 60m) to $ 63.35m (€ 50m) from 2015.

In their introduction, the study’s authors explained that the study aimed ¨to de-emotionalise the discussion about the funding of German feature film production through an objective economic reflection.¨

Comparing the DFFF with fiscal incentives operating in Canada, the UK, the US federal state of Georgia and Hungary, the Berger study highlighted several major competitive disadvantages posing a challenge for the DFFF.

The DFFF’s current fixed annual budget of $ 76m (€ 60m) is relatively modest compared to Canada ($ 291.4m/€ 320m), the UK ($ 320.5m/€ 253m) or Georgia ($ 139.3m/€ 110m), while the German incentive’s ¨cap¨ of $ 5m (€ 4m) per project (or $12.6m/€ 10m in exceptional cases) makes the territory less attractive for big-budget interational productions when they can access double-digit incentives elsewhere without any cap.

Moreover, the fact that the level of the DFFF’s budget is subject annually to the whims of politicians in the German Bundestag results in potential German co-producers being unable to offer international producers any secure long-term planning for projects.

Decrease or increase

The study’s authors played out four different scenarios to illustrate the the potential effects on the level of feature film production in Germany from a 10% or 50% reduction - or increase - in the DFFF’s budget.

Based on statistical analysis and an online questionaire, among others, the study suggested that a 10% cut in the $ 76m (€ 60m) budget could mean the overall production volume in Germany falling by up to $ 62m (€ 49m).

Experts interviewed suggested that international co-productions would likely be the ones to avoid Germany ¨ as these can often react much quicker to changes in funding conditions than purely German productions.¨

In addition, such a reduction could mean the loss of 800 jobs and reduced tax revenues of € 16m, almost three times the amount apparently ¨saved¨ through a 10% budget cut.

Slashing the DFFF’s budget by 50% - i.e. by $ 38m (€ 30m) - would wipe € 163m  from the total production volume and make it harder for Germany to compete with other production hubs. The DFFF would then be primarily of interest to German national productions and have little relevance for international projects.

Moreover, it was estimated that around 1,400 jobs in feature film production would be lost and tax revenues would probably sink by € 53m.

An increase of 10% in the DFFF’s budget, on the other hand, could lead to an increase in the volume of production in Germany by € 49m, with half of this coming from international productions; and also result in the creation of 800 more jobs and a $ 20.3m (€ 16m) boost to tax revenues.

The effects could be even more beneficial for Germany as a production hub if the budget was hiked by 50% in tandem with an end to the funding ¨cap¨: an additional $ 181m (€ 143m) production volume, the creation of approximately 2,400 new jobs and an increase of $ 53.2m (€ 42m) in tax revenues.

According to one of the online survey’s respondents, ¨the abolition of the cap would lead to an explosion of film production in Germany. There would immediately be two or three films on the scale of Pirates of the Caribbean in Germany.¨

Using the Oxford Economics input-output model, the Berger consultants estimated that feature film production in Germany generated $ 726m (€ 573m) turnover in 2012 as well as $ 623m (€ 492m) of ¨indirect effects¨ from service-providers (catering, transport, equipment) and $ 401m (€ 317m) ¨ induced effects¨ from those employed on the film productions, resulting in overall turnover of $ 1.750 bn (€ 1.382 bn).

This was equivalent to a multiplicator effect of 2.4 which compares favourably with other parts of the economy such as the pharmaceutical sector (2.1) or the chemical industry (2.2).

In a set of the recommendations, the study’s authors suggested that the DFFF’s budget should be increased – rather than being reduced as the Angela Merkel administration is currently proposing – since, from a taxation perspective, there is more of a return to the state coffers than what is originally expended for the fiscal incentive.

In addition, the present „cap“ per film should be increased or abolished and producers’ ability to plan ahead on projects would be made easier if the level of the DFFF’s budget could be secured over the long term.

Moreover, a degree of flexibility should be introduced into the DFFF’s operations to allow any funds remaining from one financial year to be carried over into the following year.

In an Open Letter to Chancellor Angela Merkel, her coalition government and the German Bundestag this week, over 60 leading figures from the German film industry - from directors Wim Wenders, Wolfgang Petersen, Caroline Link and Florian Gallenberger to actors Daniel Brühl, Nina Hoss, Veronica Ferres and Moritz Bleibtreu – called on the politicians “to on no account let the volume of the German Federal Film Fund fall below the level of the first years [i.e. € 60m].”

“The DFFF has stimulated and internationalised Germany as a film hub,” the letter declared. “It has resulted in an exciting know-how transfer and constant artistic exchange betwee the various cinema cultures. It has not made our nation into an attractive destination for a meaningless production tourism, but rather into a respected player for skills, technology and artistry on the map of world cinema.

“We can only continue to exist there if we can also stay as attractive a hub as other countries. e.g. the USA, Canada or Great Britain who are currently increasing their funding measures instead of reducing them.”

International projects supported by the DFFF this year have included part of The Hunger Games: Mockingjay production, Ericson Core’s reboot of Point Break, Stephen Hopkins’ Jesse Owens drama Race and Eran Creevy’s Autobahn.

Moreover, Steven Spielberg’s Cold War spy drama St James Place (working title), which began shooting in the Berlin region last week with Tom Hanks, Alan Alda, Sebastian Koch and Burkhart Klaussner, will be sure to tap DFFF funds as well.

Positive effects of fiscal incentives highighted by studies from France’s CNC and Olsberg SPI

Following on from Berger’s findings, Germany’s producers will doubtless see their position being bolstered by the conclusions reached by Ernst & Young (EY) in an evaluation for France’s CNC on the direct and indirect economic benefits accruing from the French tax rebates for the audiovisual industry.

According to the EY researchers, a Euro allocated from the French cinema tax rebate (CIC) generated $ 14.7 (€ 11.6) spend in the film industry and around $ 3.9 (€ 3.6) for the state coffers in tax and social security revenues.

And a second report commissioned by CNC from Paris-based Hamac Conseils provided a comparitive analysis of international fiscal incentives and an assessment of the French rebate schemes’ place in this incentive landscape..

Meanwhile, last week saw UK consultants Jonathan Olsberg and Andrew Barnes presenting the initial findings of a study commissioned by the Strasbourg-based European Audiovisual Observatory (EAO) on fiscal incentive schemes and their impact on film and audiovisual production in Europe .

Looking at some present trends, Olsberg noted that there was “a lot of activity” throughout Europe in the creation of new or revised fiscal incentives for the audiovisual sector, adding that, in some countries, they were “not always introduced with great clarity.”

He added that they had seen a move away from the tax shelter model: „In general, the feeling has been with most of systems that they are not sufficiently transparent“ and „they are regarded as being actually expensive because of all of the deductions happening on the way.“

„In some cases, the rebate-style incentives can be considered to be self-financing,“ Olsberg said. „When there are concerns within a government that one is making funds available for a new incentive and [it] will drain the coffers of the Treasury, this is not necessarily always the case because of the timing of the cash flows.“

According to Barnes, „the incentives help to underpin the essential investment, skills and infrastructure capacity, delivering a long term sectoral health“, while Olsberg pointed out that qualititative investigations undertaken as part of the EAO study had shown „unequivocally“ that „strong incentive structures, when they are introduced and supported, do drive a solid increase in crew numbers.“

One of the major conclusions from the study, according to Olsberg, was the „substantial inconsistency“ in the amount, comparibility and quality of sheer data about the incentives throughout Europe. „The Observatory has quite a challenge ahead of it to find ways to encourage the generation of the data we are talking about,“ he said.