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December 5, 2019

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The Boutonnat Report : what future for film financing in France

The latter announced the creation of an investment fund of 225 million euros for cultural and creative companies to be managed by Bpifrance, assisted by the French Institute for the financing of film and cultural industries (Ifcic), as called for in the report. Thus, it is important to linger on the objectives pursued and the proposals made in this respect.The report highlights the interest for the sector to resort to private financing in order to "secure a future growth for production and distribution companies" while the share of this funding is now relatively low within the financing plan. The report thus takes the stand point of a organizing a rapprochement with the Anglo-Saxon systems. With this in mind, the report established that it is necessecary to improve the profitability of the assets (the movies). Indeed, profitability studies have highlighted that since 2005, only 10% to 12% of films are beneficiaries two years from their release in theaters, which is not attractive for private investors. Accordingly, 7 proposals are made that we will resume in a synthetic way below.

  • Align the interests of all financiers of contents

The report recommends to implement pari passu conditions for all financiers and to include publishing costs within the cost of films. This would profoundly change the uses, especially regarding producer-distributor relationships.

  • Restore market value to all exhibition windows as part of a renewed media release chronology

In this context, the aim is to increase the interest of the television channels in the production of feature films by redefining ing the regime of their investment obligations in the light of the evolution of the sector and by removing the prohibitions of broadcasting on certain days.

It is also mentioned that the release strategy of a film could be defined after the establishment of the film and that the primo-exploitation in theater would not be mandatory.

Finally, it is a question of organizing a better exploitation of the catalogs of cinematographic works.

These points are not without difficulties, as the implementation of the new media chronology established in December 2018 required years of negotiations.

Moreover, the access to aids for feature film to film not to be exploited in the theaterwould inevitably lead to a dispersion of such aids.

  • Promote the achievements of the French model in terms of transparency by implementing a blockchain

This point implies a reorganization of the French registers of cinema and of the  film guarantees and sureties regime, accompanied by an increase in the audits of the accounts.

It would also be necessary to set up a blockchain allowing full traceability, automatic execution and direct reporting of receipts to rightsholders, and to implement smart contracts (smart contracts) in the longer term, i.e. computer protocol that facilitates, verifies and executes the negotiation or execution of a contract.

If such proposal has an obvious interest and is difficult to contest, the implementation of this new model will involve considerable work and will certainly not be without difficulties during the transition.

  • Implement a private equity fund dedicated to the cinematographic sector

This fund aims to organize investments in companies in order to support their development, while assisting producers and distributors in adapting to the new financing  system and in the formalization of their business plans.

As previously stated, such fund is already implemented and Frédérique Bredin, chair person of the French CNC, welcomed an "exceptional leverage for innovation and creation".

However, we do not know how much the fund will benefit to the film industry, nor which actors will be privileged. In particular, it may be feared that the most profitable films or producers and groups holding important catalogs will be favored, as the announced objective of the report is to allow the rise of "European champions" able to weigh against platforms such as Netflix.

  • Maintain and improve the SOFICA mechanism to accompany the transition of the sector

The current system mobilizes approximately € 63m each year, with a tax benefit of 48% since 2017. The report again suggests a revision of the existing system and mainly a simplification of the SOFICA charter and of their legal framework. This would include a pluri-annual approval and an overhaul of the criteria for allocating funds.

The proposals seem moderate and established to ensure a continuity of the current system while taking into account the evolution of the sector and of tax systems (end of the ISF-PME, revaluation of the advantage IR-PME awaiting validation by the European Commission).

  • Favor the implementation of investment Professional Private Equity Fund Venture Capital Fund dedicated to the French cultural industries by helping ensuring a portion of the liquidity of these products by the dedicated public fund.

These additional financing tools are good news for the cinematographic sector, and we can only hope for its popularity with investors even if we do not know yet  the conditions of such investments and the investment policy that will be implemented.

  • Focus the French CNC on the most essential missions to French cultural policy and develop its economic skills

The main point is to enable the CNC to support at its best the implementation of the proposals of the report by setting up a steering and monitoring committee and reaffirming its role as guarantor of the transparency of the sector.

It also mentioned the need to rethink the aid system as well as he allocation of support between producers, so that it are simpler and easier to read.

The proposals on this point are nevertheless too vague to enable use to make an overall assessment.

 

Finally, the report stresses the importance of a rapid change in the sector, which seems to have already begun with the creation of the fund announced at the same time as its publication.

 

The report thus anticipates many close changes that will need to be taken into account in the development of film projects over the coming years. It will be necessary in particular to be accompanied by counselors mastering the new financial and legal provisions to come.

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