Ladies and Gentlemen, Good Morning 

Europe is characterized by an enormous diversity of languages, cultures, and economic realities. And this cultural diversity also shapes the European audio-visual industry. However, there are also a number of trans-national developments and trends in evidence that are relevant to all countries, even if they do differ slightly from country to country. It is on these developments that I would like to focus my attention today. 

The fact of the matter is that most people prefer to watch films on TV, in the comfort of their own living room. While people go to the cinema at the most around twice a year on average, the average TV viewer watches about 80 feature films a year. In terms of viewing minutes, TV usage has been increasing for many years.

That's actually not so surprising, as today's viewers have a much greater and better choice of material than they did just 20 years ago. There are now 8,272 TV broadcasters in the EU – a number that has doubled over the last 10 years. In 2012 alone, 316 new broadcasters sprang up, and just 62 were taken off air. To this we can add some 500 providers of Video-on-Demand services. Nonetheless, we believe that live TV will dominate the evening entertainment scene for many years yet.

In contrast to the print media and the music business, therefore, the TV industry still boasts astonishingly impressive and consistent figures. But that doesn't mean that everything has remained unchanged. The tectonic plates are shifting. And this is what forms the heart of my presentation today.

We are right at the start of a fundamental development that will be heavily influenced by the dissemination of super-fast internet connections for fixed and mobile devices. This in turn will have significant repercussions for the financing of films and TV series, as well as for their distribution.

It may have been a long while since cinema-goers were the key source of revenue, but they often represent the start of the audio-visual value chain. The number of cinema visits declined slightly in 2012 (-2.2%), with only Germany managing to buck this trend. Thanks to 3-D films, however, ticket prices increased, thereby offsetting the lower cinema ticket sales. European cinema revenues amounted to some 6.5 billion euros in 2012. We're not expecting a strong increase in revenues, as the economic environment is too difficult – people are tending to save on cinema tickets and watch films at home instead – and the competition from Video-on-Demand is too strong.

TV broadcasters are obviously a second important source of income for the film industry. Not only are they important partners for the financing and promotion of films, they are often also the commissioning parties. As I said earlier, the number of broadcasters has increased enormously, both in the free-to-air and the subscription segment. Films and TV series are a key part of every TV schedule, and that will remain the case for a good while to come. And no broadcasters do without commissioned productions, co-productions, or licensed productions.

The key partners of the film industry are the public broadcasters, which in many cases have to invest much more heavily than commercial broadcasters in film, given the nature of their service mandates. Seven of the 11 European films that competed for the Palme d'Or at Cannes were co-financed by public broadcasters, including the winner – "Blue Is the Warmest Colour". Above all, it is the public broadcasters that promote independent film-making, produce films and series themselves, have fixed transmission slots for national film productions, and reserve more transmission slots for European films than their commercial competitors. According to a study carried out by the European Audiovisual Observatory in 2011, around 60% of films in the TV schedules of public broadcasters are of European origin, compared to just 24% in the case of commercial broadcasters.

However, public broadcasters are confronted with serious financial pressures that are for the most part politically motivated. Fees are not going up, but are stagnating at best. In less fortunate situations, broadcasters have additional services or costs foisted on them without receiving any compensation. When adjusted for inflation, average revenues in public broadcasting have declined by 7.2% in Europe over the last five years. Commercial broadcasters are having a better time of it, posting revenue growth of just under 2% over the same period.

European film is – and will remain – an important element in the schedules of public broadcasters. For that reason, the EBU will be launching an important initiative in December on the theme of European film, together with its members. The idea is to show exclusively European films for a whole week, in order to make a wider audience aware of the cultural diversity, high quality and attractiveness of European filmmaking. This will be an unprecedented promotion of European film. The radio broadcasters are doing their bit too, with programmes on film music, interviews and behind-the-scenes reports. 

Furthermore, the EBU has been calling for audio-visual production to be explicitly excluded from negotiations over a new free trade agreement between Europe and the US.

Public broadcaster funding for film production is likely to stagnate at best, or more likely be scaled back. The stronger competition in the TV area also has an impact on the scheduling of films by public broadcasters. The objective is to maintain reach and market share. Accordingly, the pressure has increased to produce films and TV series that are appealing to TV audiences. Arthouse productions no longer secure primetime transmission slots – if they manage to get aired at all.

But the demand for good films is there. As a result of greater competition, the cost of showing attractive films is likewise on the rise. Due to cost pressures, broadcasters will pay rather less for films that appeal less to their viewers. The same is true of commercial broadcasters.

Simply by virtue of their financing model, commercial broadcasters are heavily reliant on producing or buying in films and TV series that are attractive to the viewer. International TV networks dominate the market, are commercially strong, and will continue to play the part of producers and co-producers. Here too the prices of good films are going up, as demand has surged.

Subscription income is what matter to subscription broadcasters, who raise and maintain their profiles first and foremost through the acquisition of expensive sports rights. Their investment in the film business is rather low. They will presumably come under greater pressure once fast internet connections become the norm and all households have easy access to the services of Netflix, Amazon, Apple, Maxdome, Lovefilm, and other platforms. This is clear from developments 5 in the UK and Ireland, but also in Denmark, Sweden, Norway and Finland, where Netflix achieved a market share of 10% in the pay-per-view area with just three months of launch. Netflix has now also launched in Holland and is planning its market entry in other countries.

For film freaks and producers that's actually good news. It is becoming ever easier to gain rapid access to good films without complications. Just like that, the viewer can choose from an enormous library of films, blockbusters and rarities, which will inevitably lead to an increase in film viewing. Low-budget productions are finding it much easier to access audiences. But at the same time, it also means that the national and European filmmaking industry will have to work even harder to gain the attention of the viewer.

But let's turn our attention now to another extremely important source of income for films: Revenue from the distribution and sale of DVD/Blue-Ray disks and Video-on-Demand. Overall, Europeans spend some 10 billion a year on renting or buying films for domestic viewing. Sales of DVDs are declining, and this development is not being offset by the increase in Blu-Ray sales. And while income from online sales and rental is on the rise, this cannot offset declining revenues from DVD sales either. The growth rates for online distribution vary from country to country, and evidently depend on a number of different factors. But the sales development of DVDs and Blu-Rays can be predicted. We only have to look at the music industry to see what dramatic consequences that can have. In addition, lower revenues in this area also mean that fewer films will be produced.

For the first time this year, more films will be streamed or downloaded in the US than will be bought in the form of DVDs or Blu-Rays. Viewers are watching more films than ever, but buying fewer DVDs. And because the revenue per film is lower on the internet than for a DVD sale, this is leading to problems – at least in the short term. A further negative aspect is the fact that it is cheaper for consumers to rent rather than buy films digitally. This too obviously has implications for the business model and for revenues.

The focus therefore must lie on putting together the most attractive possible package for a paying audience. But that can only work if the traditional value chain is radically rethought, and if VoD platforms offer film options that give the customer the greatest possible flexibility – in other words, they give the customer a free choice of renting or buying. In my view, this is also one of the most effective solutions for countering piracy.

Both in the US and Europe, the film industry is seeking above all to boost online film sales, as this naturally generates higher margins than film rental. This has implications, and not just for the way licences are structured. In the US, they have launched a new service that is designed to make this sales model appealing to the consumer. They are convinced that people do not want to invest in high-capacity servers in their living room on the one hand, and that films should be playable on all potential end devices without any problem on the other. And so they launched "UltraViolet" – a huge, publicly accessible locker in the "cloud" in which digital rights are stored; this involves the user purchasing the individual rights to a film, and downloading content via UltraViolet's so-called "common file format" to any number of registered end devices.

There will probably always be people who want to own films physically. But consumer behaviour could well now have undergone a fundamental change: Instead of actually owning the film, most people will be content to simply watch it whenever they want.

The good news? The demand for good films and TV series is strong, and will strengthen further. Rapid internet connections for home TV sets and mobile end devices are the key growth drivers here. This is what allows rapid and straightforward access to a huge global film library. Films will be watched on TV screens, in projection format (at cinemas and at home), on tablets and on smartphones.

Choosing what to watch won't be as daunting as it sounds: What people watch will be driven not just by friends' recommendations and the reviews of hundreds of film critics, but also by really smart software. Film platform operators already have huge amounts of data that allow them to manage and optimize the spectrum of films they offer, design pricing, and perhaps even deliver valuable findings for film producers.

All of this sounds promising. But let's look again at the statistics: Even though the number of films produced in the EU in 2011 (1,339 – Europe as a whole 1,684) far outstripped the number of films produced in the US and Canada (817), US productions were not only shown in more cinemas (39,641 versus 29,814), but also generated a higher market share, accounting for just under 65% of ticket sales. The situation in 2012 was rather better for the European film industry, with films like Skyfall and "Les Intouchables" enjoying exceptional success. But the dominance of American films is also evident in the scheduling plans of most broadcasters. No great analysis is needed to see that American films and TV series dominate the TV listings. A notable exception is the world of public broadcasting, in which a greater platform is made available for European film.

The list of the 20 most successful films of 2012 in Europe contains 15 purely American productions, one US-European coproduction, and three European productions.

Why are American films more successful in Europe? There are certainly many different underlying reasons. We cannot turn back the clock of history. Yet a number of key factors that lie behind this US dominance are actually "home-made" and really could be changed.

Obviously, the large domestic market of the US and the quality and professionalism of the big studios are key drivers of the global dominance of US film industry. I also think that the "smaller spaces" of Europe have the effect of conditioning our behaviour. We are always emphasizing the cultural differences within Europe, rather than seeing the things we have in common. We focus on national opportunities, and explore the possibilities of international cooperation too little. And perhaps this also explains why our approach to film differs from that of the Americans. Obviously I'm painting things in a rather blackand-white way, but it's good to have something to discuss in a few minutes' time:

Whereas in the US, a film is a product that must appeal to the market, film-making in Europe is for the most part viewed as an art. That has major implications. On average, an American film will have a marketing budget of around 30% of the production costs, and will be marketed globally using professional media. As a rule, the large domestic market allows costs to be refinanced. Distribution and production teams work together closely. While the major film producers in the US bring out 1-2 films a month, the largest European producers bring out four (or at most five) films a year.

Successful films in Europe tend to be commissioned TV productions or international co-productions. The European film industry has numerous small to medium-sized producers. The idea of tailoring films to the market is viewed in a rather disparaging way, and dismissed as the "ratings versus quality" dilemma. Marketing budgets are typically modest, with around 5% of the production budget being a generous ratio. As soon as one film is finished, the film-makers move on to their next project, and the tedious task of tapping into potential sources of financing begins all over again, irrespective of how successful the producer has been in the past.

Which brings us to the fourth source of film revenue, namely the regional and national film subsidy system in Europe. This comprises a whole plethora of support measures, loans, tax reliefs and special incentive systems, all designed to attract major film productions to a particular country. Does this system have a future?

A more commercially-based mindset has established itself politically, and not just since the economic crisis. The economic crisis did however lead to almost universal cuts in funding from the public sector. Depending on the political and economic constellation that applies to the country in question, film subsidies have been coming under increasing pressure to prove their worth, as has licence-fee-financed broadcasting.

Film subsidy expenditure will have to justify itself rather better in the future. It is therefore my assumption that there will also be political pressure for a greater focus on commercial success. Obviously, national as well as European film subsidies will remain an important feature of the industry. National filmmaking, grappling with national histories and national themes – these are important for the development of a country's cultural identity, and also contribute to our understanding of "the other". But the films that are produced and financed must be relevant, and they must be seen. Which is why we have to answer the following question: What can be done to strengthen national film-making and make it more successful?

Given the backdrop of greater globalization, the simplification of distribution, a greater focus on films that promise success, and a revenue trend that involves either stagnation or decline, film producers obviously have to ask themselves what all this means for them. But I think this is something we will hear more about following my presentation.

I am convinced that certain film subsidy and film production principles need to be reconsidered, and that a number of new avenues are worth exploring. I set out the following seven thoughts, partly with a view to stimulating discussion:

1. The starting point of any successful film is always a good book, a well-narrated, captivating story. We need better training in the area of script-writing, as well as in the area of digital production techniques. Apart from anything else, this could be facilitated by improving collaboration between the different film schools of Europe.
2. Film subsidies should be more goal-driven. Above all, they should support films that appeal to the public, yet without neglecting artistic productions. The criteria for projects designed to appeal to the wider public should be more heavily weighted to the potential viewing figures, the quality of the script, and the quality of the production. In the area of artistic filmmaking, innovation and inspiration should be more strongly weighted.
3. Film funding should aim to keep producers continuously engaged. Productivity is important if experience is to be built up, errors learnt from, and improvements delivered. Fewer films and fewer producers would therefore actually be a case of "less is more". A funding system based on the "watering can principle" has the effect of holding back the development of a truly competitive film scene.
4. It's not enough just to make good films. These films also have to be seen. Professional marketing, knowledge of film distribution on VoD platforms, and the use of films on various end devices need to be incorporated into every distribution strategy.
5. Films are easier to refinance if they can be successfully marketed in a number of different markets. As a rule, domestic markets are too small when it comes to the refinancing of costs. Co-productions, sub-titling, and above all dubbing should be supported more strongly.
6. Online distribution is becoming increasingly important. Many providers are offering packages that work on the proven "all-you-can-eat" principle. A film offering that gives the consumer the greatest possible flexibility (rent or buy) and is completely up to date provides the best protection against piracy. The traditional value chain should be adjusted to technical realities.
7. Public broadcasters are key props of the European film industry. Without their presence, the film scene would be greatly impoverished. These broadcasters in turn need the support of the film industry if they are to play this role in the future too. They could be valuable partners in the area of VoD if the corresponding incentives were in place.

The demand for good films is growing all the time. As Frank Capra once said, film is the third universal language of mankind – alongside music and mathematics. That's true. And thanks to the technical possibilities, it is becoming ever easier to reach a global audience and move them with good stories. I would like to wish you all every success in that endeavour, and to thank you for your attention!