Whether the problem lies with piracy or mediocre product, Spanish admissions and DVD revenue took a tumble last year as audiences found other ways to fill their leisure time. Although the territory's annual per capita cinema admissions remain higher than in the UK, Italy or Germany, they plunged by 18% in 2007, while revenue dropped 15.8% to $797m (EUR535m). DVD rentals also fell 18% from 2006 to 2007, while video-game sales and internet usage soared.

The market share for local films fell from 15.4% in 2006 to just 8% in 2007 - until December, when the massive success of Juan Antonio Bayona's horror The Orphanage boosted it to just over 12%.

"Once again in 2007 we saw far too many productions and far too few hits," says Luis Hernandez de Carlos, president of distributors association Fedicine. "Spain produces between 125 and 140 films per year, when a more healthy figure would be a maximum of 70."

Fernando Evole, general director of Spain's third-biggest cinema chain, Yelmo Cineplex, believes the subsidy system is the problem.

"We have no film industry to speak of, no glamour - just hundreds of producers jumping through hoops to be eligible for funding, and making impersonal, low-budget films with little thought about whether they are going to be profitable or connect with the public."

That said, the signs for 2008 are looking more promising, with Miguel Bardem's comedy Mortadelo And Filemon: Mission - Save The Planet garnering $11.7m at the local box office since January 25, The Orphanage taking more than $37m in Spain alone, and Alex de la Iglesia's English-language mystery thriller The Oxford Murders, co-produced by Tornasol Films, hitting the $12m mark.

Further anticipated English-language, Spanish-produced films set for release this year include festival titles Transsiberian, directed by Brad Anderson, Isabel Coixet's Berlin competition entry Elegy and bullfighting epic Manolete, starring Penelope Cruz and Adrien Brody.

Spain's subsidies are capped at $1.5m (EUR1m) per project, regardless of the cost of the production, and are only available to producers retrospectively for films released theatrically. With TV pre-sales in Spain negligible, most independent producers must fund their own p&a, resulting in a squeeze on production budgets.

Filmax president Julio Fernandez says: "With so many films made, it's impossible for those without the benefit of massive publicity machines to develop the kind of word-of-mouth recommendation they need to survive."

Adolfo Blanco, managing director of cinema at Vertice 360, says the only real option for producers looking to make anything more ambitious than the basic $1.5m project is to team with a Spanish broadcaster. The country's TV companies are legally compelled to invest 5% of profits in European cinema.

"But they only want to invest in projects that will do well at prime time - which are rarely genres popular on the big screen, such as horror or children's films," says Blanco.

Veteran Andalusian producer Antonio Perez, of Maestranza Films, foresees major changes. "In the medium to long term, I believe most of the small independent producers will simply disappear and we'll be left with the larger ones working together, making more ambitious projects, attracting international co-productions, bigger budgets and stars."

Indeed, canny producers are attempting to spread risk with projects from diverse genres and those with video-game tie-ins, such as Vurdalak, a medieval warlord tale being developed at veteran producer Andres Vicente Gomez's label RadioPlus.

Filmax's Fernandez says: "The cinema sector in Spain is losing out as video games use new technologies to attract young people towards more interactive and dynamic leisure formats. We plan to tackle this."

With a $30m capital increase, Filmax has a three-year investment strategy to become a major European and Euro-Latin studio. Following Transsiberian, Filmax's 2008 slate includes Christian Molina's Diary Of a Nymphomaniac, while its Fantastic Factory genre label is readying the chiller Circus from Rec director Paco Plaza and animations Donkey Xote, The Hairy Tooth Fairy 2 and Nocturna.

Production outfit Rodar y Rodar, the company behind The Orphanage, is looking to make more international co-productions and English-language films in the $9m to $12m range. Projects for 2008 include Guillem Morales' thriller Julia's Eyes and The Homecoming, the feature debut of Orphanage writer Sergio Sanchez, both in English.

Meanwhile, Mediapro has signed a deal to finance and co-produce the next three films by Woody Allen. Mediapro co-produced Vicky Cristina Barcelona, which shot in Spain last year and will be released by Warner Bros Spain in September.

Jaume Roures, president of production house Mediapro, says: "Our philosophy is to make three or four big, ambitious films per year, with good investment in scripts and casting."

SPAIN TOP 10, 2007
Title (Origin) DistGross ($)
1The Orphanage36.1m(Sp-US) Warner Bros Spain
2Pirates Of The Caribbean:34.1mAt World's End (US) Wdsmp
3Shrek The Third (US) UPI32.9m
4The Simpsons Movie27.1m(US) 20th Century Fox
5Spider-Man 326.7m(US) Sony Pictures International
6Harry Potter And The Order Of25.5mThe Phoenix (UK-US) Warner Bros Spain
7300 (US) Warner Bros Spain22.1m
8Ratatouille (US) Wdsmp21.5m
9Night At The Museum18.7m(US) 20th Century Fox
10The Golden Compass (US) Tripictures18m


- New Line Cinema is set to remake Juan Antonio Bayona's hugely popular horror film The Orphanage, the highest Spanish earner at the local box office in 2007. Guillermo Del Toro was a producer on the original and is also set to produce the remake.

- Screen Gems is remaking Jaume Balaguero and Paco Plaza's horror film Rec (the second-highest Spanish performer at the box office last year) as Quarantine in the US.

- The UK's Becker Films is working alongside Spanish production house Rodar y Rodar on an English-language remake of Guillem Morales' 2005 mystery thriller The Uncertain Guest.

- United Artists is set to remake Nacho Vigalondo's sci-fi film Timecrimes with Steven Zaillian to produce. A hit at Sundance, the original film tells the story of a man who stumbles across a time machine that transports him back almost an hour - with disastrous consequences.

Spanish piracy figures 2007
- An estimated 200 million films were illegally downloaded on the internet
- 52% of Spain's internet users (approximately 22.8 million) downloaded counterfeit titles
- 827,800 illegal DVDs confiscated
- About 50 arrests made
- Estimated $1.2bn loss to Spanish film industry from piracy