Press Release

Strasbourg, 18 October 2002

Public Funding for the European Film Industry Grows as Companies Financial Situations Weaken

• Public funding to the film and audiovisual sector in Europe showed an annual average growth rate of 10% for the period 1997 - 2001.
• Between 1997 and 2000 the major European film industry groups saw their operating revenue almost double, but performance indicators showed strong decline.
• European production, distribution and exhibition companies all showed similarly low levels of profitability: video publishers and distributors were the only branch of the sector to maintain positive profit margins.

On the occasion of the publication of the third volume of its 2002 Yearbook, the European Audiovisual Observatory provides for the first time an in-depth analysis of the financial situation of the European Union film industry.  This volume also includes a new and unique overview of public funding to the European film industry as a whole during the period 1997-2001.

Increasing debt and declining profitability in the European Union film industry.

The financial situation of the Top 50 film companies in European Union, many of whom operate in more than one branch, can be seen as a general indicator of trends in the industry.   Over the period 1997 to 2000 total assets and operating revenue of these companies almost doubled.

Figure 1: Assets and Operating Revenue of the Top 50 Film Industry Groups in the European Union (1997-2000) - (In EUR million)

Source: European Audiovisual Observatory (for definitions of terms used, click here)

This period of investment was, however, characterised by declining profitability and a consequent increase in debt ratios.  Though costs have remained relatively stable, by 2000 the level of profitability achieved by the 50 leading companies was practically nil.

Diverging results do emerge from a branch-by-branch analysis, as is illustrated by a comparison of profit margins within the different sectors.

Figure 2: Profit Margins of the Different Branches of the European Union Film Industry (1997-2000)  (in %)

Source: European Audiovisual Observatory (for definitions of terms used, click here)

The cinematographic production branch in Europe appears to operate on the financial waterline...

Operating revenue and assets of cinematographic production companies increased by more than 50% during the period 1997 to 2000.  However, operating revenue (generally considered as a pertinent indicator as it includes production in stock and subsidies) showed wide variations during the period and financial performance ratios, though relatively stable, remained very low, varying between +1% and -1%.

... while the distribution branch shows greater stability

Financial indicators for the distribution branch were generally positive in 2000.  Analysis of this branch requires that a distinction be drawn between on the one hand European-controlled companies and, on the other, subsidiaries of American companies operating on the European market.  Operating revenue and assets for European-controlled companies showed much stronger growth than those of the American subsidiaries.   As a result European companies showed significantly better operating margins.  Nonetheless, the American subsidiaries made up for this through their financial operations, and in the end achieved both better profit margins and better rates of return on shareholders' funds and assets. 

Cinema-going in Europe is on the increase, but multiplex investment has weakened the exhibition branch

Though the number of cinema tickets sold in the European Union grew by an estimated 21% between 1997 and 2000, exhibition was the most financially fragile branch of the industry in 2000. Operating revenue and assets of these companies grew considerably, notably in the context of multiplex investment, yet financial performance indicators were in the red. Comprehensive data for 2001 is not yet available but statements by some of the leading circuits indicate that the financial crisis in the branch continued into the year.  Though reports from circuits such as Cinemaxx and Kinepolis for the first half of 2002 would appear to show the first signs of a gradual return to financial health, the October 2002 announcement of insolvency by Ufa-Theater GmbH indicates that recovery may be a slow process.

Figure 3: Performance Ratios of Film Exhibition Companies in the European Union (1997-2000)  -  (in %)

Source: European Audiovisual Observatory (for definitions of terms used, click here)

Video publication and distribution, the best performing branch of the industry, is also that most dominated by the American Majors

Publication and distribution of videos is the branch of the industry most dominated by subsidiaries of American companies.  Of the top 50 companies, 30 are controlled totally or partially by the American Majors.  Performance ratios weakened in 1998, probably due to the increase in operational costs and debts to meet the cost of the launch of DVD, but have recovered rapidly since 1999.  As a result this is currently the best performing branch of the industry.

Public funding for the film and audiovisual industry in Europe grew by an estimated 13% between 2000 and 2001

For the first time in this volume of the Yearbook the European Audiovisual Observatory publishes an overview of the evolution of public funding to the film and audiovisual industry over the period 1997-2001.

Whereas the financial situation of European film companies shows a certain instability, the volume of public funding in Europe has shown a constant upward trend during the period in question. Between 1997 and 2001 the amount of public funding made available for film and audiovisual production in the European Union grew by 45%. Growth has been stable over the last two years (10% in 2000, 11% in 2001). It was, however, the non-European Union countries for which data is available that showed the most vigorous rate of growth, with funds allocated between 2000 and 2001 climbing by an estimated 45%.

Non-European Union countries accounted for only 5% of total funding in Europe.

Despite strong growth in funds allocated by the non-European union countries, their share of total funding represented only 5% of total support allocated in Europe in 2001.  The five major markets (France, Germany, Spain, Great Britain and Italy) account between them for almost 77% of the total volume. France alone allocated more than a third of the total funding available in the 25 European countries studied.

Figure 4: Evolution of the total volume of public funding to the film and audiovisual sector in Europe (1997-2001) - (in EUR thousand)

Source: European Audiovisual Observatory / KORDA database

The chapter on Public Funding in the Yearbook also provides budget details for the vast majority of regional, national and international funding bodies in Europe, shows the breakdown into automatic and selective funding by these bodies, and gives an indication of the amounts allocated by the bodies to different activities from development to exhibition.

EUROPEAN AUDIOVISUAL OBSERVATORY, Strasbourg, France
Yearbook 2002 - Film, Television, Video and Multimedia in Europe, 2002 Edition,
Vol. 3, "Film and Home Video", pp.112, ISBN 92-871-4874-0, 80 €,
European Audiovisual Observatory, Strasbourg, 2002.

For more information on the Yearbook, click here.

Contacts:

• André Lange (Head of Department, Markets & Financing) - Andre.LANGE@coe.int - tel.: +33 (0)3 88 14 44 00
• Kees Bakker (Public Funding) - tel.: +33 (0)3 88 14 44 07
• Susan Newman (Markets) - Susan.NEWMAN@coe.int - tel.: +33 (0)3 88 14 44 15

The European Audiovisual Observatory

Set up in December 1992, the European Audiovisual Observatory's goal is to gather and distribute information on the audiovisual industry in Europe.  The Observatory is a European public service body comprised of 35 member states and of which the European Community is also a member.  It operates within the legal framework of the Council of Europe and works alongside a number of partner and professional organisations from within the industry together with a network of correspondents.  In addition to its contributions to conferences, other major activities are the publication of statistics and newsletters, compilation and management of databases and the provision of information through the Observatory's Internet site.

Notes for Editors

Methodology used in the preparation of the financial analyses discussed in this press release

Our financial analysis of the European film industry is based on the compilation of the company accounts of more than 4,700 companies figuring in the AMADEUS database (published by Bureau Van Dijk Publishing) and identified as active in the film industry by the European Audiovisual Observatory.   This information includes data from subsidiaries of US companies registered in the European Union. Although there are gaps in the data available for some countries (in particular Denmark, Germany, Ireland and The Netherlands), the coverage and the quality of the information is sufficient to permit realistic identification of major trends.

Methodology of the analysis of public funding for the film industry discussed in this press release

The study of public funding draws on data collected in KORDA, a new database on public funding for the film and audiovisual sector made available on-line in a trial version by the Observatory in March 2002. The information in the database is collected directly by the Observatory from the funding bodies themselves. The trial version of KORDA is available for public consultation on-line at http://korda.obs.coe.int

Data on public funding presented in the Yearbook includes support allocated to the various branches of the film industry but also to audiovisual production. It does not include public financing of public broadcasters nor the overall amounts of investment in publicly administered tax incentive schemes in a number of European countries.

Definitions of financial indicators: