The Italian film business, coming off an Oscar win this year for Paolo Sorrentino’s “The Great Beauty,” should be on a roll. But the Italo industry’s story is more complex, as shrinking budgets and a stagnant box office hamper a filmmaking community that’s stubbornly slow to shed its insular ways. Yet fresh faces are emerging, thanks to co-productions across Europe, helping the sector to stumble ahead. 

Recently, the Italian Culture Ministry revealed alarming figures that show a 27% drop in Italian film investments in 2013 to €358 million ($495 million), compared with 2012, while the country’s cinematic output remained substantially stable, at 167 pics. The average budget of an Italian movie these days is a measly $2.3 million.

“The numbers show that the budgets of quality midrange movies are getting slimmer, and this is terrible,” comments producer Riccardo Tozzi, who heads Italy’s national motion picture association, Anica.

Tozzi predicts shrinking budgets would cause the 30% share of the Italian box office that local films presently command to shrink. Total Italo admissions have long been under the 100 million mark, far below the potential of a country with a population of 61 million. By contrast, the U.K., with 63 million people, notched 165 million admissions in 2013.

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Co-productions among European countries are a time-honored way to enable bigger budgets as well as mitigate risk, but there are limits. “Great Beauty” producer Nicola Giuliano laments that Italy is on the margins of the pan-European co-production circuit, because while Italian movies can tap into coin in nearby nations, the relationship is a one-way street.

“France, Germany, the Netherlands, Belgium and Poland have a system that requires, for example, Canal Plus to pre-buy a certain amount of European product, including Italian movies,” he says. “But Italian TV doesn’t buy from them.”

The few Italo pics that gain traction internationally from festivals and sales agents are the ones that feature edgy storylines and are set up as European co-productions, says producer Carlo Cresto-Dina of Tempesta Film.

Cresto-Dina is the producer of “Le Meraviglie,” from second-time director Alice Rohrwacher, who is competing in Cannes with a new-age-themed pic that stars her sister, Alba Rohrwacher (“I Am Love”), and Monica Bellucci. The film is the story of a 14-year-old girl in the Umbrian countryside whose secluded life is shattered by the arrival of a young German ex-con. At 33, Alice Rohrwacher is the youngest Italian to vie for a Palme d’Or in recent memory. Germany-based Match Factory is handling sales.

“We’ve already won,” enthuses Cresto-Dina of “Le Meraviglie,” a rare case of a three-way co-production among Italy, Switzerland and Germany that raised
30% of its $3.4 million budget internationally. Among the pic’s co-producers is the late Karl Baumgartner, co-founder of Germany’s Pandora and considered the father of the European co-production model, who died in March: The film is dedicated to him.

Also hitting the co-production trail is Sorrentino, whose next pic, Michael Caine-starrer “Youth,” is a three-way combo between Italy (Indigo), France (Pathe, Bis) and Switzerland (C Films). Asia Argento’s “Misunderstood,” unspooling in Un Certain Regard, marks another new player to emerge in Italy’s fossilized film scene. The pic, shepherded by young producers Lorenzo Mieli and Mario Gianani’s Wildside shingle, is a co-production with France’s Paradis Films, which is handling sales. The movie was inspired by the director’s unusual childhood as daughter of horror-meister Dario Argento, and toplines Charlotte Gainsbourg in a role loosely based on Asia’s mother.

But the producer who perhaps best epitomizes the challenges of making movies in Italy these days is helmer Matteo Garrone, who had an international box office success with “Gomorrah,” and is co-producing his ambitious English-language “The Tale of Tales” via his own Archimede Film shingle, with Jean Labadie’s Paris-based Le Pact. The relatively pricey pic ($14.5 million), toplines Salma Hayek and Vincent Cassel, and mixes fantasy and horror. RAI Cinema will distribute in Italy; Hanway is handling world sales.

“It’s a big gamble, but I’m ready,” says Garrone, who will start shooting later this month. “It’s kind of like the Champion’s League (soccer) final. When the cameras start rolling I will have to be at the top of my game from the first minute.”