Prospects of cuts in coin have bizzers worried

With governments across Europe slashing arts budgets and chopping subsidies, filmmakers and execs fret the ax might logically next fall on the production incentives they rely on.

The wave of belt-tightening has struck on several fronts already:

n Italy’s performing arts community has been up in arms for months over a deep cut in the country’s single fund for entertainment, the Fondo Unico per lo Spettacolo (FUS), which covers opera, theater and film. It’s been shrunk by $128 million down to $391 million. Arts cuts have hit Milan’s La Scala theater so hard that, after protracted strikes, general manager Stephane Lissner recently warned that he may soon be forced to shutter the venerable opera house.

n In Spain, which has announced one of the most draconian EU austerity plans, the country’s Icaa Film Institute slashed the maximum subsidy coin a film can receive from $2.6 million to $1.9 million, causing Icaa director general Ignasi Guardans to encourage producers to court the 18% tax break available for private investors. This is likely to make it more difficult for Spanish art movies to find financing.

n And, most recently, the U.K. government’s shuttering of the U.K. Film Council raised anxieties throughout the country’s film biz (see story, next page), even as the government issued assurances that lottery funding would continue.

Each year more than 600 public funding programs provide a hefty $1.5 billion to support the film, television and multimedia industries in 35 European countries, according to the European Audiovisual Observatory.

Film producers are just starting to feel the pain in Spain and Italy, while hoping the cuts won’t go deeper into the cherished subsidies from richer countries like Germany.

France’s direct subsidies shouldn’t be affected, since $648 million in annual film funding comes directly from the taxes imposed on movie tickets, broadcasters and homevid. But tax breaks, including recently introduced 20% tax rebates for foreign productions, could be scrutinized for government cuts.

“There is a Sword of Damocles hanging over our heads,” says Patrick Lamassoure, managing director of Film France, the government-financed agency that promotes filmmaking in France. “Right now every single lobby for every industry in France is preparing studies to prove to the government why if they suppress or cut the tax breaks, they should not cut theirs. And, of course, the movie industry is doing the same.”

Still, Gallic industry insiders are confident that since the rebates are succeeding so well in luring foreigners back to shooting in France, it’s highly unlikely that these will be cut less than a year after going into effect.

Woody Allen’s “Midnight in Paris,” in which France’s first lady Carla Bruni has a cameo as herself, is the latest U.S. pic to dip into the Gallic gravy. Currently shooting in Paris, “Midnight” is a rare case of an American movie set and shot entirely in France. Co-produced by Allen’s Gravier Prods. shingle and Spain-based Mediapro, it’s the perfect test case to pave the way for more foreign shoots — if the Gallic incentives hold.

Regional support funds are also at risk.

Lamassure and other Euro industryites are concerned local government cuts could jeopardize key gap financing sources from regional support that account for an annual $650 million, according to the European Audiovisual Observatory.

Gaul’s Franche-Comte region axed its film fund earlier this year, sounding alarm bells that regional coin could gradually start drying up in France.

But the mood is more upbeat in traditionally well-funded Germany, where regional coin accounts for 64% of total public funding, coming from outfits like the $80 million-a-year Federal Film Fund (DFFF) or the Medienboard Berlin-Brandenberg, which in 2009 pumped $32 million into film.

“I am not hearing of any cuts on either the federal level or the regional level in Germany,” says Martin Moskowitz, head of film and TV at Constantin Film, but he says the threat remains a possibility.

Moskowitz, who as president of the European Producers Club has also

been monitoring the situation in other territories, says Italy is probably the country most at risk right now, “because the system is new, and has not been tested.”

Indeed, just as 20% tax incentives introduced a year ago are now starting to bear fruit, Italian producers are worried that prime minister Silvio Berlusconi’s belt-tightening measures could grind a good thing to a halt.

“Ultimately we are quite sure the government will renew the Italian tax credits,” says Riccardo Tozzi, topper of indie banner Cattleya, in which Universal is a partner.

“But what we are worried about is that there will be a protracted time-gap before this happens, which could stop the flow of investment,” adds Tozzi, who is also head of Italy’s producers association.

Another twist: Culture czar Sandro Bondi is now also pushing for new rules that would allow only first and second Italo works to tap into the funds, a move that would leaved name directors like Matteo Garrone and Marco Bellocchio out of the pool. Tozzi is hopeful that a new independently run $30 million-$40 million Italo fund, financed by the lottery and a small percentage of movie ticket sales, will replace the portion of coin that has been going to works by established helmers. But all of the permutations and shifting allocations have yet to play out.

With Euro funding questions on everyone’s lips, some industryites say the subsidy system as a whole is ripe for reform anyway. (Even in the U.K., some industryites think the loss of the U.K. Film Council might turn out to be a good thing.)

“The whole system in Italy is becoming anachronistic, so my hope is that the cuts will at least be an opportunity for some healthy changes,” Tozzi says.

A clear signal that a new era could be starting for the Italo industry came in July when Milan-based bank Intesa San Paolo used tax credits to invest $3.2 million in an equity stake in Paolo Sorrentino’s $28 million “This Must Be the Place,” starring Sean Penn and Frances McDormand. (The film, due to start shooting Aug. 16 in Dublin, is also tapping into the Irish Film Board’s generous incentives, which, despite draconian austerity measures, don’t seem to be at risk.)

“This could be the first of a fortunate series of financial investments to sustain the Italian film industry,” says Intesa CEO Corrado Passera. “But only if the current tax credits remain in place.”

Eastern Europe, a current production hotspot, is still in pretty good shape. But economic and political turbulence is penalizing production in the Czech Republic, where nobody is sure how long recently approved 20% rebates for foreign productions will last. And in Bulgaria, the government cut film subsidies by more than half in June, down to $5 million, prompting cries that the cuts will kill the local industry.

In Portugal the government announced in May a 10% subsidy slash, then reversed its decision after outcries from incensed producers. (They may have less to of a leg to stand on, as many of their films have been bombing at the box office of late.)

The overall outlook may not be bleak, but it does look like times will be getting tougher for the classic auteur-style cinema Europe is known for.

“In these very difficult times for governments with deficits, the funds that stay in place are the ones that are commercially rather than culturally focused,” says Icon U.K. CEO Stewart Till.

John Hopewell in Madrid and Martin Dale in Lisbon contributed to this report.

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