#RomaFF9 showcases new patterns of film distribution

The ninth edition of the Rome Film Festival is coming to an end having showcased some interesting new patterns of film marketing and distribution.

The film market named The Business Street has brought to Rome 811 professionals, of which 295 buyers, 104 world sales agents e 246 producers from 52 countries, with a 30% increase of international participants (35% more buyers and 14% more world sales agents). A very needed initiative for boosting the film business.

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Among the main happenings, the panel organized by Europa Distribution has been a unique occasion to discuss and dissect the new trends of digital distribution, focusing on how professionals in different territories implement and define different strategies to keep up with the pace of an industry that is in constant change. As consumers have drastically changed the way of watching films and have risen their expectations on availability of content, professionals have had to re-think their communication strategies and look for new ways to communicate with the audience. These new challenges have paved the way for innovative and creative marketing and distribution strategies, designed to increase the audience reach both in cinemas and across additional platforms.

Tim Grady, President of Adopt Films, has pointed out that ideally VOD shall come one week after theatrical, while everything needs to be curated, as there is so much content. He highlighted the importance of non-theatrical releases, even though, regarding day-and-date, distributors like IFC and Magnolia can easily do day-and-date because they own theaters, whereas others cannot unless they rent the theaters. As far as Netflix, he says it is a safety net for independents.

Somehow forced by the sluggish Italian market to have a different and more conservative approach is Stefano Massenzi, Head of Acquisitions and Business Affairs at Lucky Red. He says that local exhibitors want at least 15 weeks between theatrical and digital release and they would like to get a cut of VOD revenues in exchange for shortening the windows but distribution cannot agree upon the deal because it already pays advertising and VPF and that is enough.

Differently, Katie Ellen of the British Film Institute and Madeleine Probst of Watershed Cinema have pointed out that exhibitors must take risks if they want to flourish and work in synergy with VOD creating a halo effect for it, whereas Kobi Shely of Distrify has added that VOD helps understanding who the audiences are thanks to big data.

The VOD in Europe is growing and therefore digital distribution is by far the hottest topic to discuss at the moment.

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The conference Audiovisual market and regulation: an industry at crossroads, hosted by the Italian Presidency of the Council of the European Union and organised by the Directorate-General for Cinema of the Italian Ministry of Cultural Heritage and Activities and Tourism, has provided an opportunity to discuss the changes that need to be made to the European regulatory framework in the light of the changing scenario, paying particular attention to technological developments, the role of new players, future business models and the status of independent audiovisual producers.

It has been pointed out that the arrival of new players such as SVOD platforms is going to change the role of typical film producers, who are going to become crossmedia producers and experiment new forms of creativity. For instance, Netflix opens up new opportunities for local producers because they need to connect with local audiences.

It is also going to change the role of theaters, which will be the place for exceptional experiences and social gatherings, while pan-European day-and-date releases experiments show a low rate of cannibalization and increased availability of movies and global audience.

The main pros of digitization has been found to be new alternative production formats associated with lower costs, new alternative release and marketing strategies, larger consumption of audiovisual products, whereas cons may be piracy and changing consumption habits connected to a generally lower willingness to pay for quality content. The main trends observed in the audiovisual market in the latest five years show EU market share down from 20.7 to 15.4 percent, US market share up from 59 to 68.8 percent, and physical home video decline not compensated by digital.

Christoph Schneider, MD of Amazon Instant Video Germany added that free TV is benefiting from having previews on new digital non-linear services because this creates awareness, whereas YouTube’s representative underlined how they are opening up opportunities for the film industry through creating engagement, and BskyB’s Director of Policy and Public Affairs, David Wheeldon highlighted that they have been offering new online services in addition to the traditional ones and they have been very successful. Christopher J. Dodd, former US Senator and now CEO of MPAA has said that disruption is the opportunity as Netflix has invested $7B in feature production, while 50B films and 56B series were consumed digitally in a year, even though a better and more productive dialogue between content and tech providers is needed, and also search engines need to cooperate not driving traffic toward illegal services.

Many rules and regulations that apply to linear players do not apply currently to non-linear services: for instance, advertising and restrictions of audience, hate speech rules, promotion of european works. Authors want their cut of the pie and share risks and benefits as much as they are the production level. Both production and distribution will increasingly be driven by big data, but level of requirements are currently quantitatively different for linear and non-linear services.

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Meanwhile, the difference between broadcasters and non-linear services is fading, as some pay-TV distributors try to compete on the SVOD market: for instance, BSkyB with Sky Now, Canal Plus with Canal Infinity, HBO with HBO Go, CBS, and even smart TV producers such as Samsung and Sony push content to audiences, therefore acting by regulation as service providers, perhaps. Meanwhile, piracy and copyright are crucial issues to address. Most of the pay-TV distributors will look for deals with Netflix, but they will probably continue to provide their own transactional VOD service or third service.

AVMS (i.e. AudioVisual Media Services) that offer OTT services (e.g. Netflix) are covered by the directive because they exercise editorial responsibility over the content: the debate is whether the directive should also cover other internet gatekeepers such as Google. The art.13 of the directive imposes to promote European works on the platforms but it is not clear as of how to do it, therefore this is up to the member States (e.g. a section for European works, a section in the home page, financial obligations, or a percentage in the catalogue). Obligations are currently applied depending on where the service is based, not upon where it goes to (e.g. Netflix is based in Luxembourg).

The best method for promoting European works is considered to be marketing effort, whereas financial contribution to production funds makes sense, according to VOD operators, only if they get something in exchange such as exclusive licenses. Also, a question should be asked as if theaters do not have (at least not in every Country) quotas, why should VOD operators do? One thing is sure, there is a mandate from the European Union to foster creative industries, production, audience development.

It has also been acknowledged the positive effect of fiscal incentive schemes supporting film and audiovisual productions in Europe, such as tax shelters, rebates, tax credits, together with slate funding mechanisms both from the EU, the States and the Regional funds: in particular, there has been some movement away from a tax shelter model, which is less transparent and has historically seen abuse, even though it has the advantage to provide cash flow during production.

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The Italian Minister of Culture, Dario Franceschini has closed the conference saying that we need rules at the global level or the market will be easily dominated by global players that skip national or even continental regulations, that cultural exception is useful to protect national identities, that we need to improve the connection with audiences and the international circulation of works, because creative industry is the main strategic sector for Europe.

All in all, a flexible mindset is needed to operate profitably within the changing film industry, whereas a set of rules may help to guide the flow if there is clear evidence of necessity.

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Disney and other majors enjoying tax relief schemes internationally

The act of centralizing productions is, more than ever, out-of-date. Better taking advantage of incentives and other opportunities given by globalization. Hollywood makes no exception to this trend, as studios have started moving out of their Californian facilities, also for big budget feature films, while the golden state is trying to get them back (FYI, California want Hollywood back).

According to an analysis by The Guardian, Disney has earned $272 million in production incentives from the U.K. government, which offers tax breaks for films shot in Britain by film production companies within the UK corporation tax net. Introduced in 2007, the Creative Sector Tax Relief scheme allows film projects with a budget greater than $32 million to claim back up to 25 percent (increased from 20 percent) of the first $32 million of qualifying UK expenditure, then up to 20 percent of their production costs. Qualifying films must pass a cultural test or be an official co-production, intended for theatrical release, and must spend 10 percent (reduced from 25 percent) of their budget in the U.K., with 70 percent of their labor costs going to European workers. Tax relief is available on qualifying UK production expenditure on the lower of either 80% of total core expenditure or the actual UK core expenditure incurred. Most importantly and differently from other systems, there is no cap on the amount which can be claimed.

Together with tax benefits, the Government is investing in specialized labor creation and production facilities such as Pinewood Shepperton studios, which recently received government approval for its long-delayed expansion plans worth $340 million. The “Pinewood Studios Development Framework” includes doubling the existing Pinewood Studios by adding a total of 100,000 square meters of new facilities, including studios and stages, workshops and production offices, to build another 10 stages and create 3,100 new jobs.

The past few years have seen the company ramp up its productions in the country, specifically at Pinewood Studios, which has welcomed the likes of Star Wars: Episode VII, Maleficent, Alice in Wonderland: Through the Looking Glass, Cinderella, Avengers: Age of Ultron and several other major titles from Disney’s Marvel, including recent Guardians of the Galaxy and upcoming Doctor Strange.

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Guardians of the Galaxy director James Gunn and character Rocket Raccoon .

Since 2007 Disney has spent a total of $2.3bn on film-making in the UK, including a significant chunk of the $250m production budget of the fourth Pirates of the Caribbean film, believed to be the most expensive in history, which grossed more than $1bn, according to industry analyst Box Office Mojo. Last year Disney’s UK film costs peaked at $531m, around 18% of the $3bn that the studio spent worldwide. The UK’s share was up from 11% in 2012.

Last year, it claimed back $81 million, believed to be the largest ever to a single studio, a third of which was accounted to Thor: The Dark World, another Marvel title shot in Pinewood. Disney has already spent more than $180 million on Star Wars: Episode VII and Avengers: Age of Ultron alone, according to the accounts.

Accounts released this year show that Disney has already spent more than $180m on the Star Wars and Avengers films alone. Other studios are also filming more in the UK. Warner Bros currently has three movies in production there, including one based on the 1960s television series The Man From Uncle, directed by UK director Guy Ritchie.

But some complain the tax relief can backfire as a boost to the British film industry. In November Edgar Wright, the director of British movies Hot Fuzz and The World’s End, said: “While the tax break is good for Hollywood films shooting here, it’s probably not that great for British films shooting in the UK. Some middle-to-low-budget films are going to find themselves without crew because all the American films are shooting here.” Well, we say people must adapt their habits and lives according to economic developments, this is why institutions like European Union were born, that is in order to ensure “free movement of goods, services, capital and persons”.

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Pinewood Shepperton studios near London, UK.

Other countries should follow a similar path as creative industry is a strategic sector for connecting cultures within the globalized market. The Italian government, for instance, recently boosted film tax credits available at 25% of qualifying production expenditures for international feature films, going from a cap of $6.7m per project to a cap at $13m per company, whereas the overall tax credit for the cinema and audiovisual industry will increase from $147m to $154m, both kicking in from 2015 and available to television and web content producers too.