On the surface, France’s film industry is living la vie en rose. The country recorded its third-largest box office haul in 50 years in 2017, following an even stronger performance in 2016. More than 60 French productions or co-productions have been selected for the upcoming Cannes Film Festival. French sales agents represent more than two-thirds of the films in the festival’s official competition.

But look a little closer, and the cracks start to appear. Although France is continental Europe’s biggest film market, many distributors are in dire straits. Major companies like Wild Bunch and EuropaCorp are seeking white knights. Some banners have consolidated, including Mars Films, which sold a 30% stake in the company to Vivendi. Others — such as MK2, which is focusing more on exhibition and international sales — have shut down their distribution businesses or, like La Belle Co., called it quits entirely.

The distribution sector’s woes stem from an ultracompetitive environment, declining investment in films by TV channels, the lack of an effective antipiracy law and an outdated windowing schedule. Unfortunately, none of these problems looks as if it’ll be solved anytime soon, raising questions about the industry’s long-term health.

France counts more than 150 distribution outfits. Only 70 are fully active, and of these, only 20 “are really doing the job,” says Didier Duverger of financial institution Natixis Coficine, which backs Wild Bunch, among other banners. The remaining 80 distributors are barely active, releasing about one film a year, according to the National Film Board, or CNC.

Still, over the past decade, the number of movies released in French theaters has skyrocketed from 450 titles a year to 700. Similarly, the number of French films produced annually has grown from 240 to 300 during roughly the same period. While the French box office has hovered at record levels since 2015 — between $1.4 billion and $1.5 billion a year, powered by Hollywood tentpoles and French comedies — the preponderance of local distributors and films means that everyone is getting smaller portions of the pie. Ticket sales are also falling, particularly for domestic films.

“The production of French films has nearly doubled in the last 20 years, but the number of admissions per French film has dropped by an estimated 20% since the early 2000s,” says Duverger, noting the increasing competition from foreign films as well as high-end TV.

France’s distribution system makes things difficult. “The model … requires a big upfront investment in minimum guarantee and P&A,” says Serge Hayat, an entrepreneur and investor in film and TV production. Ideally, a distributor can recoup its investment and earn a commission ranging between 25% and 30%. “In the worst-case scenarios, which are quite frequent these days, the distributor loses 100% of its investment,” Hayat says.

“The market is getting tougher and more competitive,” adds David Grumbach, CEO of Bac Films. “There are too many companies bidding for the same films, so acquisition prices often get out of control. And because so many films get released in theaters, one movie always chases another, and we have to spend more to maximize the visibility of our releases and stay on screens longer than a couple weeks.”

Since taking over Bac in 2013, Grumbach has reduced the company’s distribution slate to eight or 10 films per year, spending more on fewer titles, including Pablo Larraín’s “Jackie,” with Natalie Portman, and Ruben Östlund’s Palme d’Or-winning “The Square.” The company is co-producing more films, such as Paolo Virzi’s “The Leisure Seeker,” starring Helen Mirren and Donald Sutherland.

Unlike in the U.S., French distributors get public subsidies; the CNC injects €40 million (about $49 million) into the sector every year. However, funds are allocated primarily to smaller outfits, which means that the “medium-size companies that take the most risks are not getting much help,” Duverger says.

“The production of French films has nearly doubled in the last 20 years, but the number of admissions per French film has dropped by an estimated 20% since the early 2000s.”
Didier Duverger, financier

On the upside, with so many distributors, French cinemas offer a richer, more diverse lineup of movies than can be found in other big European markets such as Germany, where the distribution landscape tends to be dominated by U.S. majors. France prides itself on being a nation of moviegoers and cinephiles, and on having one of the world’s highest number of screens per capita, with 5,843 screens for a population of about 67 million as of 2016, the last year for which such figures are available.

“Distributors really take risks in France to release movies from many different nationalities, whether they are big or small,” says Xavier Lardoux, head of the film division at the CNC. “Where else can you watch a Guatemalan film in a theater?” (Guatemalan director Jayro Bustamante’s “Ixcanul” was released theatrically in France in 2015.)

The success of one French outfit, Memento Films Distribution, which has four titles competing at Cannes this year, illustrates French audiences’ taste for diverse movies. Over the past few years, the company has thrived with art-house pics such as Asghar Farhadi’s “A Separation,” Tarik Saleh’s “The Nile Hilton Incident” and Pawel Pawlikowski’s drama “Ida.”

French moviegoers love auteurs from around the world, and countless independent films have earned more money in France than in any other foreign market, says Mars Films founder Stéphane Célérier. He cites Matt Ross’ “Captain Fantastic,” Harmony Korine’s “Spring Breakers” and Barry Jenkins’ Oscar-winning “Moonlight,” which posted its second-biggest overseas box office numbers in France, just behind Britain.

But even for Mars, which remains a top player and is backed by powerhouse Vivendi, 2017 was a tough year, with many underperforming titles, including Kathryn Bigelow’s “Detroit” and Cédric Jimenez’s “The Man With the Iron Heart.” Célérier, like many other French distributors, has moved into production or co-production. Mars’ first two films as a producer, “La famille Bélier” and “Two Is a Family,” were huge box office hits in France. The company is also considering moving into TV drama, following in the footsteps of many distribution outfits, including Haut et Court, Gaumont and EuropaCorp.

The country boasts several vertically integrated, deep-pocketed groups such as Pathé, Gaumont, Studiocanal and SND, which are market leaders. Pathé, Gaumont and Studiocanal rank as the top French distributors so far this year, thanks in large part to local comedy blockbusters. Pathé’s “Les Tuches 3” and “La ch’tite famille” have grossed $47.4 million and $45.1 million, respectively, beating Hollywood tentpoles “Black Panther” and “Fifty Shades Darker.”

Smaller French distributors and producers are now alarmed that some of these vertically integrated companies, particularly Studiocanal’s Canal Plus Group — whose flagship pay-TV channel has historically been the country’s biggest financer of French films — are eager to produce their own content in order to own more rights and IP instead of relying on acquisitions. Canal Plus recently announced the launch of an in-house film and TV drama production unit in France.

TV channels are required by law to invest a percentage of their annual net sales in local films. But declining revenues have caused them to scale back their investment in and acquisition of films. Canal Plus, for instance, is bound to inject 9.5% of its net sales into local movies, but as its revenues have been falling, its investment has gone from €173 million in 2011 to €151 million in 2016.

“With TV channels playing a lesser role in pre-financing French films, distributors have been pressured to cover the gap with bigger minimum guarantees, while international sales agents have also become a key piece of the puzzle to raise financing for films through pre-sales,” says Cécile Gaget, head of international co-production and distribution at Gaumont.

Ancillary markets for film, such as DVDs, are in free fall. Pay-per-view is not taking off because of France’s rampant piracy, as well as the country’s strict post-theatrical windowing schedule, which sets both DVD and pay-per-view windows at four months after theatrical release.

“Piracy is destroying France’s secondary markets,” declares Jean Labadie, founder and president of distributor Le Pacte. Previously, for example, if a non-English-language film sold 200,000 tickets in theaters, “you could expect to sell 10,000 DVDs,” Labadie says. “Today you could sell 4,000 DVDs at most.”

And streaming services such as Netflix, which are prohibited from showing films in France for a staggering 36 months after they first hit cinemas, aren’t really part of the picture for fresh releases. So if a film bombs in theaters, chances to make up for it in ancillary markets are slim.

The film industry’s anger over piracy, and the lack of concrete measures by the government to curb it, has reached the boiling point. Last month, France’s major film guilds, including the independent distributors’ union and the association of authors, directors and producers, showed their discontent by staging an extraordinary boycott of the gala reception hosted by the French minister of culture, Françoise Nyssen, to celebrate the French films selected at Cannes. Nyssen vowed to tackle piracy and create a blacklist of illegal streaming sites.

But the guilds themselves have thus far failed to reach a consensus in negotiations to shorten the country’s windowing schedule. The government will soon be entitled to step in and set new rules that would be valid for three years.

With such fierce competition among distributors, plus problems with piracy and windowing, the sector might soon be culled, with only the fittest surviving.

“Distributing films is like playing roulette,” says Victor Hadida, co-founder of distributor Metropolitan Filmexport. “There is no safe bet. You’re just hoping for the upside.”